Sun Oil Company v. Federal Power Commission

PETITIONER:Sun Oil Company
RESPONDENT:Federal Power Commission
LOCATION:Dry Docks at Reed, WV

DOCKET NO.: 321
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 364 US 170 (1960)
ARGUED: Apr 26, 1960
DECIDED: Jun 27, 1960

Facts of the case

Question

Audio Transcription for Oral Argument – April 26, 1960 in Sun Oil Company v. Federal Power Commission

Earl Warren:

Number 321, Sun Oil Company, Petitioner, versus Federal Power Commission.

Mr. Hoffman.

Leo J. Hoffman:

Mr. Chief Justice, may it please the Court.

In this case, Sun Oil Company versus Federal Power Commission, there are two orders of the Federal Power Commission involved.

I would like to state briefly the nature of those orders and then I think it would be worthwhile to inquire briefly into the chronology of the development of the facts in this case.

The first of the orders of the Federal Power Commission involved in this case is a letter order that was issued by the Federal Power Commission under date of September 12, 1957.

That order of the Power Commission purported to reject a new — a new contract which Sun Oil Company, the petitioner, had filed as its initial rate schedule purported to reject the certificate application which was submitted by the petitioner covering the same new sale that was covered by that contract.

The order was — the letter order was issued by the Commission on the ground that the — that an earlier rate schedule and an earlier certificate were duplicated by the documents currently being submitted by Sun Oil Company, the petitioner in this case.

The second order of the Federal Power Commission which is involved in this case is a formal order under date of November 8, 1957 by which the Power Commission suspended the same new contract when it was resubmitted later by Sun on a protest as they changed in its earlier rate schedule.

Potter Stewart:

Could you tell us again just to know where the first order, the letter order rejected?

Leo J. Hoffman:

Rejected the submittal by Sun of — of a new contract as a — as an initial rate schedule.

Potter Stewart:

Upon the basis that — this — the — the gases already being sold under an existing contract —

Leo J. Hoffman:

That’s right.

Potter Stewart:

— which had been approved.

Leo J. Hoffman:

The Power Commission in rejecting the submittal of that contract as an initial rate schedule said that in view of an earlier sale accomplished by an earlier contract, the new contract can only be changed in rate schedule and would have to be resubmitted as a change in rate schedule under Section 4 (d) of the Act if it were be considered at all by the Power Commission.

So the — the submittal as an initial rate schedule and the submittal of an accompanying certificate application were both rejected by the first order.

I’ve stated the ground just then of the rejection of the rate schedule essentially the same basis was the basis for the rejection of the certificate application.

That wasn’t the earlier certificate covering the earlier sale under an earlier contract covered continuing service are duplicated, the — the current filing and therefore, the current filing was not in order.

And as I say, Sun resubmitted the contract as a change in rate schedule under protest so that Sun would not be further penalized pending an appeal of the Power Commission’s first order.

And by the second order, the Commission did suspend the — the submittal of that contract and as a change in rate schedule.

Now, the court below, with one dissent, affirmed the Federal Power Commission orders.

Now, I would to state briefly in chronological order, and I think it’s worthwhile to do so, the development of the facts in this case.

The — the facts are relatively simply, and I think can be briefly stated.

Chronologically, in the development of this — of this story, the first order of the events was the making of a contract, the gas purchase and sales contract between Sun Oil Company and Southern Natural Gas Company.

Southern Natural Gas Company was the pipeline buyer under the — under the contract.

The contract covered the sale by Sun Oil Company and the purchase by Southern Natural Gas Company of gas to be produced from Sun’s properties in the Gwinville Field which is located in the southern part of the State of Mississippi.

The contract between the two parties which appears on the record of this case is, in our view, essentially in the typical form of a producer’s gas sales contract.

There’s nothing particularly unusual about it.

For purposes of this case, the most important feature of that contract was that it provided clearly for a specific term of 10 years.

The contract provided that disagreement shall remain enforced in effect for a period of 10 years commencing on the date on which the first delivery of gas is made by a seller to buyer hereunder.

Leo J. Hoffman:

10 years then, no more and no less starting with the first delivery of gas under the contract.

Now, that 10-year term did commence on September 3, 1947 because that was the date of the first delivery of gas under the contract and the contract therefore expire by its own terms without more immediately prior to September 3, 1957, precisely 10 years later.

Now, upon the advent of regulation of independent producers by the Federal Power Commission in 1954 following this Court’s decision in the Phillips case, which incidentally occurred about three years before the expiration of the 10-year term contract I’ve mentioned and about seven years after that contract was entered into, upon the advent of that regulation, Sun filed a contract as its initial rate schedule under Section 4 (c) of the Natural Gas Act.

That filing was accepted by the Federal Power Commission.And except for a slight change in the — in the price that occurred in, I think, 1955 on account of an increase in tax reimbursement under the contract, which is in consequential in connection with this case, except for that, the Power Commission took no further action with reference to that rate schedule to modify the rate schedule or otherwise during the term of the contract.

Now, Sun filed a certificate application at the same time these filings occurred in the latter part of 1954, filed a certificate application to cover the same sale.

The application was specifically limited to the sale covered by the 1947 contract.

The contract was referred to in the application and Sun requested authority of the Federal Power Commission to continue and complete that specific sale by reference to that specific contract.

Could you conveniently give me the page reference to that in the record?

Leo J. Hoffman:

To the certificate application, sir?

Yes, sir.

That appears at page 26 of the record.

I would like to call Your Honors’ attention now that I have the record open at that point to page 28 of the record in which at about the middle of the page, the statement is made Sun wise on June 7, 1954, the date of the Phillips decision and now is delivering gas subject to the contract for the following purchasers, Southern Natural Gas Company which contract has either been heretofore filed or is being filed contemporaneously herewith as a rate schedule.

That contract was filed contemporaneously with the application as a rate schedule.

Then on page 29 of the record, about two-thirds of the way down the page, the statement is made, “This application is hereby made only for a certificate of public convenience and necessity authorizing the sale of natural gas in the circumstances above described in a desire view that the circumstances above described where the circumstances in connection with the statement as to the sale,” which appears on the preceding page in the record.

So it is our position that the only authority requested by this application was the authority to continue and complete the particular sale under the particular contract that have been entered into in 1947 for a specified 10-year term.

Now, next in the chronology of events, in 1956, the Commission issued a certificate authorizing the sale described in Sun’s application.

The order issuing the certificate appears in the record at page 99.

I might explain by way of comment with respect to this order issuing the certificate that this was an order issued by the Power Commission in a consolidated docket situation where a large number of producers’ applications for certificates were consolidated for consideration at a — at a single hearing.

Sun Oil Company’s application — well, I — I should say first that each — each application was, however, although consolidated for purposes of hearing, considered independently and separately and — and the order issuing the certificate makes that clear.

Sun Oil Company’s docket with respect to the sale involved in this case was Docket Number G-6658 and reference is made in the order at — to that docket at page 105 of the record where the docket is stated as covering the sale of gas from the Gwinville Field in Jefferson Davis County, Mississippi and covering the sale to Southern Natural Gas Company.

That’s just part of the caption of the order.

This order, in our view, specifically granted the authority requested in the application.

It specifically authorized the sale, the — the very sale that was described in Sun’s application.

The certificate — the certificate order contained no provision that is purported in any way to extend the term of the sale as set out in the contract.

And it is important to note at this point, I believe, that the order was issued together with the certificate that it issued, was issued under the Commission’s shortened procedure, which, by virtue of the Commission’s rule, is based upon the pleadings alone.

In other words, there was no full pledge formal hearing in connection with these consolidated applications.

They were all considered in the shortened procedure of the Commission on the basis of the pleadings.

The only pleading in connections with Sun Oil Company’s docket was the application which I have just referred to.

There was no other evidence considered by the Commission at that hearing in connection with Sun Oil Company’s sale other than its own application.

And by virtue of the Commission’s rules under the shortened procedure, in that type of situation, the — the applicant is not even required to be present and Sun Oil Company was not present at the hearing and under the rules, the application is required to be considered upon its own basis without a consideration of other evidence.

Potter Stewart:

Was there an actual hearing?

Leo J. Hoffman:

There — yes.

There was a formal short form hearing.

Of course, I was not present.

No one else was for Sun Oil Company, but as I understand the procedure, there is a hearing before an examiner in which the staff counsel of the Commission appears with the files and pleadings.

Now, further, in the chronology of events — I may come back to the certificate order shortly, but in the chronology of events in an effort to get the facts out first comes the contract with Sun Oil Company and — and Southern Natural Gas Company entered into under date of August 1, 1957.

This was a complete new contract that did not purport in any way to be an amendment or an extension of the earlier contract nor was it contemplated in any way by the earlier contract.

It was entered into between Sun and the same purchaser and it did to cover the sale of gas from the same field of Gwinville Field in Mississippi.

But it had no direct relationship whatsoever to the first contract.

The first contact expired by its own terms at the expiration of its own stipulated 10-year term.

The second contract was entered into for a term commencing the day following the expiration of the preceding contract.

But the second contract was in no way anticipated or contemplated by the first contract.

The second contract was entered into for a term of 20 years running from the date September 3, 1957.

The date immediately following the expiration of the first contract.

It is our position that it in no way duplicated the terms of the first contract.

Now, this new contract, the 1957 contract was made the basis for additional filings with the Federal Power Commission.

The new contract was submitted by Sun to the Power Commission as an initial rate schedule under Section 4 (c) of the Natural Gas Act.

At the same time, Sun submitted to the Power Commission a — a certificate application requesting authority to make the new sale under the 1957 contract.

And now, in the chronology of events, I will return to the first order which is the subject of this case and that is the letter order of September 12, 1957 by which the Commission rejected Sun’s certificate application saying in effect that the first certificate covering the first sale still applied even though the first contact had expired and saying with reference to the rate schedule in effect that the new contract was in the Commission’s view a change in the existing rate, the rate established by the 1947 contract and could — could not be filed as an initial rate schedule but could only be filed as a change in rate subject to force to suspension under Sections 4 (d) and 4 (e) of the Natural Gas Act.

Other than price, were there any substantive differences between the 1957 contract and the 1947 contact?

Leo J. Hoffman:

Yes, Mr. Justice.

There were substantive differences.

For one thing, the first contract is related with — for a term of 10 years.

The second contract was for a term of 20 years.

Beyond that, there were substantial differences in the quantity provisions of the two contracts.

