Federal Power Commission v. Hunt

PETITIONER:Federal Power Commission
RESPONDENT:Hunt
LOCATION:Alabama State Capitol

DOCKET NO.: 273
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 376 US 515 (1964)
ARGUED: Mar 02, 1964
DECIDED: Mar 30, 1964

Facts of the case

Question

  • Oral Argument – March 02, 1964 (Part 2)
  • Audio Transcription for Oral Argument – March 02, 1964 (Part 2) in Federal Power Commission v. Hunt

    Audio Transcription for Oral Argument – March 02, 1964 (Part 1) in Federal Power Commission v. Hunt

    Earl Warren:

    — Federal Power Commission, Petitioner, versus H. L. Hunt et al.

    Mr. Solomon.

    Richard A. Solomon:

    Mr. Chief Justice.

    This is a case which arises under the Natural Gas Act.

    And in this case, we are seeking review of a decision of the Fifth Circuit Court of Appeals, which set aside a decision of the Commission directing the respondents in this case, to maintain the 18-cent guideline price, at which we had temporarily certificated their sales pending the completion of the statutory hearing on their application for permanent certificate.

    The reason why the Commission, in granting them a temporary certificate at 18 cents, said that, “Until we get finished with the hearing on the permanent certificate, you may not raise the price even though the contract here called for 20 cents.”

    It was because the Commission found that collecting 20 cents during the period after the expiration of the five-month suspension period, the mere collection of 20 cents, even though it would be subject to refund would adversely affect the public convenience and necessity and substantially impair our ability to hold the line while we were making the inline determination which, of course this Court, directed us to do in the CATCO decision.

    The Court of Appeals —

    Potter Stewart:

    You’re saying what kind of a determination?

    Richard A. Solomon:

    The determination that we are acquired to make under this decision — Court’s decision in what I call the CATCO case —

    Potter Stewart:

    Yes.

    Richard A. Solomon:

    The Atlantic Refining —

    Potter Stewart:

    Yes.

    Richard A. Solomon:

    — case at 360, is to determine before we grant a permanent certificate, whether the price is in line.

    Potter Stewart:

    Oh, in line.

    Richard A. Solomon:

    Yes.

    Potter Stewart:

    I just didn’t hear you.

    Richard A. Solomon:

    Alright.

    And that was what — and we said, we’ll give you 18 cents which is our guideline price until we determine what the actual inline price is.

    The Court of Appeals, as I shall indicate later, didn’t really disagree with our factual conclusion that allowing them to go up 20 cents would interfere with our ability to hold the line.

    But the Court believe that we were without power to do so because as they read the Act, Section 4 gives parties a legal right to file up to their contract right subject to the suspension provisions, which cannot be impaired by the exercise of the Commission certificate powers under Section 7.

    So the issue is between the authority of a party to file up to his contract rate, under Section 4 of the Act and the authority of the Commission operating in its certificate powers at the threshold to say where there are good reasons to do so that for this particular period of time, you cannot collect up to your contract price.

    Tom C. Clark:

    You could suspend them as they came up in the future.

    Richard A. Solomon:

    Pardon me?

    Tom C. Clark:

    You could suspend each one that was filed on the future.

    Richard A. Solomon:

    We could suspend them as they came up in the future.

    Tom C. Clark:

    And they’re not allowed at 18.

    Richard A. Solomon:

    We —

    Tom C. Clark:

    But that would only last five months.

    Richard A. Solomon:

    That was last five months, right.

    Richard A. Solomon:

    And I will get it a little later as to why we thought that was an inadequate.

    Now, there are seven sales involved in this proceeding, all of the various Hunt interests who are the respondents here.

    But the essential facts aren’t in dispute and I think we can do what the court below did, use one set of the sales that of a Hassie Hunt Trust which appears roughly in the joint appendix from about page 48 to 150, as the example of what happened here.

    Now, this sale results from a contract of December 15th, 1960 which is approximately three months after the Commission’s Phillips case and three months after we issued our guideline prices.

    The sale here was from the Alta Loma area of Galveston County, Texas, and was for gas at an initial price according to the contract of 20 cents with four-year periodic escalations of 2 cents each.

    Three months before, in our statement of general policy, we had announced as the highest price which — at which we would certificate in the absence of contest, any sale, new sale from this area at 18 cents.

    What’s more?

    A number of the interveners who have generally participated in these cases, some of the distribution companies and the New York Public Service Commissions specifically, had announced that in their view, the 18-cent price was too high, and that they were going to avail themselves of the right in the statutory hearing to contest as to whether that was in fact the proper inline price.

    And they were claiming that the inline price was, I think, 14.6 cents.

    So it was perfectly clear when this sale was filed, that it was not going to be routine.

    The statutory hearing was not going to be an automatic situation but was going to take considerable time.

    It was going to be a contested one.

    Recognizing this, the Trust and all the other respondents, exercised their rights under the Commission rules which are set out in our brief with page 45, Rule 15728, to seek temporary authorization.

    The Commission recognizing the particular problems of producers of natural gas has been very liberal in providing a mechanism whereby producers who wish to do so, can commence operation prior to the granting of a permanent certificate, of course subject to the outcome thereof.

    And, the Trust did in fact request a temporary certificate at the 20 cent price.

    What’s the normal period (Inaudible)

    Richard A. Solomon:

    It depends on the circumstances of the case, if the problem — if the case is not contested and unusually the contest is a matter of price, although not always.

    If the matter is not contested under our present regulations which we put into effect about a year ago to take five weeks, it did take a little longer prior to that but never has taken more than about two or three months.

    If it’s contested, it takes considerably longer.

    Now, it is a shortening period and I — I can’t really give you any norm.

    And the reason for that is this, the — this Court’s CATCO decision in 1960, unfortunately, did not settle everything.

    And the type of evidence and type of matters to be considered by the Commission in fixing the inline price has proven to be a very debatable matter as a result of a series of decisions in various Courts of Appeals.

    We now, have got worked out a fairly streamline procedure and these inline price cases, the certificate cases, can go much faster than they did in this one which took considerable time, various blocks of proposed evidence are now excluded, at least with approval of the Circuit Courts.

    But even then, if it’s a fully contested case and there are interveners as well, I think you can say that a year to 18 months is the period.

    But at the earlier stages, it took longer.

    And producers, a lot of producers would much rather start and take their risk rather than wait this period and as I say, the Commission has made it possible for them to do so.

    Arthur J. Goldberg:

    (Inaudible)

    Richard A. Solomon:

    Well, that’s one of the risks, yes.

    Arthur J. Goldberg:

    It’s one of the risks?

    Richard A. Solomon:

    That’s one of the risks at least in our view —

    Potter Stewart:

    It’s also a risk that they might not get a certificate at all, that’s (Voice Overlap) isn’t it?

    Richard A. Solomon:

    That’s another risk.

    Another risk is they wouldn’t get a certificate.

    Potter Stewart:

    Yes.

    Richard A. Solomon:

    Or get a certificate of price much lower than they would like.

    Well, they asked for a temporary certificate claiming that they were, otherwise, be forced to pay shut-in royalties and that there would be drainage from their acreage to other producers serving other pipelines.

    And the Commission on April 7th, 1961, granted them a temporary certificate.

    I’m reading from page 87 of the record.

    But if you will look there, you will see that the Commission did not grant them a certificate for what they asked, not at the 20 cent price.

    Instead, the Commission had three conditions in the certificate.

    One, that the initial price should not exceed 18 cents.

    Two, that within 20 days, they should file new billing statements and rate schedules, so specify.

    And three, that this condition certificate be accepted by an official of the company within 20 days.

    Now, the Trust actually begun operation pursuant to this temporary authority on April 19th, but we were not notified of that acceptance until May 5th, and the acceptance which was filed on May 5th was a very conditional acceptance.

    In effect, what the Trust said was, “We don’t think you have any authority do anything you’ve done and we’re petitioning for rehearing of everything.

    But we are willing to accept the 18-cent price for 30 days, provided you are willing at the end of that 30-day period to let us go back to our 20 cent contract price.”

    This, the Commission rejected.

    And on May 31st, and I’m reading from page 113 and 114 of the record.

    The Commission wrote the Trust a letter explaining that this was not satisfactory.

    It said that the provision for charging 20 cents, 30 days after, is in conflict with the intent and purpose of the rate condition attached to the temporary condition and your acceptance is hereby rejected.

    It pointed out that, and I quote, “Conditions of a temporary authorization should be specifically complied with and compliance be without revised counter price for justice, which conflict with the purpose of the conditions.”

    And to make it perfectly clear, the condition itself, the first condition was modified to read that the total price should not exceed 18 cents with such rate to be effective for the duration of the temporary authorization and until a different prospective rate is established.

    Well, the Trust petitioned for rehearing of this, this petition was rejected and this appeal along with the other appeals were filed.

    However, there’s one further fact before we get to the Court’s decision, and that is a letter of November 2nd, 1961 which the Commission wrote to the Trust in which appears on pages 141 to 148 of the record.

    This action was taken in conformity with Section 19 (a) of the Natural Gas Act, which expressly authorizes the case and authorizes with the Commission, until the record in a — an appeal proceeding is filed on a Court of Appeals.

    (Inaudible)

    Richard A. Solomon:

    The page of this letter is 141.

    I’m reading from the numbers at the bottom of the page.

    It may be confusing because there’s several page — number sir.