As I recall, the — the contract quantity obligation on the buyer’s part under the first contract was based on the percentage of the buyer’s total pipeline requirements.

Although I’m — I’m paraphrasing that, of course, because it goes on for several pages in the contract, but it was based on the percentage of requirements, whereas, in the second contract, the quantity obligation of buyer was based on a — an entirely different concept.

It was a stipulated percentage of the total deliverability of the gas wells that Sun Oil Company had located upon its properties in the Gwinville Gas Field.

There were other differences too, the details of which I might not be able to recall offhand having to do with quality provisions and some other things.

Now, after the rejection, Sun resubmitted the — the new contract, as I have already stated briefly, under protest as a change in its earlier rate schedule.

Leo J. Hoffman:

Sun made that filing of the new contract, the second filing as a change in rate schedule to avoid being further penalized by the Power Commission’s rejection of its first filing of the contract as an initial rate schedule.

And meanwhile, Sun, of course, commenced the procedure looking to this appeal from a rejection order.

Now, again, the second order, chronologically, that’s the subject of this case is that at November 8, 1957 by which Sun’s resubmittal of the contract as a change in rate schedule was suspended for the full statutory period of five months.

Sun appealed a suspension order as it did the rejection order because the suspension order itself treated the new contract as a change in rate rather than as a separate new initial rate schedule and also because if the rejection order — the first order is invalid, the suspension order is obviously invalid because it is furnished on the first order.

And as I have said the court below affirmed the two orders with one dissent.

Issues in this case can well be considered, I believe, in two categories of — of matters.

So one category would be a consideration of the certificate matter and another category would be consideration of the — of the rate schedule matter.

I would like to consider first in my argument the certificate matter.

It is our position that Sun’s certificate application covering its 1947 contract only requested authority to continue and complete that particular sale that was the subject of the 1947 contract which is I stated had about three years to run by its own term at the time the certificate application was filed.

That contract was specifically made the basis as I’ve read from the record.

We believe that that type of application wasn’t limited to the specific sale covered by the contract in — of 1947 was in keeping with Section 7 (c) of the Act which requires a certificate for the act of engaging in a sale.

It is our position that the — that the term sale within the meaning of Section 7 (c) of the Act is a term that is represented in this case by Sun’s 1947 contract including its specifically limited and stipulated term.

It is our position in addition that Sun could not have applied for more even if it had desire to do so since Section 7 (e) of the Act requires the finding that — to be made the Commission that the applicant is able and willing to do the acts proposed.

Sun was not able in 1954 at the time it filed a certificate of application with regard to its 1947 contract to show unableness or willingness to do more than continue and complete the sale which was covered by its 1947 contract because at that time, it had no further contract beyond the 10-year term of that contract.

It had no further purchaser available to it beyond the 10-year term of the contract.

So its application, in our view, was in complete keeping with that phrasing of Section 7 (e) of the Act.

It was also in keeping with the phrasing of Section 7 (e) which requires that the certificate be issued by the Federal Power Commission authorizing the whole or any part of the sale which is covered by the application in connection with the whole or any part phrasing which by the way appears in our brief at page — beginning at the top of page 61.

It provides that certificate shall be issued to any qualified applicant therefore — therefore and authorizing the whole or any part of the operation, sale, service, construction, extension or acquisition covered by the application.

It is our view that Sun’s application was also in keeping with that phrasing, the — the whole or any part phrasing because by virtue of Section 7 (e), the Commission would not be authorized to issue a certificate which might cover more than the whole of the sale which was made the subject to the application.

The whole of the sale in this case was represented by the limits of the term of the 1947 contract, a certificate authorizing or even requiring a sale beyond the duration of that contract would be a certificate which would represent more than the whole of the subject to the application and therefore would not be authorized.

And Sun’s application was in keeping with that phrasing.

The application, as I have already mentioned, referred to the contract and concluded with a statement that this application is hereby made only for a certificate authorizing the sale of natural gas in the circumstances above described.

The critical word — one of the critical words in this portion of the statute is, of course, the term “sale”.

The Act does not define the term “sale” and there is no suggestion in the Act that the term has anything other than its accepted legal meaning, which is briefly stated in act evidenced by contract.

That’s a sale.

And it is our view that the — that Congress intended by these various provisions of the Natural Gas Act, including 70 particularly in the use of the word “sale” to carry along the ordinary legal connotation of that term.

There’s no indication otherwise anywhere in the Natural Gas Act.

Now, that was the kind of —

You say a sale is not a service.

Leo J. Hoffman:

That is also our position.

Leo J. Hoffman:

Yes, sir.

The sale under the circumstances of this case did not represent a service.

Now, the service argument is made at great length in the Federal Power Commission’s brief.

Charles E. Whittaker:

Of course, you’re limiting that to a producer and not to a pipeline company.

Leo J. Hoffman:

Yes, sir.

Of course, I am speaking — although I may speak in generalities in — in some statements, I — I am speaking specifically with reference to the development of the facts in this case.

And there is no question in my mind that this contract of 1947, which is the critical contract in connection with a certificate authorize — authorization represented and covered a sale of gas within the meaning of the National Gas Act and all parts of the Natural Gas Act and did not constitute an agreement for the performance of the service within the meaning of some other portions of the Natural Gas Act.

That’s particularly — it’s particularly important to note in that connection, I think, that a contract, and this is why I mentioned the time a moment ago that contract was entered into in 1947 about seven years before the Power Commission actively undertook the regulation of independent producers of gas.

And certainly, as between the parties in 1947, the contract was — contract entered into under the ordinary conditions of the market place, you might say, by which one party agreed to sell what was to him a commodity and the other party agreed by what was to him a commodity.

No service whatsoever.

In fact, there is language in the contract which specifically purports to make clear that that sort of concept was not to be involved in the making of this contract.

I — I would like to call the Court’s attention to that.

That contract appears in the record at page 32.

This is the 1947 contract that I’m referring to.

And under the price provisions — I can’t find them now.

Yes, on page 46 of the record.

There is an Article 11, which is titled “Price”.

Article 11 first provides for a price of 7.5 cents for the first five years of the term and then 8 cents for the second five years of the term and then this paragraph.

In this connection, it is understood that by this agreement, seller is not dedicating the buyer or the buyers marked out at any portion of seller’s gas reserves in the Gwinville Gas Field or any portion of a gas produced by seller from its wells in said field but that seller is simply selling and buyer is purchasing the quantity of gas called for in this agreement and so on.

Part of the purpose in design of — of that provision in the contract was to make clear that this was not the type of utility service agreement which the Power Commission makes so much of in its brief in this case.

This was a simple sale and purchase of commodity on a large scale and a rather unusual commodity but nevertheless a purchase and sale agreement.

And we’re convinced that within the meaning of all of the phrasing of the Natural Gas Act, it comes this contract represents and constitutes a sale.

As a matter fact too, it’s the same type of sale that this Court referred to in the Atlantic Refining Company case that’s popularly known as the CATCO case where the — where this Court made the point that the Federal Power Commission had — had found with reference to the contract involved there, the sales contract involved there which, by the way, was the largest ever made, as I understand it, by producers up to that time.

The Federal Power Commission had found that that was the largest single sale of natural gas ever made by producers prior to that time to a pipeline company.

The Court recognized the Power Commission’s finding.

And the Power Commission had made a finding that that was itself, that tremendous contract of that magnitude was a single sale, represented a single sale within the meaning of the Natural Gas Act.

We think too that that’s the effect of the Court’s Mobile decision and the Court’s Memphis decision.

The — the Court has said that the Act advances no purpose to abrogate private contracts and the Court has said in the Mobile case that the single statutory scheme of the Natural Gas Act is to permit natural gas companies to have the initial rate setting power.

In other words, as we view it, the — the whole theme of the Mobile decision, the Memphis decision is that this sort of thing under the Natural Gas Act, the sort of thing that is involved in Sun’s case is to be determined according to the terms of the contracts subject of course to the Commission’s overwriting review authority, which we don’t question in this case, the overwriting review authority, but which authority was not exercised in the circumstances of this case.

But we think this case comes well within the scope of the Mobile decision and the Memphis decision.

Leo J. Hoffman:

And one application of the Mobile decision which can properly be made is in determining the — the meaning and the extent and the scope of the word “sale” as it appears, for example, in Section 7 (c) and 7 (e) of the Natural Gas Act.

I’ve been talking about the applications.

The certificate issued by the Commission in 1956 in response to that application authorized only the sale that was described in the application.

Hence, the certificate having granted the application for the specific sale, we say, did not extend beyond the life of the contract of sale.

The certificate expired then when the contract expired.

Again, I call the Court’s attention to the location of the order issuing the certificate at page 99.

The certificate covered — covering the first sale was issued, as I have already mentioned in the Power Commission shortened procedure and we think that’s significant in this case because that means that it was issued on the basis of the application alone.

There was no other evidence.

It could not have granted more than the application requested, which was the certificate to expire with the expiration of the contract and it’s important to note that it was not even necessary in that procedure for Sun to be represented at the hearing.

The certificate order in the ordering paragraphs commenced at the bottom of page 109 of the record — well, let me first refer to the findings which commence near the top of page 109.

The certificate order found that Sun Oil Company was able and willing to do the acts proposed.

That appears in paragraph 3 at the middle of page 109.

The applicant is able and willing properly to do the acts and to perform the service proposed and conformed with the provisions of the Natural Gas Act and the requirements, rules and regulation of the Commission thereunder.

The only thing Sun had opposed was the continuation and completion of its 1947 contract.

As a matter of fact, Sun was unable to do more or show any ability to do more because it had no further contract and no further purchaser at that time even at the time this order was issued in 1956.

And now, the ordering paragraphs which commenced at the bottom of page 109, paragraph (a) at the bottom of page 109, a certificate of public convenience and necessity be and is hereby issued upon the terms and conditions of this order authorizing the sale by applicant of natural gas in interstate commerce for resale and so on concluding and as more fully described in the application and exhibits in this proceeding.

And with respect to Sun’s sale to Southern Natural Gas Company from the Gwinville Field, the only sale which was the subject to the application was the sale described in its application and the — and the sale which was the subject of the 1947 contract.

Earl Warren:

Is that — is that paragraph peculiar to this particular contract or is it one that’s used in — generally by the Commission, do you know?

Leo J. Hoffman:

I think this language, Mr. Chief Justice, is frequently used.

Earl Warren:

Frequently.

Leo J. Hoffman:

It’s typically used by the Federal Commission.

It certainly was within my own knowledge during the period of time in which this order was issued as far as I know it’s still typical language.

I — I think the order issuing the certificate recognized that Sun was not — it could not make the able and willing, showing that would be required in order to — for Sun to acquire a certificate extending beyond the duration of its 1947 contract.

The ordering paragraph, as I said, issued a certificate authorizing the sale as described in the order and the sale is more fully described in the application and the sale referred to can only be the sale covered by the only contract that was referred to in the application.

Do you happen to know whether any of the applications represented in the several pages of this consolidated proceeding included any which in terms asked for a permanent certificate?

Leo J. Hoffman:

Well, Your Honor, this application did — I mean, this order did consider applications for permanent certificates.

Expressed as such?

Leo J. Hoffman:

Yes, sir.

Well, I don’t know that that — that very phrase is used in this order but —

Well, what I’m trying to get at is, we — here, your application informed different apart from the terms of the contract?

Was it informed different from the other applications that were comprised in this consolidated proceeding?

Leo J. Hoffman:

Well, actually, I have no knowledge of the other applications.

I should correct that statement, too.

There are other Sun Oil Company applications which were — as to which certificates were issued by this same order.

They’re not involved in this case.

Yes.

Leo J. Hoffman:

I have some familiarity with those and as I recall, the other Sun Oil Company matters that were involved in this same order were on essentially the same form of application as the one involved.

Potter Stewart:

And that is for a limited term of years.

Leo J. Hoffman:

Yes.

Potter Stewart:

The contracts — the — the contracts covered by the applications were for a — for a term of years —

Leo J. Hoffman:

Yes, sir.

Potter Stewart:

— running for an indefinite period.

Leo J. Hoffman:

Yes, sir.

That’s generally true of all of Sun’s contracts, which were the subject of this — of this order.

They were for a specified term of years in each case.

The same result that I have mentioned thus far is reached, although I’ve been talking primarily about Section 7 (c) and — and only indirectly about 7 (e), the same result is reached under the language of Section 7 (e) of the Act which, as I have already mentioned, requires the issuance of the certificate authorizing the whole or any part of the sale covered by the application.

I’ve talked about the able and willing phrase, the whole or any part phrase is likewise significant in this connection.

Sun’s sale was set out in its 1947 contract and it — requiring the sale beyond the duration of that contract would constitute certification of more than the whole of the sale proposed by the application which we say is permitted by that language of Section 7 (e).

But, regardless of the phrasing of Section 7 of the Act, the certificate actually issued, in our view, the certificate actually issued by the Federal Power Commission did no more than authorize the particular sale involved by virtue of its own and its very words.

In other words, although we do not recognize the authority of the Commission to issue a certificate authorizing more than the whole of the sale as evidenced by the contract, at the same time, we don’t have to reach that issue here because it is also our position first that by virtue of the very order that issued the certificate, the Commission itself limited the certificate authorization to the particular sale that Sun had accomplished by virtue of its contract in 19 — entered into in 1947.

That’s true also that is that the certificate itself limited the authorization to the duration of the contract.

That’s true also because the certificate did not even purport to condition the certificates so as to make it one of unlimited duration.

Assuming the Commission had the — that kind of conditioning authority, this certificate did not purport to exercise any such authority.

The practice that was used in the next case, Sunray specifically applying for a limited certificate, was that a practice that had been in existence before or is that something new?What was the practice at the time that these events became in place?

Leo J. Hoffman:

Well, our practice had been to file certificate applications in the very form in which this application was filed.

I think perhaps some of the other companies had filed some applications which in —

(Inaudible)

Leo J. Hoffman:

— expressed words —

(Inaudible)

Leo J. Hoffman:

(Voice Overlap) limited term.

Earl Warren:

We’ll recess now.

— continue.

Leo J. Hoffman:

Mr. Chief Justice, may it please the Court.

I realize now that I misinterpreted one question that Mr. Justice Harlan asked me and I would like to correct my misinterpretation now.

When you asked me, sir, whether any — within my knowledge, whether any of the applications which were granted by the order issued by the Commission, the order appearing at page 99 of the record, whether any of those applications requested permanent authority, I — I thought at the moment that you were drawing a distinction between permanent authority and temporary authority.

The Commission does have a procedure for issuing temporary authorization as you know and I — I made the comment that to my knowledge, all of these applications involved permanent authorization request but I meant permanent as distinguished from temporary authority.

I did not mean request for unlimited duration of sale or service as distinguished — with limited duration.

As a matter of fact, my basic answer is still the same.I’m not familiar with the applications other than those of Sun Oil Company which are involved in this order.

And it is true that all of the applications filed by Sun which were covered by this order, the Commission were in essentially the same form as the one that is involved in this particular case.

In connection with the Section 7 matter, the certificate matter, Sun asserts then that in 1954, it requested a certificate which would coincide with the remaining term of its 1947 contract.

And that in 1956, by virtue of the order that appears at page 99 of the record, it received such a limited duration certificate.

That in 1957, when Sun’s new contract became effective, the certificate for the first sale had expired and that finally Sun was entitled to file an application for a certificate of public convenience and necessity authorizing the new sale which had been accomplished by its 1957 contract.

Now, the Power Commission has contented in its brief that in the 1956 certificate order, the Commission authorized some sort of service which was not merely for the remainder of the term of the 1947 contract.

We submit that that argument essentially begs the issue which is involved here because whether Sun’s acts, as authorized by the Commission order, be characterized as a sale or a service, the contract determine — determines the duration of the acts undertaken.

Now, we assert, and I have stated earlier today that in our view, the acts and operations covered by Sun’s 1947 contract did not constitute a service, rather they constituted and represented the sale.

But nevertheless, even if it be — if those acts be characterized as constituting a service, the term of that service, if you please, is still the determined by the term of the 1947 contract.

We think that that is in keeping with a single statutory scheme of the Act as was explained in the Mobile station and as far as we are concerned, it’s likewise clear from the language of the Act itself.

We think that the certificate issued by the Commission was completely cleared in authorizing the acts for which authority had been requested by Sun’s application however those acts may be characterized.

Now, I would like to take some time to talk about the rate schedule matter which is involved in this case.

And again, I wish to emphasize in connection with the rate schedule matter that when the new contract became effective, the old contract had expired and terminated and emphasize too that the new contract was not an extension nor an amendment of the old contract.

The new contract represented a complete unrelated sale which was not even contemplated by the earlier contract.

Now, under Section 4 (c) of the Natural Gas Act, we have the — the provisions which relate to initial rate schedule filing.

Section 4 (c) of the Act appears in our main brief at page 56, the paragraph commencing at the top of the page.

It is our view that Section 4 (c) requires the filing of an initial rate schedule for any jurisdictional sale, and the Act reads in those terms.

In — within the scope of those terms, our 1947 contract represented a sale, and under Section 4 (c) of the — of the Act, the duration of the rate schedule, the initial rate schedule which was filed for the 1947 contract under Section 4 (c), the duration was determined by the duration of the contract.

And I’m speaking of the duration of both the rate schedule and the contract which comprised the rate schedule.

Because there again, the essential word is the word “sale” and in our view, the word “sale”, everywhere in the Act, including this place in the Act, has its ordinary legal connotation.

It’s an act or series of acts, if you please, evidenced by contract.

And in Sun’s case, the acts of sale were evidenced by the 1947 contract.

So that by virtue of the very language of 4 (c), the 1947 contract determined the duration of the rate schedule which Sun had filed in accordance with 4 (c).

Leo J. Hoffman:

Now, likewise, the 1957 contract, being a separate unrelated sale and representing a separate unrelated sale, has Section 4 (c) separately applicable to it, representing a separate independent sale not contemplated by any other sale.

It, likewise, is filable under Section 4 (c) of the Act as an initial rate schedule.

By the same token, Section 4 (d), which likewise appears on page 56 of our main brief, is not applicable under the circumstances of this case.

It applies to a change in rate or rate schedule.

And our 1957 contract was not actually a change in the 1947 contract.

The 1947 contract had expired.

It did not exist when the 1957 contract became effective.

And — the 1947 contract and the rate schedule which it — which it comprised no longer existed to be changed or existed as the basis for any change.

The same again is true of the existence of a contract, as a contract or as a rate schedule.

When Sun filed and the Federal Power Commission accepted the 1947 contract, the Sun’s rate schedules, it’s our position that all of its terms became Sun’s rate schedule, including the termination day.

When the contract expired, the rate schedule likewise expired.

We think that’s the — the effect of Section 4 (c) and it follows naturally that — that if that is the effect of — of Section 4 (c), that — that 4 (d) cannot be applicable because the 1957 contract would not constitute a change in the earlier contract.

Section 4 (d) bares out that interpretation because the opening language is in this phrasing unless the Commission otherwise orders no change shall be made by any natural gas company in any such rate, charge, classification or service or any rule, regulation or contract relating thereto and so on except upon notice to the Commission.

Such rate charge classification and service and such contract relates back in our view to contract or — or rate or rate schedule which had been filed under Section 4 (c) and which is then and still in existence a change in a rate schedule which otherwise continues to exist.

I think that’s also born out for the down in Section 4 (d) where the language reads that such notice shall be given by filing wit the Commission and keeping open for public inspection and so on.

The change or changes to be made in the schedule or schedules then enforce in a time when the change or changes going to effect.

Sun’s 1947 contract as a rate schedule was not then enforced at the time its 1957 contract became effective.

And therefore, by virtue of that phrasing, particularly the words then enforce Sun’s contract — the latter contract had not constitute a change in the earlier contract or in the rate schedule that was filed for the earlier contract.

Now, Sun’s interpretation does not leave the Power Commission without any power of review of the new contract, if it is — even if it is properly treated as an initial rate schedule because our interpretation still leaves the Power Commission with its full Section 5 (a) authority under which it can modify an initial rate schedule after hearing and after making certain findings.

But I say again that no Section 5 (a) authority was exercise here and there is no doubt about that in the record of this case.

We think Sun’s contentions as to Sections — Section 4 of the Act supported by the Power Commission’s own regulations and we have so stated in our brief, but I won’t go into the regulations here.

We think also that the Commission’s orders are plain in conflict with this — with this Court’s decision in the Mobile case as it was confirmed later in the Memphis case.

The court said in Mobile that the Act, the Gas Act does not abrogate private contracts that the initial rate making powers with the Natural Gas Company that the Power Commission’s power is one of review of rates determined initially by the natural gas companies.