    As I say, we are authorized by the Act to modify or set aside and whole apart any finding or order prior to the time we filed the record with the Court of Appeals and we availed ourselves of that right here in this letter to explain in somewhat greater detail the reasons why we had imposed this condition.

    Richard A. Solomon:

    If you look at this letter, you will see that it explains, as I’ve already indicated that we had previous to the sale established an 18-cent guideline, it discusses certain sales which the Trust had raised, which they claim justified that 20 cent guideline and pointed out why this was not appropriate then fit this particular factual situation and —

    (Inaudible)

    Richard A. Solomon:

    What?

    (Inaudible) 144 is the letter.

    Richard A. Solomon:

    Yes it is.

    I’m sorry, it’s — the letter I’m talking about, started 144.

    Did I say 141?

    I — I beg the Court a pardon, yes.

    And then, I’m now going to read the very last four words in 147.

    The Commission said, “The condition in the temporary authorization preventing you from charging or collecting,” I’m reading at the top of page 148, “collecting more than 18 cents per Mcf.”

    During the term of that authorization, without expressing prior Commission approval is necessary to permit the Commission to carry out its duty to give careful scrutiny to producer prices in issuing permanent certificates citing CATCO.

    If you were to be allowed to use the procedures of Section 4 (d) of the Natural Gas Act, during a period of your temporary authorization, the Commission could not prevent increased rates from becoming effective, even though those rates might irrevocably breach the price line or trigger price increases.

    It has not been shown that the public interest would permit temporary authorization of the proposed sale without the condition heretofore specific right.

    And if, Your Honors, you will look back on page 146 of the paragraph of the bottom of that page, you will see that in this case, the Commission specifically referred to information in its files which indicated that this particular 20 cent price might have a triggering effect.

    Not with respect to Natural Gas Pipeline because as Mr. Generelly will point out, they were already as of that time although subsequently not, receiving gas at 20 cents what as result of renegotiation provisions, which are generally the type where a contract provides that at set times, renegotiations may take place in a higher price fixed on the basis of the average prices of three or four other pipelines in the area.

    The Commission pointed to certain specific contracts which it felt, were in jeopardy of that type of thing if these higher rates went into effect.

    The Court of Appeals reversed.

    They agreed with the Commission or which they didn’t disagree with the Commission as to the actual effect of allowing this rate to escalate the 20 cents on 30 days notice.

    They said of course, and I’m reading from page 333 of the record, of course that makes maintenance of the price line something less than completely effective.

    But the Court felt that — and again I am quoting, “This was the unavoidable consequence of a unique statutory regulatory scheme in which,” citing this Court’s decision in the Mobile case at 350 U.S.

    As Mobile points out, rates are initially prescribed and increased by private contract.

    It felt that this Court’s decision in the CATCO case, which of course is subsequent to Mobile, which has said that the Commission can and may prescribe price conditions, only authorized us to prescribe initial price conditions which would set a floor, and would not allow us to go beyond that to establish anything which would last more than the 30 days or five-month suspension period necessary to implement the price raising procedures of Section 4 (d).

    Specifically, as the Court phrased it, not everything is lost since, as CATCO contemplated, any contract increases are collected subject to refunds.

    In other words, the Court of Appeals basically held that Section 4 of the Act gives what they described as a right to a party to file an increase rate.

    And Section 7 of the Act, which gives the Commission authority to grant certificates where the public interest is — public convenience and necessity requires and authorizes us to condition certificates as the public condition — convenience and necessity requires, cannot be used to interfere with this supposed right to file price increases up to the contract rate.

    (Inaudible)

    Richard A. Solomon:

    Well, I will try and demonstrate that it doesn’t.

    (Inaudible)

    Richard A. Solomon:

    I will indicate right of that, however, Your Honor, that Your Honors’ decision in the Mobile case which is asserted as the primary authority will claim that there is a right which the Commission can do nothing about to file any price increase up to the contracts.

    Your Honors’ decision made clear, and I’m reading from page 339 of the opinion which begins on 350 U.S. of 332.

    Richard A. Solomon:

    On its phase, Section 4 (d), that’s the price rising case, is simply a prohibition, not a grant of power.

    It does not purport to say what is effective to change a contract.

    Any more than 4 (c) purports to define what constitutes a contract with the Commission.

    The Section says only that a change cannot be made without proper notice to the Commission.

    It does not say under what circumstances a change can be made.

    Now, as I will indicate, it is our contention that there is another, inhibition on the right of parties to file rate increases, that the Congress did not leave the limitation of this right to private contract that is a limitation but super imposed on that limitation by Section 7 of the Act as expressed amended in 1942, is the authority of the Commission in appropriate circumstances where there is a good reason to do so to also limit this right and that of course is the knob of this issue here.

    Let me refer to the CATCO case, which I think is really the prime case in this field.

    And I’m reading from Justice Clark’s decision on page 388 of the decision which begins at 360 U.S. 378.

    And there, he starts with the premise, that the purpose of the Natural Gas Act is to underwrite just and reasonable rates to the consumers of Natural Gas, and the Act was so framed as to afford consumers a complete, permanent and effective bond of protection from excessive rates and charges.

    I’ll repeat that because that basically is the knob of our case here today, a complete, permanent and effective bond of protection from excessive rates and charges.

    And if you read the CATCO case, which incidentally is the first pace in which this Court really focuses on the existence of Section 7.

    If you will read the Mobile case or the Memphis case, and you’ll be astounded to find out that they don’t even mention Section 7.

    And I read back on the briefs in the Memphis case and the Mobile case, and they don’t mention Section 7 either.

    The first time these cases —

    Potter Stewart:

    Those cases weren’t about Section 7, the —

    Richard A. Solomon:

    That’s right.

    Potter Stewart:

    — the reason why they shouldn’t have.

    Richard A. Solomon:

    I’m not — I don’t mean to be accusing the Court.

    I’m overlooking something it should have considered.

    I don’t think they’re about Section 7 either.

    The point I’m making is that, if you want to get what this Court is thinking of as to what Section 7 means, the first place you look is the CATCO decision which is the first time it focused on this problem.

    (Inaudible)

    Richard A. Solomon:

    I will get to the subject shortly.

    I do want to first, get over what I thought the Court of Appeals decision was focused on as we don’t have power irrespective of the circumstances.

    The CATCO case, I hope I’m not confusing the Court by referring to this decision as CATCO which is a trade term, it’s the Atlantic Refining Company case, went on subsequent to spell out the Commission’s powers under Section 7.

    And I’m reading now from page 391 where Justice Clark said, after indicating that Section 7’s powers are more important during this formative period when ground rules of producer regulation are being an evolved, said, “Where the application on its phase or on presentation of evidence, signals the existence of a situation that probably would not be in the public interest.

    A permanent certificate should not be issued, but then recognizing that execution maybe too hard a remedy.”

    He went onto say, where — there is of course available on such a situation a method by which the applicant and the Commission can arrive at a rate that isn’t keeping with the public interest.

    The Commission has authorized the — the Congress has authorized the Commission to condition certificates, where the proposed price is not in keeping with the public interest because it is out of line as this was, or because its approval might result in triggering of general price rises as the Commission found these words, or an increase in the applicant’s existing wage by reason of favored nation clauses or otherwise.

    The Commission, in the exercise of its discretion, might attach such conditions as it believes necessary.

    Richard A. Solomon:

    And there’s more to the CATCO case but basically, that’s what the situation is.

    Now, it’s argued by the respondents and it was argued in the court below that CATCO despite this language does not authorize the Commission to have a fixed limitation for any duration of time beyond the five month suspension period on a price increase, because of certain language in the CATCO case which indicates that there was no such limitation in that case.

    But we believe that both CATCO and the statutory scheme cannot be so narrowly limited.

    The CATCO situation after all, was a case in which the Commission was claiming that there was no need, they should be claiming at the Commission level, that there was no need for any condition.

    And the people who were arguing before this Court, for some price condition, assumed that a refund obligation of the type which had been originally suggested to the Commission would be adequate

    It was, therefore, quite appropriate for this Court to make the same assumption and to point out quite correctly that under the particular condition in the CATCO case, they could file an increase.

    But that, we do not believe means that they could never file an increase.

    If the Commission could, as it has subsequently done, find that the mere collection of a price, subject to refund, would have the same, or not quite the same, would have adverse effects on its ability to maintain the price line.

    I backtrack fast there because obviously, I’m not suggesting that refund obligations are of no value.

    They are of real value and a refund obligation is much better than a situation without a refund obligation.

    But as this Court recognized, just the last term, in the Tennessee Gas case, refunds, though useful, though valuable, are far from a complete protection to the public.

    That particular case happened to involve the consumer’s end of the refund directly.

    And, Justice Clark’s decision there noted, the obvious fact that when three or four years later, you ought a refunds to go back to the public, they just don’t all get back.The public has moved away.

    Some of the public isn’t there.

    The expenses of ordering refunds are such that a — inevitably no matter how hard the Federal Power Commission and the State Commissions try and we’ve been trying and spending a great deal of out time on this subject.

    Inevitably, refunds do not fully protect the public in that sense.Mr. Solomon, supposing the Commission felt that a permanent — a permanent certificated company was filing too many applications and it took an applications and said, “Alright, we will grant you these inquiries on condition however, that you don’t file further applications at more frequent periods and five year intervals,” could it — would it have the Commission has the power to do that?

    In my opinion, the Commission has the power to do that once.

    And this is the importance here.

    The Commission’s basic authority to limit contractual provisions is when it permanently certificates a sale.