We say that Sun’s 1947 and 1957 contracts were each an exercise separately and independently of Sun’s initial rate setting power within the scope of the Act and within the scope of the Mobile decision.

In the light of Mobile and Memphis, the suspension power of the Power Commission is actually not available to it here whether a change in rate schedule occurs is to be determined from the contracts.

And here, no amendment or supplement or other change in the 1947 contact occurred.

It simply expired by its own terms and Section 4 (e), the suspension provisions are therefore not applicable.

The lower court based its decision that the 1957 contract was a change under Section 4 (d) on two of its own earlier decisions.

But those cases related to price adjustments which occurred under the terms of continuing contracts, contracts which would otherwise still be enforced.

And we say those cases are not applicable to this case.

Leo J. Hoffman:

The Court referred to those cases and then continued that it necessarily followed from those cases that where Sun made a new contract which was for the same service, the Court used that expression as the old contract, the new contact represented a change.

In our view, the cases cited by the Court did not begin to support the proposition, and the proposition as to same service was merely asserted by the Court with no cited support, whatsoever.

The Commission uses the same proposition in our — in its brief.

We have pointed out in considerable detail in our reply brief how our sales, neither sale constituted a service, but in any event, whether a sale or a service, the scope of it, the duration of it is determined under Mobile and under the language of the Act by the duration and scope of the contract itself.

(Inaudible)

Leo J. Hoffman:

Well, we also take the position which it isn’t necessary to — to reach here of course, but assuming what you’ve said, we also take the position that even if, by some stretch of the imagination, the original certificate which was issued in 1956, be deemed to cover successive sales from the same field and we’ll say the — the same pipeline purchaser, nevertheless, under sections — under Section 4 (c) of the Act, Sun’s second contract, the contract that was entered into 1957 constitutes an original or rather an initial rate schedule and does not constitute a change within the meaning of Section 4 (d) of the Act.

I — I think that the term “sale” should have the same meaning in both Section 4 and Section 7 of the Act and that’s precisely why we argue in this case that in the same terms with respect to both sections that the certificate came to an end under Section 7 when the contract came to an end, likewise the rate schedule came to an end when the contract came to an end so that we could start all over again with initial rate schedule and new certificate application.

But even if — if the other statement were true, still a new contract, in our view, represents an initial rate schedule and not a change.

If there are no other questions at this point, Your Honor, I would like to reserve sometime in the closing.

Earl Warren:

You may, Mr. Hoffman.

Mr. Wahrenbrock.

Howard E. Wahrenbrock:

Mr. Chief Justice, may it please the Court.

I’d like to preface my argument in this as well as in the next case with a very short statement of what I believe to be our basic position applicable to both cases, namely that the Natural Gas Act does not leave a company which is engaged in supplying natural gas for ultimate distribution to the public, free to fix its own time when it will quit that sale, either unilaterally or by contract.

Because Congress by regulating the abandonment of service has incorporated in the Natural Gas Act the basic public utility concept of dedication to public service.

Does that mean (Inaudible)

Howard E. Wahrenbrock:

If Sun wanted to stop its service, it would have to comply with Section 7 (b).

And to comply with Section 7 (b), it would have to get the Commission’s permission or approval, which the Commission could only give if it found that the available supply of gas was depleted, to use a short phrase, or if it found that the public convenience and necessity would permit such abandonment.

Well, that doesn’t mean that you (Inaudible)

Howard E. Wahrenbrock:

Yes.

— despite their desire not to make a new contract (Inaudible)

Howard E. Wahrenbrock:

Yes.

Charles E. Whittaker:

Does that mean, if I understand you, sir, that any owner of gas producing lands who once devotes a portion of it to a contract of sales or distribution in commerce can never quit?

Howard E. Wahrenbrock:

Until it gets the permission and approval of the Commission under Section 7(b).

Yes, sir.

Hugo L. Black:

Is that proceeding some analogous for the abandonment of a railroad instead of the ICC?

Howard E. Wahrenbrock:

The language which was originally suggested for that Section 7 (b) was modeled on Section 118 of the Interstate Commerce Act and this language is, so far as it is here pertinent, substantially the same.

Yes, sir.

Felix Frankfurter:

Well, that’s the common provision in state utility regulation statute.

Howard E. Wahrenbrock:

Yes.

That’s the reason I refer to it as the usual public utility concept of dedication to public service.

Howard E. Wahrenbrock:

Present case involves an attempt to a claim that the expiration of a contract constitutes an exemption to that.

(Inaudible) case involves the sellers in systems on a certificate for a new sale —

Felix Frankfurter:

Well, the — your general —

Howard E. Wahrenbrock:

— with the right to —

Felix Frankfurter:

— your general preposition doesn’t without more beside this case.

Howard E. Wahrenbrock:

No, sir.

The order here under review dealt, as my opponent has suggested, with two filings tendered by Sun.

The first, a filing of a 20-cent per Mcf rate for gas in lieu of a previous 7.33-cent rate in order to express them both on the same pressure base, 7.36 cents per Mcf in lieu of a 7.33-cent rate for gas from the same production field sold by the same seller from the same production properties to the same seller through the same facilities in substantially the same amounts, the formula was different, the amounts have continued and substantially the same to the same buyer and for the same purpose.

Felix Frankfurter:

Mr. Wahrenbrock, I ought to know, but I don’t recall.

Has your Commission filed a fixed minima as well maxima?

Howard E. Wahrenbrock:

Not in expressed terms.

Felix Frankfurter:

What does that mean?

Howard E. Wahrenbrock:

It is directed to — if it finds that a rate is unjust or unreasonable or unduly discriminatory or preferential to fix the just and reasonable rate.

Felix Frankfurter:

The — the point of my question is, your position wouldn’t be any different if the new arrangement for a lower rate rather than a higher rate.

Howard E. Wahrenbrock:

That is right.

But in spite of the fact that these physical transactions, these substantial transactions, these ultimate transactions are so similar, Sun, nevertheless, attempted to file the new rate as a new one and not as a change.

And to be consistent, it applied for a new certificate.

Now, the significance of this attempt is obvious if it could get both a new certificate and a new rate yet and treated as that, it would mean that it was free to contract to quit a service at any time.

It would not be obliged to continue its service subject to getting approval under Section 7 (b).

Felix Frankfurter:

Well, is that necessarily — a necessary logical consequence?

Howard E. Wahrenbrock:

I think —

Felix Frankfurter:

That means — — that means that so long as it is in business, it allowed to be in business, it can never make a new contract, that all — all aspects of new arrangements for service are continuations of the old and changes merely in its terms although the original arrangement was a term arrangement.

Howard E. Wahrenbrock:

There is nothing to prevent it, if Your Honor please, from contracting for a service to succeed the previous service, a rate to succeed the previous rate, filing the change or the same rate or service with the Commission.

Felix Frankfurter:

No, but it must be of a change rate and a change of an existing arrangement rather than de novo —

Howard E. Wahrenbrock:

Yes.

Felix Frankfurter:

— initiated contract.

Howard E. Wahrenbrock:

Yes, sir, unless it has gotten permission of the Commission to abandon, to terminate the previous sale.

Felix Frankfurter:

Well —

Howard E. Wahrenbrock:

And —

Felix Frankfurter:

In all arrangements of natural gas producers, continuous arrangements.

Howard E. Wahrenbrock:

Yes, sir.

Felix Frankfurter:

And merely, the change rate for the — the scheme of — of getting permission to change the rate is applicable.

Howard E. Wahrenbrock:

Yes, sir.

Now, I draw this distinction.

There had been some instances when a company had a temporary supply of gas available or somebody had a temporary need, they’ve asked for limited term certificates and the Commission finding that there were special circumstances.

There have been about four such we sight in our brief.

Finding the special circumstances there issued certificates with conditions to them expressly fixing a date of termination upon which the obligation to continue service would expire.

Felix Frankfurter:

But the terminal date must be fixed by the Commission in your view and not by the party.

Howard E. Wahrenbrock:

That is right.

Now, if Sun could contract to terminate at the end of 10 years as here, it could do so for five or one or as here, with the contract provision in it and this contract had a provision in it that if the Federal Power Commission should undertake to fix its rates to reduce the rate fixed in the contract, Sun had the option on 30 days notice to terminate the entire contract, then the power, that’s on sought here, would enable it at anytime on 30 days notice to avoid any rate that the Commission fixed that was less than the contract rate.

Now, Mr. Justice Harlan has suggested that there might be a difference between the duration of the certificate and the duration of the rate schedule of filing.

If Sun could only get a new rate schedule and the old certificate were to continue, then it would avoid Commission regulation of the 7.33 to 20-cent increase under Section 4 (d) of the Act as a change and the result would be that the Commission could not suspend the 20-cent increase for five months.

It could not impose the refunding obligation upon the expiration of the five months.

And at the hearing, the burden of proof would not be upon Sun to justify the new rate.

Instead, it would — the Commission would have to proceed as Mr. Hoffman has suggested under Section 5 (a) under which the burden is on the Commission.

The Commission would first have to go out and make its field study in order to be prepared to go forward and the rate would become effective only prospectively from the end of the rate proceeding before the Commission.

Now, the — the order under review, as Mr. Hoffman said, rejected both of these filings as duplications, the 20-cent rate as a duplication of the 7.33-cent rate because there had been no notice of termination of the 7.33-cent rate and the certificate application because there had been no application and no granting of an application for permission to abandon the service.

But in — it acted without prejudice to the right of Sun to file for a rate change and that’s what it did.

That rate change was suspended for five months.

It then went into effect under a refunding obligation.

The hearing — the proceeding on that rate increase was consolidated with a 5 (a) proceeding, which the Commission had initiated against Sun.

The two began hearings last fall and the hearing is right now under recess and will resume in May.

I’d like to take up then first the rate aspects of the Commission’s order and point out that the provisions of the Natural Gas Act and the Commission’s regulations clearly warranted the Commission’s rejection as duplication for non-termination of the preceding filing.

Section 4 (d) of the Act, which appears in our brief in the appendix at page 52, provides that no change shall be made in any rate which is subject to regulation by the Commission without 30 days notice given by filing a new rate schedule with the Commission and public notice of that new rate.

This section would require notice to be filed in that manner of a termination of a sale because it has long been established that a termination is a — a change in service.

That question first arouse before the Federal Power Commission following this Court’s affirmance of the Commission’s assertion of jurisdiction under the Federal Power Act, under corresponding provisions of the Federal Power Act of jurisdiction over the Jersey Central Power & Light Company.

Following that affirmance of Commission jurisdiction over that company, Jersey Central tried to get out from under the Commission’s regulation by terminating that service.

And the Commission refused to do — refused to allow that termination to go into effect unless it would file notice of that termination under the rate filing provisions of the Power Act which correspond to those of the Gas Act.

And that early interpretation of the change requirement as applying to the termination of sale was thereafter embodied in the Commission’s formal regulations and appears in Sections 2.4 for the Power Act and 2.5 for the Gas Act, which we have cited and which appear in the appendix to our brief.

Beyond that, this Court referred to that interpretation and in effect, we think approved it in the Pennsylvania Water & Power Company case where after the Commission had reduced Penn Water’s rates and Penn Water was filing its application for rehearing, it represented to the Commission in its application for rehearing that it was terminating the contract in order to get out from under the sale, the price of which the Commission had reduced.

Howard E. Wahrenbrock:

And it said, “Because of that termination of the sale, your order has now lost its basis.”

The Commission in its denial of rehearing in that case said, “You have not complied with the requirement of the filing provisions that you file notice of that termination as a sale and not having complied with it, you have — your action is illegal and provides no basis for rehearing.”

When that matter came before this Court, the Court considered it.

And at that time, a further element had entered into it.

In a private litigation, the contract under which that service had been rendered, had been held illegal under the Sherman antitrust law and Penn Water argued that that provided a further basis for avoiding the rate which the Commission had reduced.

Mr. Justice Black writing for the Court in that case referred to these arguments and said, “If Penn Water wants to discontinue some or all of its services it has rendered for the past 20 years, the Act,” as the Commission pointed out, namely, as it had pointed out in its order on the application for rehearing, “opens up a way, Section 205 (d),” and that is the section which corresponds to 4 (d) here, “provides that no change shall be made by any public utility in any such service or contract relating thereto except after 30 days notice to the Commission and the public.”

Mr. Justice Black went on, “Here, instead of following the procedure for changing existing services and practices, a procedure which the Congress has authorized and which the Commission has supplemented by rules of its own, the company has tried rather to utilize a violation of the Sherman Act so as to nullify a rate reduction order.”

Now, after this Court’s decision in the Phillips case, holding that the Gas Act applied to independent producers, the Commission in the new regulations, which it issued applicable to independent producers, embodied in those regulations a section which explicitly dealt with this subject which Sun has not complied with.

That section is entitled “Cancelation or Termination” and it reads, “When a rate schedule or part thereof is to be cancelled or is to terminate by its own terms and no new schedule or part thereof is to filed in its place, the filing company shall notice the Commission of the proposed cancellation or termination at least 30 days prior to the proposed effective date of such cancellation or termination.”

Now, that provision for a special re-filing ,where a filed contract is to terminate in the future by its own terms, is parallel by similar requirements requiring special re-filing were a filed contract rate is to increase in — the rate is to increase in the future by its own terms.

Other regulations of the Commission are explicitly in reference to that and such requirements have been consistently enforced by the Courts of Appeals.

We cite in our briefs seven cases spanning 19 years under the Gas Act, decided in four circuits in which this Court has denied certiorari five times.

Culminating, I may say, in the decision last fall by the Court of Appeals for the District of Columbia Circuit in the Episcopal Theological Seminary case and because our brief deals inadequately, I — I feel, with that case, I wish to take time to call the Court’s attention specifically to this very relevant language by Mr. Justice Reed, sitting by special designation on a panel which included Chief Judge Prettyman and — and Circuit Judge Fahy.

Section 4 (d) requires that the public must be kept informed.

Mr. Justice Reed went on to quote from that section “Informed ‘of these changes to be made’ in the schedule or schedules then enforce and the time when the change or changes will go into effect”.

No change may be made in any rate or in quoting from the statute, “Schedule then enforce without notice to the Commission and the public”.

This language is persuasive that forehanded contractual provisions cannot modify the regulatory provisions of the Act as urged by petitioners.

The purpose is to advice the public of a change in the current rate.

Petitioner’s interpretation would run counter to the language and purpose of Congress to maintain the lowest reasonable rates.

To approve escalation clauses in long-term contracts when the contracts were originally filed would determine rates for indefinite future periods.

Fair adjustments of escalation clause ratio the future costs and earnings would be impossible at that time.

Public utility rates cannot be fixed solely by bargaining between producers and distributors.

The governmental agency also has the duty to protect the consumers.

Charles E. Whittaker:

(Inaudible)

Howard E. Wahrenbrock:

Yes.

Sun bases its entire claim on the fact that it has contracted for a 10-year period — period.

Charles E. Whittaker:

(Inaudible)

Howard E. Wahrenbrock:

Yes, yes, he did so.

But I was answering on the assumption that you were inquiring with respect to the duration of the — of the obligation to continue to sell.

And as I understand petitioner’s contention, it is that that obligation expires because the contract expires without filing a new rate schedule.

Howard E. Wahrenbrock:

And this provision that I am speaking of requires that they file a new rate schedule even when the contract itself provides for its own expiration at the end of the 10-year term.

Now, the same considerations or similar parallel considerations to those that were referred to by Mr. Justice Reed would apply if the Commission were tried to decide 10, 15, 20 or more years in advance, whether the public convenience and necessity would permit future termination.

He was talking about future price adjustments.

Here, we have future termination if that were to be attempted to be resolved by the Commission when it accepted the original rate filing or when it failed to suspend the original rate filing.

And because of the close relationship of service to the question of rates, rates are after all price for a service, a specified service, and if you can change or terminate service, you — you’ve lost your power over the rates.

And Penn Water case, to which I previously referred, which it — correlated the regulation of the termination of service to a — a change in rate would be equally applicable here.

Now, ignoring all of these considerations with respect to the failure to terminate its rate filing, Sun contends that this is not a change for there are, it says here, two separate independent sales, each of a specific volume or batch of gas, to use its phrase.

We think that Sun’s preoccupation with the legal mechanisms, the contracts loses sight of the objectives of the Gas Act.

Congress was not concerned to remedy contracting practices.Congress was concerned with the public interest in the supply of gas and the rates to be charged, therefore, gas that was to supply the needs of the utilities that were locally distributing that gas to ultimate consumers.

Its concern, as manifested in Section 1 (a) of the Act, was not whether a succession of deliveries under one contract is involved or a succession of contracts.

It said in Section 1 (a), “The business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest.”

And in implementing that general policy, perhaps no — no provision of the Act is more important to these cases than to — than Section 7 (b), where it explicitly impose the obligation to continue service indefinitely.

Let me call your attention to the language of 7 (b).

It appears in the appendix to out brief, pages 54 and 55.

“No natural gas company shall abandon all or any portion of its facilities subject to the jurisdiction of the Commission or any service rendered by means of such facilities without the permission and approval of the Commission first had obtained after due hearing and the finding by the Commission that the available supply of natural gas is depleted to the extent that the continuance of service is unwarranted or that the present or future public convenience and necessity permit such abandonment.”

In the legislative history, brief and very little of it, though there is, is indicative that the purpose of that provision was to prevent evasion of rates which had been prescribed by the Commission or to prevent a company which was subject to Commission rate regulation by the threat of abandoning its service from being able to coerce regulation.

This appears in the testimony of Mr. John E. Benton, who was then the Solicitor of the National Association of Railroad and Utility Commissioners — Commissioners — Commissions, in testifying, and we cite this testimony of his in our brief.

He said, “There should not be any possibility of a company having the chance to claim and to litigate the claim, that if it does not like a rate which has been fixed by the Federal Tribunal, it can discontinue service.”

If a company has established service to a distributing company on which the public is dependant and a rate is fixed by the Federal Tribunal for that service, which the company does not like, the company should not be in a position to say, “We are permitted to abandon our service and we will abandon it.”

Now, I want to call your attention, if you please, to the fact that four times in that short quotation, Mr. Benton, who probably knew as much about the problem at that stage as anyone else.

Mr. Benton said — called it “service”, and he was talking about service to a succeeding buyer in the course of the chain by which the public ultimately would be served.

Potter Stewart:

He was talking about a pipeline though, wasn’t he?

Howard E. Wahrenbrock:

Our Commission felt for many years that this Act did not apply to produce — this Court has settled that question.

I don’t know what —

Potter Stewart:

I’m just talking about his testimony.

Howard E. Wahrenbrock:

He is talking about — specifically, his language is — has established service to a distributing company.

Now, that is not necessarily conclusive because I found the usage more than once.

The fact is that it was used by this Court recently, I think, regarding pipeline companies also has distributors of gas in a — in a broader sense.

That — that’s not necessarily controlling on that, I think, although it might have been.

Charles E. Whittaker:

(Inaudible)

Howard E. Wahrenbrock:

If you regard —

Charles E. Whittaker:

(Inaudible)

Howard E. Wahrenbrock:

If you regard the lines that radiate out from the southwest, from Louisiana, Southern Mississippi as distributing the gas from those sections of the country in that sense but not in the usual sense.

The usual sense is, however, to prefix local ahead of the word “distributor” and that is the more usual usage.

Now, I might point out that unless this 7 (b) were to apply upon the cessation of a contract, there wouldn’t be much need for it.

It — it’s really not as necessary during the terms of the contracts because during the terms of the contract, unless the seller can get the buyer’s agreement to modify the contract and terminate it, he cannot, under Mobile, the seller cannot file a termination.

So it is only a termination at the expiration of a contract that really invited this problem or a termination to which the buyer has agreed — agreed.

And I might point out in this connection that under the corresponding provision of Section 1.– 118 parenthesis of the Interstate Commerce Act, this very question with which we are here dealing, came before this Court.

In Thompson against the Texas Mexican Railway, and we think that the decision there lends further rate weight to the Commission’s position and the position of the court below here that the termination of a contract does not warrant the abandonment of service without the Commission’s approval.

There, one railroad had entered into 50-year contract to lease its tracks to another railroad and the other railroad was going to operate its trains for that 50-year period over its tracks.

The notice — the contract was terminable on 12 months notice and the lessor gave the 12 months notice.

When the operating company refused to stop operating its trains over the tracks and continued, the lessor sued to enjoin continued operation and sought to recover damages for each day’s continuance of the use in — after the contract had been terminated.

The District Court denied injunction but allowed recovery of damages.