    And this is what it’s done from the very beginning of certificate jurisdiction.

    It’s none so on all sorts of ways.

    In the Panhandle case cited in our brief, Panhandle Pipe Line came to us with a proposal.

    We said, “This is no good unless you include in your rate schedule a rate for certain type of interruptible service.

    If you will do that, we’ll allow you to have a certificate.”

    Panhandle did it.

    Then several months later, having done it, they filed a 4 (d) new tariff which surprisingly enough, eliminated this provision.

    They tried to use Section 4 (d) to get around this certificate condition.

    In the Third Circuit, in the case — Panhandle case recited at 203 F.2d, threw it out on the grounds that this is not a proper use to Section 4 (d), but the Commission does have authority when it is granting a certificate to change the terms of the contract of which price of course is an important but not the only one to require where the public interest so requires, that it will not certificate the sale at all unless the contractual terms upon which it is granted or changed.

    Similarly, in the Alabama, Tennessee case cited in our brief, there we had granted a new pipeline.

    It’s quite analogous to this case because it — it’s somewhat like the temporary situation we have here.

    Richard A. Solomon:

    There, we had granted a new pipeline certificate powers but we couldn’t agree upon the rates, so we just told them to put in a temporary rate until such time as they could decree on a permanent rate.

    And before they could file that and agree with us on the permanent rate, they tried to use Section 4 (d) to raise the interim rate on 30 days notice.

    And Judge Hastie, in the case cited there in our brief, Judge Hastie of the Third Circuit threw it out again and I’m quoting from page of our brief saying that, “To treat the interim rate permitted as the kind of rate which is subject to change on the free initiative of the Company under Section 4 (d), is to ignore the restrictive context in which it was allowed to become effective.

    Only after such an initial determination with satisfactory rate could the Company properly claimed that it was operated under the kind of tariff that is subject to change by Section 4 (d) procedure.

    Once the Commission, Justice Harlan, certificates a sale permanently, once after a hearing, the Commission permanently certificates its sale, its authority to change the contractual provisions upon which that sale is certificated is very circumscribed, if it exist at all.

    And I am not arguing here that if we allow a permanent certificate to go through and do not condition it, that we can subsequently say, “You can’t exercise your powers under Section 4 (d).”

    I am arguing that the whole reason why Congress, in 1942, amended the certificate provisions of the Natural Gas Act and amended them to give us this conditioning power and to spell out the reasons why we could deny certificates, was as the House Committee made clear at that time — and I’m reading from page 26 of our brief.”

    The bill when enacted will have the effect of giving the Commission an opportunity to scrutinize the financial setup, the adequacy of gas reserves, the feasibility and adequacy of 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 be readily modified as the public interest may demand.”

    This is the point of Congress giving us these additional powers in 1942 because it had developed for that without these powers.

    The Commission could not prevent the certification of operations which later proved to be unwarranted, unused.

    I was discussing the difficulties with the refund conditions and I do not want to rely solely on the Tennessee case because, although I think this is important and I do not mean to underestimate it, is by no means the only problem with refund conditions in this particular context of producer sales.

    They’re at least two other difficulties.

    In the first place, as I must say Justice Clark pointed out I think fairly last year in his dissent in the Wisconsin case, I don’t agree with all of it but this point, I think would certainly sound.

    The mere collection of high prices in the field which are going to at least be that high for a year or so, have traditionally — it has been found as the Commission pointed out in the language I read you earlier, resulted in raising the general price structure.

    And the fact that these prices maybe subject to refund at some later date does not prevent that from happening.

    This is a fact.

    This is what has happened time after time.

    If the prices go up, there are various reasons why other prices will go up.

    One of them, we pointed out in our brief, is the strange “Tinker to Evers to Chance” situation resulting in the effect of an interstate price on intrastate prices which in turn affect interstate prices.

    So the mere collection of higher prices in the field, inevitably have the effect of raising the field prices.

    More important perhaps, again as we point out in our brief, you have the potential triggering effect of one group of high prices on other groups of high prices.

    Now gentlemen, theoretically, if the triggering price is subject to refund, you might think that this whole house of cards would automatically collapse if and when you can get rid of this high triggering price at some subsequent time.

    Believe me, it doesn’t happen that way.

    All sorts of things can happen.

    We have an — a very good example.

    We have a series of sales which were made in the early 90 — late 1950s in Southern Louisiana at a very high price, I think about 23 and a half cents.

    All of which were subsequently set aside by this Court.

    But in the meantime, they had triggered a substantial number of other sales in that area.

    And these other sales were in various postures.

    Some people had triggered up to the higher rate and then had renegotiated their contracts and gotten rid of further escalations at a later date in response to a fixed price at this triggered price.

    Richard A. Solomon:

    Do they have contract authority?

    Maybe they are now the basis for the other triggered sales.

    Other people had gotten a permanent certificate by mischance.

    They’d gotten a permanent certificate because the Commission had tried to reject the certificate and in turn it turned out that they were not rejectable.

    They’re only suspendible but by the time we tried to suspend them it was too late.

    There are other circumstances in which that I could go through but the fact is that once the genie is out of the bottle, I won’t say you can’t get them back, but I will only say is that, the Commission has not found Aladdin’s magic word to get him back yet.

    What’s more?

    We’re making an assumption here.

    We’re making an assumption that we will get him back in the bottle.

    Now, maybe we will but maybe we won’t.

    One of the respondents here is Caroline Hunt Sands.

    Now, Caroline Hunt Sands — now, in the form of Caroline Hunt Sands doing business with her husband is claiming in a new Commission proceeding not involved in this case.

    That she has cost, if you want to consider her own private cost.

    Well, she has various types of cost but the minimum she claims is about 33 cents.

    Now, I don’t know whether this is right or wrong.

    I think we are arguing that it’s not right but it illustrates the point.

    It’s possible that a given producer, because of a number of dry holes or other reasons, will have very high cost.

    And it’s possible that a producer with very high cost will be able to induce as Caroline Hunt Sands’ unfortunately has, produced pipelines to certificate her at contract prices, which are higher than any other price in the area.

    How are we going to get that back into the bottle?

    Basically, I think the respondents here are claiming a right, an absolute right to be certificated at any price which is just and reasonable in terms of their own cost of service including a reasonable return.

    Well, the Congress (Inaudible)

    Richard A. Solomon:

    No, I don’t think that’s correct.

    We think that it’s clear that we have powers in temporary certificates, that the circumstances, they are factually or such that we can restrict price rises where it might be more doubtful than permanent certificate cases, but we claim that the right is the same and we have —

    I’m not saying (Inaudible)

    Richard A. Solomon:

    Well, it’s an a fortiori situation on what we claim is the statutory scheme generally.

    We have, for example, the Commission in my opinion has very strong powers under its certificate authority.

    The Commission, in my opinion properly and certainly, whether it’s my opinion or not actually, has been very careful about exercising contrary to what my friends on the other side say, “We have not established a price freeze until we can finish the area rate cases.”

    And we haven’t done so, although as I read CATCO, that’s suggested as a possibility in the CATCO decision, but we’re not doing that.

    We are, however, when we issue permanent certificates which have contract provisions which would — if applied, result in this type of triggering.

    We are imposing contractor — I — I mean we are imposing conditions on those, prohibiting them from filing above a certain rate.

    Richard A. Solomon:

    We’re not holding them down to the inline rate largely because we think it will be unfair to the new permittees since the old permittees who got grants without certificates can file, but we are providing with respect to new certificates that they cannot file above the triggering rate.

    Tom C. Clark:

    Is the practice — do you have many refiling sectors, new filings?

    Richard A. Solomon:

    We found that in most cases, there has been a reluctance on the part of the producers to take advantage of the rights they do have to file prices higher than the inline price we have found.

    We’ve had producers who have said that the inline price is not only terrible and outrageous but they would seriously consider taking the gas off the market but they never asked us to, and have not even subsequently filed to raise their rates.

    But there are other producers that do file to raise their rates —

    Tom C. Clark:

    Do you think that —

    Richard A. Solomon:

    — on which — on which at least one of the respondents here is a — an example, although not in this case of course.

    Tom C. Clark:

    Would the Commission contend that’s a misuse of 4 (d)?

    Is this a contention when they have filed —

    Richard A. Solomon:

    Well no, I don’t — if somebody — if the Commission has not used its certificate powers to prevent something, we cannot say it’s a misuse of forged — of Section 4 for people to use their contractual rights.

    It’s a nuisance of course, and where they filed these cases which do triggering, the only thing we’ve been able to do is set them down for immediate hearing and hope that we can dispose of the case on an individual company basis quickly.

    It’s very difficult to do but we can’t complain because it’s probably our fault.

    We should have certificated these people against this many years ago but we’re just waking up to the powers we have in this Act and if we were living with 20/20 hindsight, we would have done a lot of things differently in the past.

    Tom C. Clark:

    I’m not sure I understand the facts, the — the gas count from the same field and both leaves applications, and then in the year 19 — 1960 you issued a — is that a permanent certificate in 1960?s

    Richard A. Solomon:

    Well, I did — I didn’t want to get into the details of this particular situation.

    This is the same field as a previous permanently certificated 20-cent price, which was set aside by the Commission after the Court of Appeals found that we had improperly excluded the New York Public Service Commission.

    We have held a new hearing which is final with respect to those other 20-cent prices, subject to appeal.

    Tom C. Clark:

    What?

    Richard A. Solomon:

    The Commission’s action is final and we have found that the proper inline price for this other sales were 16 cents.