The question of the damages came before this Court and this Court held — reversed the District Court and held that it should have stayed its hands until the Interstate Commerce Commission could pass upon abandonment under Section 118 of the Commerce Act and indicated that if the lessee didn’t apply for abandonment, the lessor could invoke the abandonment provision equally itself.

Felix Frankfurter:

Where is that case, its (Voice Overlap) —

Howard E. Wahrenbrock:

That is cited in our brief.

It’s 328 U.S. 134, if Your Honor please.

Felix Frankfurter:

Mr. Wahrenbrock, my difficulty in your position is that you think the disability — inability to abandon service is the sole question here rather than the way that you need to serve rather than the procedure by which or through which the duty to serve must continue.

Howard E. Wahrenbrock:

I — I haven’t come to that yet.

I think that this —

Felix Frankfurter:

That’s rather — isn’t that the crucial problem in this case?

Supposed one — suppose I agree entirely with you on the abandonment —

Howard E. Wahrenbrock:

Yes.

Felix Frankfurter:

— that doesn’t help me to get over one or the other side, does it?

Howard E. Wahrenbrock:

That is right.

And we — I have still to come to those.

Felix Frankfurter:

All right.

Howard E. Wahrenbrock:

Yes.

If this is the policy of Section 7 (b), I wish now deterrent to Sun’s contention that it’s 1947 contract constituted, as it says, “A single sale of a specific volume of gas for a specific term.”

Our position is that if you look to the terms of the contract itself, that it is not one sale, that it is not a particular — that no particular volume of gas is specified and that the term, the duration is contingent.

Howard E. Wahrenbrock:

It was rather, and the contract begins, I believe, on — near record 33, it was rather to furnish a continuos flow around the clock as the wells flowed around the calendar “of all merchantable gas that may be produced form all wells,” and that’s quoted from the contract.

And it was to produce such amounts as the pipeline.

The buyer might take within specified minima — minimum and maximum.

And let’s consider the minimum.

Sun owned part of the production properties in the Gwinfield — Gwinville Field.

The pipeline was proposing to take 20% of its pipeline requirements from the Gwinville Field and it had a formula for taking a ratable part of that field from Sun.

But — so the criterion becomes the pipelines requirements and those requirements are spelled out, all that the pipeline would sell, all that it would to operate, all that — its line, its own consumption and all that it would lose in the operation of its line.

That was its pipeline requirements.

But it was not only the original line as it was then in existence, but it was the line as it should be expanded or enlarged in the — in the States in which it then existed, some five southeastern States or, and explicitly in the statute, in any other States.

And as a matter of fact, during the 10-year term of the contract from 1947 to 1957, the pipeline requirements increased 400%, so that the initial 20% of the pipeline requirements represented four times as much at the end of the contract than it did at the beginning.

Something that wasn’t known but was provided for at the time the contract was entered into.

And on the contract itself provided that the pipeline could change the 20% — 20% minimum from 20% to 30%.

And then it provided that that was only the minimum, the maximum was that the pipeline could take 150% of the minimum, any day, everyday if it wanted to.

Now, under those circumstances, what becomes of the petitioner’s suggestion or claim that there was a specific volume, a batch of gas that was sold.

Contract also provided that if the seller wasn’t able to produce that much gas, if its wells and properties wouldn’t produce that much gas that then the minimum should be fixed at 66 and 2/3% of what the wells would deliver.

And that is the provision, 66 and 2/3% that constitutes basically the formula of the new contract, the 1957 contract.

The contract provided that payment was to be made for this flowing amount of gas on the 28th day of each month for the amount of gas metered during the preceding calendar month.

It provided that a certain minimum — the minimum amount should be taken or paid for at the end of each year.

Now, why isn’t that then 10 sales, 10 years, 10 minimum that fixes at the end of each year?

The price obligation is firmly fixed.

Perhaps, it’s 10 sales or perhaps it’s one sale every month, 10 times — 10 times 12, 120 or maybe it’s a sale everyday because it’s expressed in terms of daily maximum and minimum.

Maybe it’s the sale everyday.

The — the fact is that it was a continuing sale and you can use whatever legal rubric — rubric you want to, but you certainly can’t call it a sale of gas, one sale completed when made.

The — the seller is given the option by the expressed terms of the contract on 30 days notice to terminate the contract if the FPC undertakes to reduce the — the prices — the rate below the contract price.

In that case, what is the specific term of the contract?

What was the batch of gas sold?Other provisions, the contract show that it was not itself a sale as Sun now claims when it says in it’s brief “a — a contract of sale,” when it says that this constituted — constituted a sale because the contract expressly sell — says that the agreement is to sell and deliver, to purchase and receive.

And it goes on to say “All gas sold and purchased hereunder shall be delivered by the seller to the buyer at the outlet of each separator.”

Seller shall be in control and in possession of such gas and liable and responsible therefore up to such point of delivery and buyer shall assume all liability and responsibility therefore from and after such point of delivery.

It contains another provision in which it expressly, it seems to us, disclaims that a batch of gas is being sold all at once before delivery because it says “seller is not” in the language that Mr. Hoffman read to you.

Seller is not dedicating to buyer any portion of seller’s gas reserves.

Howard E. Wahrenbrock:

The —

Charles E. Whittaker:

(Inaudible)

Howard E. Wahrenbrock:

I think it is —

Charles E. Whittaker:

(Inaudible)

Howard E. Wahrenbrock:

I think it is — it is the continuing flow of gas which is necessary to meet the nature of the public utility law.

I think that’s what Congress intended to be met.

The public does not have storage facilities in its houses and commercial and industrial establishment for gas.

It turns the gas on and use it as it comes.

It’s not quite like electricity which has to be generated at the instant with the speed of light at which it is used.

There is line pack.

You can draw on storage in the line to a limited extent.

But it is a flow, a continuing flow.

It’s no more “segreble” into batches than the flow of a river.

Now, that so, paid for on a monthly basis with a final settlement on a yearly basis but continuable without termination.

And it is the — without termination that is fixed by the statute.

All the Commission has left to do is to regulate the rates, take care of the certificates of convenience and necessity for making the sale and for terminating them in accordance with 7 (b).

The contract — there can be no contract right to terminate what this Act attempts to regulate as a continuing flow.

This — it seems to —

Felix Frankfurter:

What is the significance of the terminal period in the contract?

What is — what legal point —

Howard E. Wahrenbrock:

At the —

Felix Frankfurter:

— is that to it?

Howard E. Wahrenbrock:

— at the end of that period, Mobile would never — the — the decision of this Court in United against Mobile, would not prohibit the seller from then coming in unilaterally with any rate it wanted to file.

I think that is probably the most important significance.

Felix Frankfurter:

Once the — once the Commission sanctions a rate for a term contract, the Commission is bound by two, is it — is it?

Howard E. Wahrenbrock:

I’m not sure what the significance of the Commission being bound might be.

Felix Frankfurter:

What I mean, during that period, the rate can’t be changed, could it, if there’s an agreement between the parties and the — and the Commission has sanctioned it?

Howard E. Wahrenbrock:

The seller cannot unilaterally file in violation of its contract.

The Commission can fix if it finds that the rate is unlawful.

Felix Frankfurter:

Sua sponte?

Howard E. Wahrenbrock:

Yes, sir, under 5 (a), yes.

And we think this is confirmed by the statutory language of Section 1 (b) which sell — states what the Act shall applied to.

The provisions of this Act shall apply to the transportation of natural gas in interstate commerce to the sale in interstate commerce of natural gas for resale for ultimate public consumption, for domestic, commercial and industrial or any other use and to natural gas companies engaged in such transportation or sale with some qualifications that follow that I think are not pertinent here.

I’d like now to refer to the discussion of — to the point — the argument that is made based on Mobile that the language in Mobile indicates that the contracts must be given such integrity here as to require Section 7 (b) to be read as accepting contracted terminations from the scope of 7 (b).

First, let us understand —

Hugo L. Black:

Before you do that, would you mind?

You said something a few moments ago about the contract containing a provision that if the rate should be changed by hearing before the Commission, contract should cease to exist.

Did you say that?

Felix Frankfurter:

Yes, this contract, this —

Hugo L. Black:

What provision is that?

Howard E. Wahrenbrock:

This —

Hugo L. Black:

Where is it?

Howard E. Wahrenbrock:

— 1947 contract contains provision on page 46 of the record, about — at the bottom of that page, the last paragraph beginning on the page, about half way down the paragraph, “And should the Federal Power Commission or any other, federal, state or other governmental regulatory body undertake to reduce the price which seller is to receive under this agreement or directly or indirectly to take any action would bring about such a result, then in such an event, seller at its option, may cancel and terminate this agreement upon 30 days written notice to buyer of its intention so to do.”

Hugo L. Black:

May I ask you the practical matter?

What would be the effect of that if the Commission should act under 5 and finally have here — at the hearing reduce the rate fixed in the contract?

What would be the consequence of this clause to the contract under those circumstances?

Howard E. Wahrenbrock:

None, giving 7 (b) the effect which, we think, must be given to it.

Hugo L. Black:

I — I understand.

I’m talking about giving the Act the effect which your adversaries asserted should be given.

Howard E. Wahrenbrock:

I think I’ll have to leave them to say whether they believe that the — the exercise of this termination right here would call for the same treatment which they say the expiration of the originally fixed term of the contract would call for.

In our opinion, there should — in my opinion, there should be no difference, although that has not been passed on by the Commission.

If the contract terminates at the end of 10 years or if it terminates under this clause, we think that the same contention that they are making would be applicable.

Hugo L. Black:

May I ask you another question as to the practical effect?

Suppose the — this contract — this contract instead of being made for 10 and 20 years had been made for one year or for six months, what remedy could the Commission have afforded in connection with rates that were too high, it deemed too high?

Howard E. Wahrenbrock:

On — again, on the petitioner’s theory, if — if 7 (b) wouldn’t prevent their abandonment, they would, at the end of six months or one year, whatever contract term they had fixed, they would be free to abandon and if they didn’t like the new — if the new rate were sufficiently distasteful, presumably, they would exercise the right.

Hugo L. Black:

Suppose — suppose during that six months or a year, the Commission had pending before it hearings under 5 to bring about a reduction of rates or change in rates, what would be the effect?

Howard E. Wahrenbrock:

This is what I — this — the effect would be the same.

This is what I was trying to point out, the serious consequence.

(Inaudible)

Howard E. Wahrenbrock:

The certificate authorizes services for an indefinite period.

(Inaudible)

Howard E. Wahrenbrock:

And require as a condition or offer an alternative.

(Inaudible)

Howard E. Wahrenbrock:

I hadn’t considered —

(Inaudible)

Howard E. Wahrenbrock:

Yes.

We had — the Commission has not faced applications at that time.

I might say that in response to the questions that were advanced during Mr. Hoffman’s argument that except for the four petitions for certiorari which have not been acted upon by this Court, all of them, together with this case, constituting a flurry of objections to the Commission’s failure to grant, to treat the contract as marking the expiration of the obligation to sell arising out of Gwinville Field and the questions which have been raised by Sunray and the preceding case and in this and other group of cases that are now pending in the Tenth Circuit and one case by — originally brought by (Inaudible) and now called Pan American which is pending.

With those exceptions, I think there have been no applications that have raised this question that is now raised.

No applications which have used any significantly different language from that which is used by the application here.

Hugo L. Black:

Well, why should the Commission have power to stop just precisely what I said?

If it’s true, they have a right to make contract terminate at the time they agreed on.And they make those contract and they decide to make them for a year or six months during which time you wouldn’t have great opportunity to pass on the rates under 5 (a).

What — what power would the Commission have to — if his position is correct that they have a right to make this contract, what power the Commission has to stop it?

Howard E. Wahrenbrock:

It is the apprehension that this would handicap the Commission’s administration, effective administration of the Act which it seems to us requires that 7 (b) be given the interpretation which we have given it.

Felix Frankfurter:

May I ask this.

When a contract like this is filed as a basis of a 10-year certificate, has the Commission — would — would the Commission have power to say, “No, we won’t grant a certificate on a term contract and no matter what the term is you can’t abandon your service.

No matter what changes you make in a contract, in a document at the end of a terminal period, it’s a continuing — it continues the old contract.

We grant you a certificate only on the condition that the contract in term is for an indefinite period.”

Would you have that power?

Subject of course to applications for increases or decreases in rate, increase in rate.

That’s —

Howard E. Wahrenbrock:

It seems to me —

Felix Frankfurter:

— merely what you said, the contact amounts to, don’t you?

Howard E. Wahrenbrock:

It seems to me that the answer to that question depends on the answer of the question I gave you before.

You’ve asked what was the — what was the effect of the contract limitation on the term and I said the effect of the contract limitation on the term was Mobile, that is to say that the seller could not file a rate in violation of its contract but when its contract expired, then the seller could unilaterally file.

It seemed to me that what you’re asking now, it says, “Could the — in effect amounts to this, could the Commission in issuing a certificate originally say that you must contract for an indefinite term which means that you would extend indefinitely the period of time within which the seller could not unilaterally file in violation of its contract?”

And that would depend upon whether the Commission found that the public convenience and necessity permitted such an arrangement.

Felix Frankfurter:

Well, if he — at the end of the period, I don’t see what difference — real difference it makes.

He — he has to get the permission where they could unilaterally file or not, he has to get the permission of the Commission to make any changes, doesn’t he?

Howard E. Wahrenbrock:

At the end of the period, he can —

Felix Frankfurter:

I mean, what difference does it make to the consumer or to public interest, which is you’re — which you are the trustee?

What difference does it make?

Howard E. Wahrenbrock:

It seems to me that the — that as long as the 7 (b) is given the interpretation we have suggested it should be, that the consumer — that the Commission can protect the consumer interest completely as the Act intended.

Hugo L. Black:

What — what is the increase provided in this contract?

From what to what?

Howard E. Wahrenbrock:

The — the preceding rate was 7.36 cents per McF.

The new rate, so-called, was 20 cents.

Felix Frankfurter:

But it wouldn’t make any difference if it was just raised to 9, would it?

Howard E. Wahrenbrock:

No, no, or — or as — as one of the questions before it —

Felix Frankfurter:

Are — are reduced.

Howard E. Wahrenbrock:

— were reduced.

Felix Frankfurter:

Yes.

Charles E. Whittaker:

(Inaudible)

Howard E. Wahrenbrock:

No.

Charles E. Whittaker:

All right.

(Inaudible)

Howard E. Wahrenbrock:

If they had wanted to do that, they would have to obtain the Commission, they would have had to file notice of the termination of the rate schedule and they would have had to apply — this is not quite clear.

Our practice hasn’t answered all of these questions yet, but they would either have to get permission for the termination of the sale to this pipeline and then apply it for the sale to the new one as a new transaction or have applied for it as a change of the existing transaction by substituting a different purchaser and in either case, the Commission would have to determine whether the public convenience and necessity permitted those changes.

Charles E. Whittaker:

(Inaudible)

Howard E. Wahrenbrock:

I’m not prepared.

I’m not in a position to — to state categorically that it would be a new sale just by reason of the change of the purchaser.

I — there can be circumstances under which the change of the purchaser might be nominal, might not have the effect of making a new transaction out of it.

That question has not been settled (Voice Overlap) —

Felix Frankfurter:

If it’s a new — if it’s a new company, for instance, it’d be a new sale, wouldn’t it?

Howard E. Wahrenbrock:

It might be a corporate successor.

Felix Frankfurter:

Could I’m — I’m — could I eliminate all that, a brand new non-corporate successor?

Howard E. Wahrenbrock:

I’m not sure what all the factors are, which might make it a new sale or not a new sale.

Felix Frankfurter:

Well, now — very well.

Let me ask you this.

Assume this is a new contract.

Howard E. Wahrenbrock:

Yes.

Felix Frankfurter:

I’m — assume I agree with you about abandonment power, what control has the Commission, assume you were wrong, you’re wrong in you contention, what control does the Commission have over this — over this as a newly conceived contract?

Just assume that.

Howard E. Wahrenbrock:

To determine whether the public convenience and necessity require the issuance of a certificate for the new — the new service.

Felix Frankfurter:

And if the rates are too high, you could refuse a certificate?

Howard E. Wahrenbrock:

Or impose a price conditions as in CATCO.

Felix Frankfurter:

All right.

Yes.

I mean — so that — that this — a — a conceived new contract would have to run the (Inaudible) of your approval of the public interest, is that right?

Howard E. Wahrenbrock:

But it would still not meet this, if Your Honor please, that all of the cost that is involved in laying lines to get the gas and in taking it where it’s needed, the duplication in facilities would be water over the dam.

We would — we would have lost the old — the old arrangement.

We’d have no power or control.

Felix Frankfurter:

You mean you could take that into account in — in —

Howard E. Wahrenbrock:

We could take into account but its spilled milk by that time, if I understand your hypothetical situation.

Felix Frankfurter:

Well, if the new service is partly dependent on this water over the dam —

Howard E. Wahrenbrock:

[Laughs]

Felix Frankfurter:

— wouldn’t it be?

Wouldn’t that be taken into account?

I’m just trying to find out what as a —

Howard E. Wahrenbrock:

Conceivably, the —

Felix Frankfurter:

— practical matter would be the difference what — what lessen control or power you have in protecting the public interest if this were conceived to be a new contract?

Howard E. Wahrenbrock:

Conceivably, the Commission might feel that it was in a position by refusing approval for any new to force a continuation of the old which would be to achieve by indirection or what — on the assumption, the Commission does not have power to compel directly.

Felix Frankfurter:

Well, of course, this question would never have risen if the rate had been the same, would it?

I mean, wouldn’t it be an urge —

Howard E. Wahrenbrock:

Becomes — it becomes — certainly it becomes significant now for that reason.

I would like to —

Potter Stewart:

You would have control under Section 5 (a) in — in making Mr. Justice Frankfurter’s assumption, wouldn’t you, as to price?

Under 5 (a), wouldn’t you have control —

Howard E. Wahrenbrock:

I’m — I’m sorry.

I missed the first question.

Potter Stewart:

Well, making Mr. Justice Frankfurter’s assumption that there’s no right to abandon, as I understood, but that this is a new contract, a new contract entered —

Howard E. Wahrenbrock:

Yes.

Potter Stewart:

— into between these.

Howard E. Wahrenbrock:

Yes.

We could still proceed under 5 (a).

Potter Stewart:

As — so far as price go.

Howard E. Wahrenbrock:

Yes, and that does not have the benefit of the suspension, the retroact — or the retroact.

Hugo L. Black:

But that is the main difference, isn’t it?

Howard E. Wahrenbrock:

Yes, sir.

I think so.

Hugo L. Black:

As I understand it, they claim that all initial rates can have — that they have a right to make all initial rates by contract.

Howard E. Wahrenbrock:

Yes.

Hugo L. Black:

They say that when they submit that contract, all you could do, if you did anything, was to initiate some kind of movement later which puts —

Howard E. Wahrenbrock:

Yes.

Hugo L. Black:

— the burden on the Commission to have hearing.

Howard E. Wahrenbrock:

Yes.

Hugo L. Black:

And that if within five months, it reduces their acts, then you have some action —

Howard E. Wahrenbrock:

Yes.

Hugo L. Black:

— but if you do not act within five months, what takes place?

Howard E. Wahrenbrock:

Well, the rate — we have to act within 30 days.

If they don’t —

Hugo L. Black:

30 days.

Howard E. Wahrenbrock:

— act, the rate goes into effect, then we may only act under 5 (a).

Hugo L. Black:

Under what?

Howard E. Wahrenbrock:

Under 5 (a).

They —

Hugo L. Black:

And that proceeding is what?

Howard E. Wahrenbrock:

The — the prospective rate fixing after we initiate and carry the burden of proof and find that the existing rate is unlawful and prescribed by a just and reasonable rate.

Hugo L. Black:

How long does that take ordinarily?

Howard E. Wahrenbrock:

It depends upon the kind of proceeding you’re talking about, Your Honor.

Hugo L. Black:

In case like this.

Howard E. Wahrenbrock:

We still have the Phillips case not decided.

Hugo L. Black:

How long has that been?

Howard E. Wahrenbrock:

I don’t know how long it’s been.

Hugo L. Black:

About how long?

Howard E. Wahrenbrock:

Too long.

It’s been — Your Honors know how long it’s been since the — the Phillips case in June of 1954.

Felix Frankfurter:

What —

Earl Warren:

Is there any such case been decided yet?

Howard E. Wahrenbrock:

No major producer rate case contested.

Hugo L. Black:

And what’s happened to their contract, whatever the rate?