    Tom C. Clark:

    You originally approved 20.

    Richard A. Solomon:

    We originally approved 20.

    Tom C. Clark:

    On the count of technicality that was thrown out.

    Now, well along — how long, subsequent to that did this temporary application come?

    Richard A. Solomon:

    The temporary application in February 20, 1961, it’s about a year after —

    Tom C. Clark:

    (Voice Overlap) the year —

    Richard A. Solomon:

    — the original sale and the case at that time was in the Court, so on the —

    Tom C. Clark:

    It had been reversed?

    Richard A. Solomon:

    It had not yet been reversed.

    Tom C. Clark:

    And that —

    Richard A. Solomon:

    The reversal took place while this case was —

    Tom C. Clark:

    The second application asked for the same rate in term to escalation, as did the one that you had limited, is that right, put in the escalations?

    Richard A. Solomon:

    The second application, some of them had pure — we — here, we got to a difference between the two.

    Some of them including the Hassie Hunt sales and the two Hunt sales did not ask for the same thing that we had limited to.

    We had limited to 20 cents with an escalation after 10 years, and these sales are for 20 cents with escalations after four years.

    Tom C. Clark:

    Four years.

    Richard A. Solomon:

    The Commission points this out.

    Some of the other contracts involved here did have the same escalations as happened here.

    Tom C. Clark:

    All of them were conditioned.

    Richard A. Solomon:

    All of these were conditioned the same way.

    Yes.

    Tom C. Clark:

    Thank you.

    Richard A. Solomon:

    The idea that somebody is entitled to a just and reasonable rate entitle, as a matter of law to a just and reasonable rate, irrespective of what that rate might be, based on their own cost in a reasonable rate of return.

    It was rejected by this Court at least 65 years ago.

    And I don’t have the time to read it but if you will — gentlemen will look at the Covington & Lexington Turnpike case, 164 U.S., which was in turn, mentioned by Mr. Justice Black in an interstate case a number of years ago.

    You’ll see that as long ago as the 1890s, this Court had recognized that utilities are not entitled to a high price merely because of their own peculiar financial situations and this is certainly true where you have a situation like this one — where you have a situation like this one where the collection of this high price is going to have such an adverse effect in the marketplace.

    Potter Stewart:

    What’s the style of that —

    Richard A. Solomon:

    Yes.

    Potter Stewart:

    — whole case?

    Richard A. Solomon:

    What?

    Potter Stewart:

    That — that citation of —

    Richard A. Solomon:

    Covington & Lexington Turnpike —

    Potter Stewart:

    It’s not in your brief, isn’t it?

    Richard A. Solomon:

    — v. Sandford, 164 U.S. 578 and I don’t want to take credit for having found it.

    It was found by Justice Black in a concurring opinion in FPC versus the Natural Gas Pipeline.

    And we thank you.

    I think I’ll reserve the rest of my time if I may.

    Earl Warren:

    Mr. Generelly.

    Richard F. Generelly:

    Mr. Chief Justice and may it please the Court.

    Considerable amount of water has gone over the dam in the 10 years, since this Court’s decision in Phillips versus Wisconsin, most of it, in the last four now almost five years since CATCO.

    In the course of this 10 years since first Phillips, the producing industry as a whole has experienced what it means to be regulated and it has not been easy nor pleasant experience.

    Richard F. Generelly:

    It may therefore seem somewhat paradoxical that respondents in this case who are independent producers and at one time believed themselves exempt from regulation of the Federal Power Commission, are here today before this Court contending for nothing more nor less than the right to be treated as natural gas companies under the Natural Gas Act.

    Briefly stated, it is our position as this Court has held.

    But I — if a producer of gas become subject to the duties, obligations and restraints imposed on Natural Gas Companies by Congress under the Natural Gas Act, once he begins his sale in interstate commerce, then he should be entitled at that point to the rights accorded and reserved to Natural Gas Companies by Congress under the Act.

    Now, we believe the court below is eminently correct and so holding.

    The Commission relies hardly enough on the same cases on which we rely, CATCO and Mobile.

    We are inclined to believe that the Commission has misread both decisions or at least has ceased upon certain language, certainly in CATCO, and misused it really out of context to support his position in this case.

    Now, we quoted that some length in our brief from the Court’s decision and I must apologize for that, say if — it seemed to be so clear to us that I — I didn’t know how else to state it.

    Now, one thing I did not quote, but I would like to review very briefly.

    To begin, in CATCO that either 3 — 360, 388, or 389, Justice Clark stated that “The heart of the Act is found in all those provisions 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, charges made, demand of the receipt shall be just and reasonable.”

    This was 1938, about 65 years ago where it shall be just and reasonable.

    The Court went on that —

    What page do you —

    Richard F. Generelly:

    I believe sir that it is 388 or 389, I happen to have a 388.

    Thank you, Mr. Solomon.

    The Court went on to say that the Act prohibits such movements of gas unless and until the Commission issues a certificate of public convenience and necessity.

    The Court notes that Section 7 (c) vest on the Commission control of the conditions under which gas maybe initially dedicated to interstate market.

    And then once so dedicated, there can be no withdrawal of that supply from continued interstate movement without the Commission’s approval.”

    Now, the very next sentence, the gas operator, although to this extent, of captive subject to the jurisdiction of the Commission is not without remedy to protect himself.

    What is that remedy?

    He may, unless otherwise bound by contract, not with Commission permission.

    He may, unless otherwise bound by contract citing Mobile, file new rate schedules with the Commission, having once started at a lower conditioned price.

    This rate becomes effective upon its filings, submit five months suspension period of — of Section 4, the posting of a bond were require.

    This not only gives the natural gas company opportunity to increase its rates were justifying, and bear in mind, the Commission has never found in this particular case whether it was justified or not.

    They simply rejected our filings.

    But likewise, guarantees that the consumer may recover refunds for moneys paid under excessive increases, the overwriting of intent of Congress to give full protective coverage to the consumer.

    As to prices, further emphasized in Section 5 of the Act which authorizes the Commission sua sponte or otherwise but not — would not be so naive, as to suggest on the request of a producer.

    But sua sponte or state commission to somebody under Section 5, to institute an investigation and to existing rates and charges and to fix them to a just and reasonable bond.

    The Court found that under this Section however, the rate found by the Commission to be just and reasonable, comes to effect only prospectively.

    Gas purchasers, therefore, have no protection from excessive charges collected during the pendency of Section 5.

    Now, in this case, first let me say, if I understand the English language, I will say that there is nothing in the legislative history of the Natural Gas Act as I have read it nor any case cited by this Court which lends any support whatsoever for the proposition that an agency may condition out, write out, and nullify that all practical effects the Section of the very Act, it was required by Congress to administer, and that I respectfully submit is what they’ve done here.

    Richard F. Generelly:

    Now, the Court is aware of its own decisions and I won’t spend anymore time on the law.

    I respectfully suggest that the Commission is wrong on the law.

    So let’s get to the factual part of this thing.

    This has a somewhat complicated beginning.

    It might, however, be somewhat less complicated if we adapt a little shorthand method here at the outset.

    If the Court will look at page 318 of the record, you will see a number of cases there on the caption.

    They all are prefixed in numbers with G.

    (Inaudible)

    Richard F. Generelly:

    318, I’m sorry, 318.

    These are the G number cases.

    You’ll notice Hassie Hunt Trust, G number 19115.

    These are G numbers.

    Now, the cases that are actually involved here are the so-called “CI dockets” and that means certificate independent producer.

    In the interim period, the Commission adopted a new method of designating these things.

    So in all subsequent proceedings, it has been convenient to refer to the G numbers or the G dockets and the CI dockets.

    We have to start with the G dockets.

    In May of 1959, after eight years of putting together a rather large package, to we use that phrase, of gas, these producers, not all of them, and some others who are not here, entered into a series of long, firm contracts, the Natural Gas Pipeline Company of America to sell gas from a number of fields in the Texas Gulf Coast at a price of 20 cents.

    Sales had been previously certificated in the same fields, from the same wells, permanent certification to another pipeline at 20 cents per Mcf.

    The contracts provided these were the May 1959 contracts for four — for a two-cent escalation every four years.

    The producers including Hassie Hunt Trust in G 19115 — remember Hassie Hunt Trust is also here in this case under a CI docket.

    Hassie Hunt Trust in that case, to use — again, we can use the same example, did not ask for a temporary certificate.

    It went to a full hearing and a hearing was held.

    Now, this gas is sold in Chicago, none of it goes to the State of New York.

    The Public Service Commission of New York sought to intervene.

    The Commission denied them intervention on the grounds that they couldn’t possibly be aggrieved in the sense that nobody in New York would be aggrieved by the price of gas in Chicago.

    They were excluded from intervention.

    Permanent certificates were issued requiring that the periodic escalations in the future be modified to conform to the Trunkline pattern which was an increase, one increase after 10 years.

    With serious misgivings and reservations, the respondents, some of them there, Hassie Hunt Trust among others, sought rehearing for testing that.

    I say serious reservations because as the court below found if you seek rehearing, the chances are things may get worse rather than better.

    And sure enough, they got worse.

    Richard F. Generelly:

    The Commission reduced the 20-cent price with respect to sales and a couple of other districts.

    Well, it said you can — we’ll put back in your periodic escalations in that case.

    In any event, this gas had been in the making as it were this project for some eight years.

    So the producers accepted the certificate, began their sales.

    The New York Commission went to Court and said, “Under that regulations and rules of the Federal Power Commission, we are entitled to intervene in any proceeding irrespective of our interest.”

    The Court of Appeals for the District of Columbia held that they were.

    It held nothing more.

    It didn’t have the certificate order before it.

    Nothing was said about it, Judge Fahy said, “Why do you want to get into that proceeding?”

    He said, “So I can take an appeal from it.”

    In the mean time, Hassie Hunt Trust and the other producers who are here under the CI dockets had drilled additional wells.

    And I might say, though this isn’t revealed by the record, I — it maybe somewhere in here but that they drilled them more or less an expectation that the 20-cent price would make it worthwhile.

    It cost about $2000 a day to maintain a drilling well out in the field.

    And these, respondents here, have spent about $10 million a year looking for gas and oil to be sure.

    But they’ve got to think in terms of what it’s going to cost to bring this forth and then what they’re going to get in return over a long period of time.

    We went to Natural Gas Pipeline, it was logical, and said, “We’ve drilled additional wells in the same fields.”

    Let’s put them under the same contract which we had originally proposed and we’ll see immediate certification to start selling the gas because remember, in these same wells, gas is being sold at Trunkline Gas Company, and we’re being drained to that extent.

    Natural Gas Pipe isn’t going to get the gas.

    So we ask for the temporaries and now went to the CI dockets.

    Now, the Commission gives us our temporary, it says 18 cents.

    In the intervening period, we’d have the statement of general policy which certain guideline rates and which the Commission would govern itself in conditioning initially without a — or certificating without an initial price condition if the price were below.

    And in the case of rate increase filings, if it is above, they would suspend, if it was below, they wouldn’t suspend.

    In the intervening period between the G dockets, the time that gas was on the screen on the permanent certificated — certificates in the CI dockets, the statement of general policy came down, so the Commission gave us a temporary at 18 cents but we couldn’t understand it.

    We could understand why they would do it under the statement of general policy but where the same producers — the same producers from the same wells in many cases, in the same field were selling gas at 20 cents.

    Oh it’s triggering, how could there be any triggering?

    If there was any triggering that occurred with respect to the G dockets, it couldn’t, with respect to ours.

    One of the very nature of the favor nations, there isn’t any new pipeline, purchasing gas at a higher price.

    As for redetermination, that would have occurred in the same way.

    As far as I know, I don’t’ understand the general counsel to state that there has been any redeterminations as a result of this, but in any event, we sought rehearing, we said it’s unreasonable.

    Now, one thing I’d like to make very clear and I think we have, and the court below recognized it.

    Richard F. Generelly:

    Respondents here do not question the right of the Commission in keeping with the mandate of the Court in CATCO to impose initial price conditions.

    But we say that a condition must be reasonable and the circumstances must warrant it.

    Here, we thought they didn’t.

    We sought rehearing, rehearing was denied.

    We proposed, based on a number of recent Court of Appeals decisions and citing the nature of the Commission’s regulatory powers under 4, 5 and 7, that if they were going to condition the price down would give us as in the alternatives suggested in CATCO, a 1-day suspension, we actually said a 30-day suspension to take care of the statutory 30-day notice.

    Well, this is what we came out and we finally did.

    We said, “Let us collect it and we’ll agree to refund it with 7% interest.”

    Commission says no.

    Not only, we’re not going to give you that but you can’t proceed under Section 4 where the same thing would occur.

    We would give 30 days notice, we’ll put it into effect and — and depending however many years, intervening period why we would collect it, subject fully to refund under Section 4 pending the determination under other Section or Section 7 or 4.

    Under 7, whether the price was required by the public convenience and necessity or the sale at that price or under Section 4 whether it was just and reasonable, because absent the right to do this.

    This is our remedy to protect ourselves as it — as Justice Clark said in CATCO and that Justice Brennan the next year, emphasized in Sunray Mid-Continent, unless we can do this.

    What is going to happen to us if at the conclusion of the hearing on the permanent, and I might point out that this will fall in 1961 and we still don’t have a permanent certificate and we’re still operating under the provision.

    True, we asked to have the CI dockets deconsolidated from the G dockets, and we had a very good reason for that which I will come to.

    But we’re still operating on this.

    Now, suppose that the — when we finally do get the certificate or in some subsequent area rate proceeding under Section 5, the Commission’s rate power is being prospective only.

    What happens to us after — if the Commission says, “My gosh!

    You were right all along.

    We’ve lost it.

    There’s not a way and to where we can get it back.

    This is a wasting asset.”

    And around eight years, most of the gas involved here is going to be gone.

    Now, I say eight years because — let’s get back to the G dockets.

    We had our hearing after the New York Commission was allowed to come in.

    New York Commission did not offer any evidence, didn’t — say all they said was, “The price was too high in the area.”

    So we said, “Alright, we’ll introduce evidence.

    What sort of evidence should we introduce?”

    The Commission said, “That is for us to know and you to find out.

    All we will assure you is, you have the widest latitude.”

    We’d said, “Should we do it on individual cost basis, shall we do it in the individual economics of the particular producing area or shall we do it for the whole area?”

    Richard F. Generelly:

    The Commission says, “Do it anyway you want.”

    So we put in a very large case on — in every way we could figure that was thrown out.

    And what we did was to go on what has come to be known as the inline doctrine.

    Now, with all respect to Justice Clark and certainly to the Court, there had been more things said and done in the name of inline.

    It says 1959 that I — than any producer, believe me, he has to think about.

    It has become a virtual cult.

    The way we determine whether a sale is required for the public convenience and necessity at a particular price, and bearing in mind that the Court said, “You don’t have to make a rate case out of it,” that’s alright with us, that cost to put it in a rate case.

    But what we do is to take all of the contracts executed in the year in which you executed your contract, where three years later in a hearing, let’s take them and that indicates if you are willing at that time to contract.

    Alright, we will automatically take all those contracts and those which are not — are not the subject of permanent certification, get rid of them, put them to one side.

    Any that have been subject to court review, propose to one side, even though there has been no evidence and no hearing.

    And then any other price that looks like a price to which somebody has said, “We don’t think it’s in the public interest.”

    They put that aside.

    So we eventually get this thing down to something that is back around 19 — somewhere between 1954 and 1960.

    Now, the producers have argued that this, the sales to take into account, what the Ninth Circuit said was important.”

    Gas moving today in substantial quantities, what’s the price?”

    But more importantly, in CATCO, the Court expressed surprise that if there had been evidence available of deeper drilling cost, in the Gulf of Mexico, it wasn’t offered.

    The Commission today would not look at it.

    They simply takeaway the average and they say, “This is the public convenience and necessity price, here is your permanent certificate.”

    What have we got then?

    They may reduce our price to be sure but what have we got then, we didn’t have when we started on the temporary?

    We can’t stop and the Commission has never refused to grant a permanent, after having once permitted the sale to begin under a temporary.

    Never.

    It has taken the position, we don’t have the authority to do so absent, the producer coming and filling application under Section 7 (b) of the Act to abandon it which conceivably would be opposed by pipeline.

    And who is to say, the Commission would say, “We — we figure you’re right.

    The gas isn’t needed.”

    When the pipeline initially, has said, “The gas is needed.”

    The pipelines are market.

    What market showing do we make?

    We come in with the contract that indicates the pipeline needs the gas.

    The only question in an initial certification for producer sale is the question of initial price to date.

    Richard F. Generelly:

    That is the only question.

    Now, the Commission, interestingly enough in this case, I think has more or less abandoned its original argument.

    Certainly — it doesn’t press it with the same vigor that there is a difference between a temporary producer and a permanent producer.

    They can’t very well say that he isn’t subject to all the same restraints and duties and obligations of the Act, he is.

    He can’t abandon.

    He has to give notice anytime he wants to increase his price.

    He can be told virtually what to do, when to do it.

    There he is.

    Now, what the Commission has shifted to now is, that embarked as they are on area rate making, in the area of approach that at least with respect to all new certificated sales, they’re going to stop a moratorium, and they say it was specified period of time until in the case of South Louisiana, I think it’s still 1967 or the conclusion of the South Louisiana area proceeding, whichever is earlier.

    They have Monday of last week, a week ago today, imposed now a moratorium on the Texas Gulf Coast saying, “Until the conclusion of a recently instituted proceeding, AR 642 or until January 1, 1968, you can’t increase the price above 19 cents.

    This still isn’t the 20 cents.”

    You can’t fall for it.

    We’re just going to reject it.

    Here’s your certificate.

    We can’t reject that certificate, Your Honors.

    We have the right to reject the initial certificate they gave us back in 1960.

    We could have elected not to start our sale because the New York Commission was clamoring to be permitted to intervene, and it had a right to intervene, we don’t dispute that.

    But were we to hold off for a full year and a half, the completion of judicial review and the people of Chicago, Chicago — we understand from Natural Gas Pipeline needed that gas, we had to sell it for we to hold off, and now, since we can’t abandon, the Commission can declare a moratorium.

    Now, really let’s get down to what the reasonableness.

    It doesn’t matter if it’s still January 1, 1968.

    It doesn’t matter if it’s a year, two years, three years, four years.

    The Commission — the members of the Commission fired men no matter how sincerely dedicated and desires of — of — carrying out the mandate of the Court in CATCO, the general purposes of the Act.

    They are only men, and they may not be in office five years from now.

    Now, what is to say if it — and proceeding has not been concluded and these proceedings are monstrous, large.