Howard E. Wahrenbrock:

All the increases are under suspension and are being processed as Sun’s in this case.

Felix Frankfurter:

Well, now, aren’t these — aren’t these considerations have to canvas the last two or three minutes at the heart of this whole (Inaudible) confident, these — the actual practical results depending on whether they go under 5 (a) with all the power that you have or haven’t got or if this is a continuing contract?

Howard E. Wahrenbrock:

This certainly lands — underscores the importance of being able to make these rates retroactively effective.

Hugo L. Black:

It’s the whole basis of —

It’s the essence.

Howard E. Wahrenbrock:

Yes, sir.

Felix Frankfurter:

And does that — that seems to me to make it not irrelevant unless you tell me it’s irrelevant to ask whether this long period in determining 5 (a) proceedings is inherent in the statute or is it due to some other consideration?

Howard E. Wahrenbrock:

I think it is not inherent in the statute.

Felix Frankfurter:

Not inherent in the statute.

Howard E. Wahrenbrock:

No, sir.

I’m sorry that I haven’t had the time to discuss the certificate aspects of the Commission’s order.

I’ll have to rest on our brief on that.

Earl Warren:

Mr. Hoffman.

Leo J. Hoffman:

Mr. Chief Justice, may it please the Court.

In the few minutes available to me, there are several points which I would like to go over.

It was suggested by Mr. Wahrenbrock at one point in his discussion that if Sun’s position were correct, the only procedure available to the Federal Power Commission would be a procedure under Section 5 (a) of the Act — excuse me — which would be a prospective investigation in regulation and the prospective eventual reduction in rate possibly.

And now, I would like to emphasize in connection with Section 5 (a) which is an available authority of the Commission in this connection that it represents a real power on this — on the part of the Commission.

It — it is the overwriting review part that the Court had in mind in Mobile case when it said that otherwise, initial rate setting is to be done by — by the natural gas companies.

It — it — as Mr. Wahrenbrock mentioned at one point that it so happens that Sun Oil Company is presently involved in the Section 5 (a) proceeding, not going on before Power Commission examiner.

Leo J. Hoffman:

So Sun knows that this is a real power.

I might mention in passing that at the present stage of adhering, which is in progress now before Federal Power Commission examiner, the evidence thus far presented shows a cost of sale to the extent that that sort of thing has any validity in the regulatory scheme, the cost of sale substantially in excess of the new price involved in this second Gwinville Field contract that is involved here.

Felix Frankfurter:

What do you say to the suggestion that after all the bite of — of a regulatory system is its effective administration and if it takes five minutes to exert power that may, in the end, reach the same result, that’s a very different thing from being able to have a control that you can exercise PDQ.

Leo J. Hoffman:

Yes, sir.

As far as I’m concerned, we are controlled by the scope of the Natural Gas Act.

And as far as I’m concerned, the delay is inherent in the administrative process if there are delays at all are not relevant here.

The Commission has certain power under the Gas Act that has been determined as not having certain other powers under the Gas Act.

We say that Sun Oil Company is — is entitled to a full and fair consideration of the regulatory scheme as it should be applied to it under the Gas Act.

Felix Frankfurter:

I — I understand the — your suggestion that if, under the Gas Act, you have a right to have this treated as a new contract with all of the machinery or the — the procedure of 5 (a), you have a right to stand on that.

And if the reasons that have just been told to us, they’re not inherent in the statute, that — that’s none of your concern.

That’s your position.

Leo J. Hoffman:

Exactly, exactly.

Felix Frankfurter:

But may or may not or does not the difference in the operation of different sections of the Act bare on how the different sections of the Act should be construed.

Leo J. Hoffman:

Oh, I suppose that’s possible.

Felix Frankfurter:

It’s more than possible.

Isn’t it pertinent?

Leo J. Hoffman:

I — I will leave and concede the pertinence of the matter, except under the circumstances of this case.

I — I don’t think the delay is inherent in — in — that the application of Section 5 (a) of the Act are pertinent to the circumstances of this case.

As a matter of fact, there — there are other powers available to the Commission too which were generated in the later discussion occurring during Mr. Wahrenbrock’s argument.

One of the other powers has to do with the — the conditioning power that the Commission has on a certificate proceeding which the Court recognized in the CATCO case.

That may be available to adhere.

And I might — I might be — in connection with our second certificate application, I might say in passing in that connection that I — I think one of the points involved here is that this so-called — this 20-cent price that appears in Sun’s second contract has in fact — in effect already been passed on by the Commission in another full pledge certificate proceeding, which was held, by the way, subsequent to the Court’s decision in the CATCO case and was decided in the light of the principles announced in the CATCO case.

And this involved a gas sale in a neighboring field, to the Gwinville Field that we’ve been discussing and — and the Commission approved under CATCO principles, priced somewhat higher than the price that’s involved in Sun’s second contract here.

But nevertheless, the conditioning power, as a general proposition, is available to the Commission in this type of situation.

It has the 5 (a) power and it has the conditioning power under Section 7 — 7 (e).

Potter Stewart:

Or it could refuse the certificate, I suppose.

It could —

Leo J. Hoffman:

I beg your pardon, sir.

Potter Stewart:

It could refuse the certificate.

Leo J. Hoffman:

It could refuse the certificate if it is decided as a result of the hearing that the — that the certificate would not be in the public interest and then leave the applicant to do with that — what he chooses.

Potter Stewart:

Yes.

Leo J. Hoffman:

He can go home or he can go home and come back later with another certificate application —

Potter Stewart:

Yes.

Leo J. Hoffman:

— that might better please the Commission.

Hugo L. Black:

You mean it can refuse the certificate if it found that the rate was too high?

Leo J. Hoffman:

I beg you pardon, Your Honor.

Hugo L. Black:

You mean it could refuse the certificate if it found the rate was too high or too low?

Leo J. Hoffman:

Yes, I think the Commission has that within its power.

Hugo L. Black:

Then you wouldn’t have the right to — to contract.

It wouldn’t be as broad as I had understood it, I thought to be.

I thought the initial right had the right — they had the right to fix the rate and keep it until it retains under 5 (a).

Leo J. Hoffman:

Well, I — I think that it is subject to the conditioning power.

Hugo L. Black:

Where is it?

Where is (Inaudible) where they authorized to issue — have such a condition?

You mean they could just tell them, “You can’t have any gases.

We won’t let them — let you serve any gas up there?”

Leo J. Hoffman:

A — are we talking about rates or are we talking about the term of the service?

Hugo L. Black:

Well, I am talking now about both.

Leo J. Hoffman:

Well —

Hugo L. Black:

I — I had not understood until now.

It was claimed by those who claimed that the contract that the later rate was initially fixed (Inaudible) that there was relief (Inaudible) except under 5 (a).

Leo J. Hoffman:

Well, I think there is some relief available if — if you want to use the term “relief” to the extent that the Court expressed in the CATCO decision under Section 7 (e) of the Act, the conditioning power that appears at the end of 7 (e).

That’s in our main brief at page —

Hugo L. Black:

61.

Leo J. Hoffman:

— 60 — oh, at the top page 62.

“The Commission shall have the power to attach to the issuance of the certificate under the exercise of the rights granted thereunder.

Such reasonable terms and conditions as the public convenience and necessity may require.”

Hugo L. Black:

Suppose that fixed the term of a — change a rate?

Would they happen to have to continue to serve under your argument?

Leo J. Hoffman:

Oh, I think the company could refuse the condition certificate.

Leo J. Hoffman:

And I think that was recognized in the CATCO decision.

Now, on the other hand, I’m not — I’m not prepared to recognize that the Commission’s conditioning power may extend so far as to extend the duration of — of the term of the contract or the term of the sale.

I think its conditioning power there may be limited by the whole or any part phrase and the — the able and willing phrase of the earlier language of Section 7 (e).

We don’t need to reach that in this case because of — of the nature of the certificate that was actually issued.

Felix Frankfurter:

Well, the certificate is conditioned on satisfying the public interest, isn’t it?

Leo J. Hoffman:

Yes, sir.

Felix Frankfurter:

And the decisions of this Court have given what — what is relevant to determining the public interest, pretty broad power, exactly.

Leo J. Hoffman:

Yes, sir.

And if the —

Felix Frankfurter:

And I should think — I should think either a bloated — what the Commission — they use a bloated rate, excessive rate or too long a duration for the changes of the reasonably expected changes in this domain.

I should think even that.

I find it hard to believe that if a well-grounded opinion by the Commission’s examination, the term is too long not to allow all the other conditions the other powers to come into play for the new contract from your point of view would hardly be outside of “public interest”.

Leo J. Hoffman:

You say our contract from — from our point of view would not be outside the public interest?

Felix Frankfurter:

No.

A — a contract that the Commission deemed too long a duration, even assuming that an arrangement like this would be deemed a new conflict.

Leo J. Hoffman:

Yes, sir.

Felix Frankfurter:

You were right starting from your — I should think if you had a new contract imposing a 30-year term and the Commission made out a case thereon (Inaudible) about these things that that is — that puts also some difficulties of regulatory process.

I find it difficult to believe that such a termination would be deemed in excess of its power to ascertain what property may be considered power of the public interest.

Leo J. Hoffman:

Well, its power in that respect is broad.

I —

Felix Frankfurter:

Very broad, isn’t it?

Leo J. Hoffman:

It’s very broad.I have difficulty conceiving.

They’re — they’re making that determination on — on account of too long a term.

I — I can conceive of it in the case of too short a term, perhaps, six months contracts, one — one year contracts were postulated here earlier, perhaps that Commission could determine in its wisdom that that’s not in the public interest and denies a certificate application on that basis.

And I concede that as well within the Power Commission.

Felix Frankfurter:

All I’m saying is time.

Mr. Jefferson thought all constitutions automatically to be renewed —

Leo J. Hoffman:

[Laughs]

Felix Frankfurter:

— at least once in 18 years.

Leo J. Hoffman:

This case in Mr. Wahrenbrock’s argument particularly boils itself down to this continuing service doctrine which is repeated time and time again.

Leo J. Hoffman:

That incorporates the theme that these producers should, under no circumstances, I am generalizing of course, be permitted to quit their sale or their service without the approval of the Federal Power Commission.

And otherwise, the Power Commission will be handicapped.

We say that if that’s so, the Commission should go to Congress and not to this Court because that involves changing the Act.

We only ask for the same thing granted in Mobile, a preservation of the integrity of the contracts and the regulatory scheme.

Thank you.