    What is to say to prevent them from saying, “We have determined that we better go for another four years or two more years, find out for the life of the contract, what happens to the contract incidentally?

    We have to file a contract you know,” and I say we, producers.

    The produce — I’d like to see what would happen frankly if a producer came in with a tariff.

    He can’t file a tariff, pipelines file tariffs.

    A pipeline can file tomorrow for whatever it wants.

    The Commission sets a time for hearing.

    Richard F. Generelly:

    The same Court, in Alabama Tennessee that they rely on, and Mississippi River Fuel said, “There wasn’t a color of statutory authority, looking at the Commission’s action and rejecting a pipeline rate-filing.”

    And incidentally, this is interesting to me, the Commission has not relied on the broad powers of Section 16 of the Act, which gives it the authority to issue all orders to implement and carry out the other purposes of the Act.

    It hasn’t relied on it and I suspect principally, because Wilmette, the Wilmette case in the District of Columbia and this Court denied certiorari, said Section 16, with all its broad grant, would not give the authority to reject a rate-filling, citing this case in this Court’s decision in Mobile.

    Now, what is the answer?

    The Commission doesn’t need the powers it’s contending for, it doesn’t need them in case of permanent certification of a producer sale, nor doesn’t it need in connection with the area rate making.

    Where a producer, and there’d been darn few of them have filed, Caroline Hunt Sands is one.

    Incidentally, she only asked for a contract, she doesn’t ask for 33 cents.

    She can’t, under Mobile.

    Alright, darn few of these people have filed and when they file, what happens?

    The Commission sets them down for hearing on an individual company-cost basis.

    It handled — may it please the Court, in the summer of 1962 or 1963 — 1962, it handled nine of these in four days, with every conceivable type of cost evidence put in, it was all excluded because it didn’t conform the Phillips.

    Now, Caroline Hunt Sands is not Phillips Petroleum Company.

    So the Commission throws it out and they said, “We beat the magic deadline that they could’ve putted into effect.”

    But at the same time, the Commission is not without power to devise means of holding a hearing and basing it on some standards.

    The Commission has yet to adopt really any standards at all, either on individualized cost basis, replacement cost.

    We’re not on traditional cost of service necessarily.

    The point is, we’re dealing under an Act which recognizes and hope it has recognized that there is a balancing of the consumer in the investment interest.

    Now, when you takeaway the one reservation, really of right to a producer, the producer doesn’t get anything out of being regulated as a Natural Gas Company, not today that he hasn’t.

    Is he supposed to?

    I agree, the purpose of the Act is to protect the consumer but the consumer has an interest in the continued supply of gas.

    Now, if you’re going to take out the one thing Section 4, which is the right to protect himself, and make it completely up to the Commission as to when he can be reinstated to his statutory rights, you give the — that power of a legislative discretion which the Fifth Circuit described as awesome to put it in their hands.

    Now, CAB versus Delta Airlines was pretty bad, we think in reading it, but this is 10 times more egregious.

    There, they simply didn’t follow the procedures outline.

    Here, they’re writing out part of the Act.

    I’m watching it a little bit emotional perhaps but I’ve lived with this case for about since 1959 and it looks now, if we’ve got a moratorium until 1968 that if the gas gives out, I think if I’m still retained, I won’t have anything there.

    But all we ask for to get the thing back in focus is the statutory right to give notice to the Commission that our contract price is going to go up in accordance with its terms on a certain date.

    Hugo L. Black:

    (Inaudible)

    Richard F. Generelly:

    I’m — Justice Black, I’m glad you asked me that question.

    Hugo L. Black:

    (Inaudible)

    Richard F. Generelly:

    First of all, there is not a pipeline in the United States that is going to buy, contract for gas at 50 cents

    Richard F. Generelly:

    Secondly, the Commission has a perfect right to deny us a certificate if we come in with that price.

    But just because they can deny a certificate, it doesn’t mean — we want to be careful when we say this.

    It doesn’t mean that they can do it simply because the price is too high.

    Considering all of the other aspects of the public convenience and necessity such as continued gas supply, inspire these new suppliers and so forth.

    It has, we feel, a duty to say, “50 cents, we’ll deny it unless you take it at the guideline area price.

    Hugo L. Black:

    (Inaudible) condition.

    Richard F. Generelly:

    Our condition.

    It must — I think it would be obligated to offer us a condition when — before it denied it out of hand.

    Now, what is the public convenience and necessity today just to —

    Hugo L. Black:

    But you accepted the condition.

    Richard F. Generelly:

    If we accepted the condition, we accepted it but we do not accept with that condition a total conditioning out of any future increase in price.

    Arthur J. Goldberg:

    (Inaudible)

    Richard F. Generelly:

    I’m not quite sure I understand your question Justice Goldberg.

    Arthur J. Goldberg:

    (Inaudible)

    Richard F. Generelly:

    Right.

    Arthur J. Goldberg:

    (Inaudible)

    Richard F. Generelly:

    Yes.

    Arthur J. Goldberg:

    (Inaudible)

    Richard F. Generelly:

    In this particular case, we came in for 20, they said, “Well, I won’t give it to you 20, you take of 18 or don’t take it at all.

    We’d like you to take it at 18.”

    We complained because we said, “Suppose you later find 20 at the conclusion of this hearing on the permanent, and incidentally, you know they don’t at anything at a permanent, they don’t look at any of this evidence on anymore.”

    “In case you do, we’re out of luck, but alright, in the alternative, let us then proceed under Section 4,” and either case we agreed to refund it.

    Now, as to the future —

    Hugo L. Black:

    (Inaudible) but Justice Goldberg — and as I understood CATCO, when they heard and held at 1970, I believe it was, gave the right to attach conditions and that they could investigate and fix the rate below that which was clear and you —

    Richard F. Generelly:

    Right.

    Hugo L. Black:

    — had accepted that.

    Richard F. Generelly:

    Right.

    They can’t.

    We don’t determine anything.

    This is a temporary situation that we’re dealing with here.

    Richard F. Generelly:

    That is to begin ourselves under emergency authorization.

    They — the condition says, “Pending, the holding of a hearing on a permanent certificate until we decide whether you should be given a permanent certificate.”

    Well, I pointed out that you’re going to get one whether you want it or not at least you’re not going to be told to turn the gas off.

    Alright, but what do they do today, Justice Black, they don’t do anything more than the same thing they do when they grant you the temporary average up, it looks like the fair — fair fuel price, the going price, that’s all the Commission does.

    Hugo L. Black:

    Well, of course —

    Richard F. Generelly:

    On the permanent.

    Hugo L. Black:

    I guess — because I’m (Inaudible) in this field, but I have an idea that it takes a long time to have a thorough going investigation with reference to cause, investments, and so forth before you can fix a permanent rate.

    Richard F. Generelly:

    No —

    Hugo L. Black:

    Is that right?

    Richard F. Generelly:

    A permanent and not a —

    Hugo L. Black:

    I’m talking about a rate fixed.

    Richard F. Generelly:

    Under — under a certificate case — in a certificate case —

    Hugo L. Black:

    (Voice Overlap) when you go to fixed rates.

    Richard F. Generelly:

    Well, all rates are — are to be just and reasonable.

    Now, until there can be that determination, until there is that determination, something must be charged.

    Now, pipelines, base — rely on Alabama-Tennessee, it filed what it proposed.

    It’s initial, in effect contract price, it’s a — initial tariff priceq.

    It proposed, but the Commission didn’t fix it.

    It asked for a condition that it keep it in effect.

    As a producer, we have only our initial contract price.

    The Commission tells us to reduce it or you can’t start selling.

    Now, in CATCO, you found this was not an encroachment on our initial — so you found you couldn’t — they can’t suspend that initial price, but this wasn’t an encroachment or a right to make and change our rates.

    In accordance with the Act, once we had started our sale at the lower conditioned price.

    Hugo L. Black:

    It seems to me that maybe the difference between you is this, you say and believe unquestionably, that’s an awesome power to give the Commission to hold your rate as it does temporarily after you fixed it —

    Richard F. Generelly:

    In accordance with their —

    Hugo L. Black:

    — in the way they have done and that it’s barred by four liaisons.

    Richard F. Generelly:

    That — no.

    The thing —

    Hugo L. Black:

    That they —

    Richard F. Generelly:

    They won’t let us.

    Hugo L. Black:

    — that you have a right to fix rates yourself.

    Richard F. Generelly:

    They won’t let us.

    Hugo L. Black:

    And they take the position seemingly, that’s an awesome power.

    Richard F. Generelly:

    The court below.

    Hugo L. Black:

    Or the — or the producer to have the right to come in and fix any rate he sees fit which might be 50 cents or that someway for the Commission to look at it to fix some kind of a temporary rate.

    Richard F. Generelly:

    They — they fixed the temporary rate sir.

    There’s no difference in effect between the temporary and the permanent rate.

    The Commission doesn’t do the things it says at a hearing on a permanent that they suggest in their brief.

    And as a matter of fact, it is now — that condition should read, this 18-cent price shall remain in effect until such time as the Commission fixes a just and reasonable area rate for producers.

    Now, that’s — that’s what the Commission is now proposing at page 26 and 27 of our brief.

    The things they don’t look at, they say this is awaiting the determination of a just and reasonable rate, but when is that going to be and quite apart from —

    Hugo L. Black:

    Suppose that — suppose they fixed it permanently at 20 —

    Richard F. Generelly:

    They can’t fix it.

    Hugo L. Black:

    — how long would — well, suppose they did fix it and approve your rate to fix it at 20 and you wanted to change it, how long would you have to wait about increasing the price?

    Richard F. Generelly:

    I question whether I’d ever be permitted to fix — increase the price.

    Hugo L. Black:

    You mean permanent with perpetual price?

    Richard F. Generelly:

    I — I don’t want to be fictitious but I —

    Hugo L. Black:

    I’m — I’m just asking —

    Richard F. Generelly:

    Yes, and I don’t want to be fictitious when I say that I — I — that as far as a permanent effective bond of protection, I can think of no more permanent effective bond of protection than that the prices never be increased by any producer once he starts selling his gas at the price that the Commission says he can.

    Now —

    Hugo L. Black:

    Well, that’s a new idea but it deal (Voice Overlap) —

    Richard F. Generelly:

    Well, that’s the — that’s the idea that’s being advanced here.

    Hugo L. Black:

    I didn’t — I didn’t understand that.

    Richard F. Generelly:

    They say it’s a matter of degree.

    Hugo L. Black:

    I didn’t understand that.

    Richard F. Generelly:

    They say it’s a matter of degree and — and there’s — and there’s opinion below, Judge Brown says that this — that — that what this means, this condition is that the prices, the rates are (a) those fixed by the Commission in the first place when you start, either under temporary or permanent which are to continue until (b), the Commission itself fixes another level.

    You can’t propose rates, the fact the Commission says, “You got to wait a couple of years before you can do it again or you can only go up to such a level.”

    It’s only a matter of degree.

    Hugo L. Black:

    Well, if you construe —

    Richard F. Generelly:

    Suppose they said it for the life of the contract.

    Hugo L. Black:

    If you construed the Act, if your 20-cent rate had been accepted without this — with any hesitancy at all then put in effect.

    As you construe the Act, how long could you have raised it at the table?

    It’s presented a news — new ways.

    Richard F. Generelly:

    Assuming — assuming my contract said that I could raise it to —

    Hugo L. Black:

    That’s right.

    Richard F. Generelly:

    — 30 — however many years, the contract said — now, suppose I were pipeline though, now I — my — my tariff wouldn’t say anything like that.

    I could file the next day.

    Hugo L. Black:

    Suppose your contract has not been permanent, it has not been in perpetuity.

    Richard F. Generelly:

    Well, my contract is for a fixed time of years and it covers a contemplated gas reserve which is being sold, constantly being sold.

    Now, I don’t know any more than the Commission knows Your Honor, what the just and reasonable rate is going to be.

    If my price is above it, I’ll have to refund presumably.

    But suppose my price is below it and yet still higher than this initial price to which I started service.

    At least to that extent, I will have achieved a just and reasonable rate and I believe that a producer is entitled for a just and reasonable rate just as much as a consumer, for the consumer’s interest as a matter of fact.

    If unless I have the protection of being able to proceed under Section 4, I will have lost this irrevocably.

    Hugo L. Black:

    Suppose they had fixed in their order provision, I — I want to see if this is the only difference between you, follow refund later on, and had provided for refund to be collected in the Court — collected by the Court until —

    Richard F. Generelly:

    Well —

    Hugo L. Black:

    — would you then still have an objection to what they’ve done?

    Richard F. Generelly:

    Do you mean under Section 7 of the Act when they —

    Hugo L. Black:

    (Voice Overlap)

    Richard F. Generelly:

    — when I came in for temporary certificate and not as if you can —

    Hugo L. Black:

    This order — order —

    Richard F. Generelly:

    Yes.

    Hugo L. Black:

    Suppose they had provided that hereafter, if you could determine that the rate was not just and reasonable permanently, that you should refund that and you should give a list and have a list of all their purchases in consumers ready to pay it.

    Richard F. Generelly:

    Yes.

    Hugo L. Black:

    I mean that put into to fund.

    Is it my understanding that that is the gist of your complaint?

    Richard F. Generelly:

    That was a — the gist of our complaint below but we lost on that.

    The Fifth Circuit said, “We’re not going to question the Commission in the type of initial price condition reducing the price, whether they let you do it under Section 7 or Section 4, it doesn’t make much difference because in other case, you’re willing to do it subject to refund.

    It’s dealer’s choice.

    They chose not to let us do it under Section 7.

    Hugo L. Black:

    Well, are you claiming then here, the right to fix the rate so that if the expiration of five months, that rate goes into effect —

    Richard F. Generelly:

    On —

    Hugo L. Black:

    — and if consumers are later, if it’s later determined, if consumers had paid too much, they can’t get it back, is that your argument here?

    Richard F. Generelly:

    No, the consumers will get the — will get the protection of refunds with interest of 7% which what the Commission is now proposing will not provide them.

    Hugo L. Black:

    Well that’s what I —

    Richard F. Generelly:

    Well —

    Hugo L. Black:

    — what I was asking was, is that a crucial thing in your objection.

    Richard F. Generelly:

    I think perhaps it is, and what it is, Justice Black is the inherent nature —

    Hugo L. Black:

    Well, if the order provide — if the order expires your concern, I listened to both arguments to see if that was it.

    As far as your concern, if the order had said this rate is too high, we’re not going to put it in effects here permanently now, we’re going to reduce it to 18 cents.

    But in the mean time, the company has got to set aside a fund which was be adhesively available to consumers to get their money back, then would you have any complain against the order?

    Richard F. Generelly:

    No, that is the —

    Hugo L. Black:

    That is in other words, is that your whole objection.

    Richard F. Generelly:

    My whole objection is, they wouldn’t let us even do that and we say that the statute gives the natural gas company that right.

    In Mobile, the Court said unequivocally that the rights to make and change rates are to be no different, were intended to be no different from what they were if the Act had never been passed, save only to the fact that you must file your rate, the tariff on file and you must let the Commission know every time you propose to increase your rate if your contract permits you to increase your rate.

    Hugo L. Black:

    Your argument then is that the Commission is without power to do what it has done —

    Richard F. Generelly:

    To nullify —

    Hugo L. Black:

    — only if it failed to provide for refund.

    Richard F. Generelly:

    No, I’m — I — I won’t — I won’t narrow it that.

    We’re willing to make the refund.

    I simply say that after all Your Honor, the Commission might accept the filing under Section 4 and not suspend it under 4 (e), that’s for the Commission to decide.

    Hugo L. Black:

    What is the objection beyond that?

    Richard F. Generelly:

    There — well, I would not tie it in to this question of maintaining the fund.

    We’re willing to do it if it’s suspended so if the Commission orders us to do that, we’re — we’re willing to file —

    Hugo L. Black:

    After five months now, the five months (Voice Overlap) —

    Richard F. Generelly:

    We’re willing to do that.

    What I’m objecting to is that the Commission has removed Section 4 from the Act, insofar as we’re concerned and as the court below pointed out, though it wasn’t squarely before them.

    If they can write out Section 4 in its availability to the natural gas company, why not write out Section 19 which makes judicial review available and that the Commission had a condition, it’s certainly softened it — certainly softened it since this case.

    Well, they said if you seek judicial review, if you seek rehearing or further review of the — of the conditions, this authorization dissolves in thin air if you will, but all the conditions remain on you, so we don’t have a certificate.

    Presumably, we’re in violation of the Act because we’re still selling gas, of course we can’t turn it off and they’d probably never prosecute us.

    Hugo L. Black:

    What was the rate before the change?

    Richard F. Generelly:

    The rate before the — the change in what, in the — here?

    Hugo L. Black:

    This — this case — this increase you have.

    Richard F. Generelly:

    Oh, we have no increase here.

    We — we want it —

    Hugo L. Black:

    You’re fixing — you’re fixing it at 20 cents.

    Richard F. Generelly:

    Which is the initial contract price, that’s what we originally proposed, that was our initial rate.

    Hugo L. Black:

    Well, did you have any rate before you propose that?

    Richard F. Generelly:

    No.

    Hugo L. Black:

    You had 20 cents, you know the —

    Richard F. Generelly:

    That’s — that’s the contract price, it’s a —

    Hugo L. Black:

    The difference was in the escalation.

    Richard F. Generelly:

    The difference was in the escalation.

    Now, in that difference in escalation —

    Hugo L. Black:

    That’s the price I was talking about.

    Richard F. Generelly:

    Oh, the escalated price in the future.

    It seems to me that if we look at the act and construe it as — as we read the Court’s decisions, the time for the Commission to worry about any increase is when the producer comes in and asked for the increase and the Commission has full power.

    Now, the Commission may not like as it says in its brief, a contract where the price jumps, say from 5 cents to 20 cents the next year.

    But under the Act and we’re operating under the Act, at least we were, I thought in these procedures, the Commission has suspend it and holds a hearing.

    They’ve demonstrated that they can hold a hearing.

    But quite beyond that, let’s face the realities, the probables have been — really, were paraded by the Commission in this thing because there hasn’t been any wave of triggering.

    There are majors today — major producers who have purposely not filed and they’re not going to file until this thing shakes down, 7% interest, it’s rather big.

    Arthur J. Goldberg:

    I take it though that the Commission’s determination (Inaudible)

    Richard F. Generelly:

    No — no.

    Oh no.

    There are already prices above it at that time.

    Tom C. Clark:

    It’s simply a — area pricing —

    Richard F. Generelly:

    And the Commission attaches no validity whatsoever to that area of price other than as a benchmark to guide it in determining whether the condition, people like respondents at 18 cents or below and they’ve since dropped it some more based again on a reevaluation that we know not what.

    It isn’t for real.

    Tom C. Clark:

    (Voice Overlap) the — the permanent step that says you do it on an area basis.

    Richard F. Generelly:

    Well, permanent certificates are issued now — at the page 27, the decision of examiner western.

    Now, I realize that it’s an examiner’s decision but it’s the largest single producer certificate case ever to come before the Commission.

    It’s all at South Louisiana, every new sale down there.

    And the examiner says, “Our main interest and following the directions to halt rather than follow the trend of the market and to readopt the method of concentrating on certifications which do not express erroneous principles of pricing policies.”

    Of course, he admits, he says, “Of course, the method is circular and that present Commission action is judged solely by measuring it against past Commission action,” and so, this would be a valid objection.

    He said, “But we’re not here, we are freezing prices here until the conclusion of the Southern Louisiana area proceeding is no longer since we’re involved with a temporary expedient — temporary which gives no consideration the value of gas service, reasonable return or other aspects of fair and reasonable rates.”

    And this is the thing I can’t believe the Court said in CATCO.

    The open markets only relevance is that it signals the existence of the situation that probably would not be in the public interest, speaking of any of — citing CATCO, speaking of any applications reflecting the market.

    Now, the market has a meaning.

    It doesn’t necessarily reflect the situation which is not in the public interest.

    The Commission uses the market itself to determine inland prices.

    Tom C. Clark:

    Well, the difference between is simply this.

    You say under 4, you have a price anytime you have a contract to file that with the Commission and they have the right after its expired is suspended for five months and then you collect on your contract price.

    They say that — that so many of those things filed, as I understand it, that there’s a tendency to cause an increase in the area price and therefore, they believe that they should have the right to condition all these filings so that this area price might not — might not be escalated so quickly that be leveled off while they’re considering —

    Richard F. Generelly:

    (Inaudible)

    Tom C. Clark:

    — (Voice Overlap) certification.

    Richard F. Generelly:

    Can I ask you two questions about the way of answer?

    Tom C. Clark:

    Sure.

    Richard F. Generelly:

    Suppose the Commission subsequently determined that the price is just and reasonable, but it does not allow you to collect it subject to refund, in which case you’ve lost it.

    Suppose the difference of a penny which can make of thousands of dollars to a producer, remember, $2000 a day and more to have one drilling rig out.

    The difference of one penny, suppose the Commission at the conclusion four or five years down the road says, by George, “It was 1 penny more all the time, but we can’t make you hold again, would —

    Tom C. Clark:

    Well, that intends to indicate any —

    Richard F. Generelly:

    All we’re —

    Tom C. Clark:

    — depending on the merits but —

    Richard F. Generelly:

    I’m — well, I understand that sir.

    Tom C. Clark:

    — how would (Voice Overlap) positions.

    Richard F. Generelly:

    I understand that sir.

    And then the second question is this.

    What if the Commission has the power to do what was condemned by the Fifth Circuit, what is to prevent it from saying, “18 cents, 14 cents, 10 cents, in West Virginia 26 cents” for the life of the contract.

    Tom C. Clark:

    Well, suppose you’re (Voice Overlap) —

    Richard F. Generelly:

    And you started your sale without any contemplation if that was going to be the situation.

    They had told you, “Only until we decide the permanent certificate or only until we have this area of proceeding.”

    In short, that you start off at something less than your contract, you’re required to file your contract but you’ll later find out it means nothing because you’re stuck there forever.

    You do not have the right.

    If we’re natural gas companies, as our pipelines and that Section 4 means what — we think it says and what the Court said in Mobile, that would be unreasonable, that would be violative of the right reserved to natural gas companies by Congress.

    Tom C. Clark:

    But some case where the producer, they’ve used for — they tried cut the area price by a series of filings, say filed every 30 days.

    He just had it on his calendar and he said could have filed the date.

    For every 30 days he had filed, we will say a 2-cent increase.

    Do you think the Commission under the Act would have any authority to ignore those or not permit them to be filed or (Voice Overlap) —

    Richard F. Generelly:

    Justice Clark, I’ve got to say that until that happens, the Commission can be cognizant about it, but if the producer files for it, somebody is contractive with them on that basis.

    The Commission suspends it and they hold a hearing under Section 5 of the Act and they fix the just and reasonable rate.

    And having done that, we’ve got a Third Circuit case, the Panhandle Eastern filed immediately after having a total number of items disallowed on its cost of service who came right back in and filed immediately to the things that had been disallowed and the Third Circuit upheld the dismissal of the rate-increase application.

    There hadn’t been an adequate period of time for cost to go up.

    Tom C. Clark:

    Is there a shortage of any state gas?

    Richard F. Generelly:

    Of every state gas?

    Wildcat drilling has been down.

    Tom C. Clark:

    What I was getting at, I understood Mr. Solomon say that one of your contracts would be 33 cents was it, or 30?

    Richard F. Generelly:

    No, no.

    That’s the cost —

    Tom C. Clark:

    That’s a cost.

    Richard F. Generelly:

    — of this little producer who will never achieve those costs in all likelihood —

    Tom C. Clark:

    Or she will be able to —

    Richard F. Generelly:

    Not even enter in her contract.

    Tom C. Clark:

    She’ll be able to sell it at that price?

    Richard F. Generelly:

    I doubt sir, so you know the pipeline would not enter in their contract with it today.

    Tom C. Clark:

    He hadn’t been able to get one that —

    Richard F. Generelly:

    She hasn’t tried to.

    She’s committed to the sale.

    She isn’t seeking to abandon.

    All she’s coming with is a periodic escalation, if you will, increase that’s been set for hearing.

    Richard F. Generelly:

    The Commission is going to determine whether it’s just and reasonable.

    All she’s asking for is something — I — I forgot the exact level — less than 33 and she may not get that.

    But remember, let — let’s say it was 23 cents, is the price she’s asking for.

    What was our last price, 20 cents so she just — from 20 to 23, the Commission recognizes, perhaps if he has cost of 33 cents.

    Even if they fit, they can’t give a 33 cents.

    She’s still only going to 23 and she might get a little bit less than that.

    But certainly, she might get more than 10 cents but how can she do it, unless she can file under Section 4 (e), she can’t.

    Tom C. Clark:

    What about the confiscatory?

    Richard F. Generelly:

    Now, we have to take this position, Your Honors that if the Act says that all rates are just and reasonable and if in Wisconsin, last term, at the Court, the majority said that, “We assume that the area price if only arrive at will not be so high as to deprive consumers nor so low as to deprive producers of their right to adjust and reasonable price.

    We take the position that this until something else comes along, and I think we’ll probably still take it that any price that is less than just and reasonable is within the framework of this Act, confiscatory.

    Now, we’re not wedded to rate-based cost of service traditional.

    The Court said that the Commission doesn’t have to pursue that, it can try new things.

    But whatever they try, it has got to related at some point to cost, maybe it’s a replacement of gas cost, maybe it’s a recognition if the average producers are going to spend so much as getting stuff out of the ground, he’s got to pay for his leases and so fort.

    But whatever it is, the individual must eventually have the right to say, “You faced me with a terrible alternative because I am getting by your own definition less than a just and reasonable rate, I’d like to show you that I’m losing my share.”

    Now, if I have to sell out and get out of the business, assuming I can find a buyer, not a dime on the dollar, and assuming you’ll let me get out of the business, I’ve still had a taking at my property because you yourself, the Commissioner said, “This is the just and reasonable rate and anything less than the just and reasonable rate, we feel must be a confiscatory rate.”

    Beyond that I have no thoughts or philosophy with respect to area rate making other than its — taking a very long time, much longer and much more thought with more interesting things and you can imagine, we have econometricians that devise models and to have aggression equations.

    Econometricians, that’s a new science.

    (Inaudible)

    Richard F. Generelly:

    The economet — econometrics is the science.

    (Inaudible)

    Richard F. Generelly:

    Econometrics.

    (Inaudible)

    Richard F. Generelly:

    Well, it’s — it’s new — so new that — that one little tiny factor, the thing of key here will just — I mean millions of dollars, one way or the other.

    They’ve got something else that’s interesting.

    There is something called directionality now.

    Tom C. Clark:

    Directionality.

    Richard F. Generelly:

    Directionality.

    Large producers claim and maintain that the science has gotten to the point that they can go out and look for gas and supposed oil.

    And they’ve got some statistics on these items.

    It was proved that they can look for gas instead of oil.

    Tom C. Clark:

    They got oil and plug it.

    Richard F. Generelly:

    Well, no.

    Tom C. Clark:

    Well, no.

    Richard F. Generelly:

    But they’re not going to go looking for gas necessarily unless they think they’re going to get a return point, and I might if I can when — as my ipse dixit.

    But if Philips Petroleum Company’s income in 1954 was only 6% derived from jurisdictional sales, it was low then and it certainly not represented of the majors.

    When you get down to the independent, the small fellow, he can run up to 50% to 60% of his income from jurisdictional gas sales.

    And one of the majors, I understand, I won’t mention them because I don’t have.

    This is 30% of its income today comes from jurisdictional gas sales.

    So if the overall purposes of the Act are to be achieved by the Commission in area rate making, we feel that it’s got to be done under the Act and that is consistent with every statement this Court has made in dealing with these problems that have come up from administrative agencies and that in so doing, in the interest of administrative convenience, purely and simply, the Commission cannot write out and — and fail to recognize rights reserved specifically under one section of the Act in the interest to carry out the overall purpose of the Act.

    Thank you, if there are no more questions.