United Gas Pipe Line Company v. Mobile Gas Service Corporation

PETITIONER:United Gas Pipe Line Company
RESPONDENT:Mobile Gas Service Corporation
LOCATION:Pittsburgh Party Headquarters

DOCKET NO.: 17
DECIDED BY: Warren Court (1955-1956)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 350 US 332 (1956)
ARGUED: Nov 07, 1955 / Nov 08, 1955
DECIDED: Feb 27, 1956

Facts of the case

Question

  • Oral Argument – November 08, 1955
  • Audio Transcription for Oral Argument – November 08, 1955 in United Gas Pipe Line Company v. Mobile Gas Service Corporation

    Audio Transcription for Oral Argument – November 07, 1955 in United Gas Pipe Line Company v. Mobile Gas Service Corporation

    Earl Warren:

    Number 17, United Gas Pipe Line Company, Petitioner versus Mobile Gas Service Corporation and Federal Power Commission.

    Howard E. Wahrenbrock:

    May it please the Court.

    Earl Warren:

    Mr. Wahrenbrock.

    Howard E. Wahrenbrock:

    This case brings before the Court a controversy as to the effect of an increase in a utilities filed rate on its contract to sell at a previous lower rate.

    United Gas Pipe Line Company, which is the petitioner in Number 17, is an interstate natural gas company within the meaning of that term as used in the Natural Gas Act, meaning a company that is generally subject to regulation under that Act.

    And that company has on file with the Federal Power Commission under the regulations of that Commission relating to the filing of rates in accordance with the filed rate procedure of the Natural Gas Act, its rates for the sales which are here involved.

    The Mobile Gas Service Corporation, which is the respondent in both of these cases is a local distributor of gas in Mobile, Alabama, of gas which it purchases from the United Gas Pipe Line Company.

    The specific question here presented is whether under the rate filing provisions of the Natural Gas Act, the Federal Power Commission properly accepted a utilities filing of an increase in its filed rate, pending a hearing on the increased rate where the utility had a contract to sell at a previous rate and the customer objected to the increase.

    Now, the previous filings which are here involved began with the filing of the basic contract which had been entered into in 1936 and which was to continue until 1950.

    That contract was filed with the Federal Power Commission in 1938, following the enactment of the Natural Gas Act and the promulgation of the Commission’s rules requiring the filing of rate schedules and designated as that company’s rate Schedule number 20.

    It was filed in a sort of hybrid way which is in accordance with the practice of the Commission, whereby the contract serves two purposes.

    The definition in the contract of the rate and the service constitute the rate, the schedule of the rate.

    The contract is also filed as a contract relating to that rate.

    In 1941, an amendment was filed designated as Supplement number 7 to that rate schedule number 20, which change the contract term by extending it until 1962 and provided for a price of 80% to 90% of the buyer’s owned price for industrial gas with a minimum of 16 cents per Mcf to United Gas Pipe Line Company.

    In 1946, a further amendment was filed which altered the 80% to 90% ratios for a particular industrial resale to a — to the Ideal Cement Company for a period of 10 years and waived the 16 cent minimum.

    The resale price to the Ideal Cement Company which Mobile would charge would be 12 cents per Mcf and United would take its 80% to 90% of that.

    Now, in 1952, pursuant to new regulations of the Federal Power Commission, United filed what were called conversion terms, converting all of its prior filings into a new compact and general tariff with separate sheets for separate types of services.

    The effect of that tariff was to substitute a rate of 10.7 cents per Mcf for the old revenue sharing rate of 80 to 90, a flat-cent rate.

    And to redefine the service, the practices with respect to measurement and billing and the provisions with respect to the BTU content of the gas to eliminate the tax adjustment clause so that the rate would be definite, not only in cents, but would not be subject to adjustment because of tax changes.

    To prescribe a new form of service agreement within individual customers, which would be the only form of contract thereafter to be entered into with any individual customer.

    And in lieu of a presently effective service contract to carry forward, stipulated provisions of the old contract which are designated in that filing and which were not superseded by the new rate and service provisions of the new tariff.

    On August the 1st of 1952, the Federal Power Commission allowed that conversion tariff to take effect in part.

    It set a hearing on the other part and suspended the other part, the other part consisting of United’s rates governing its services and sales to other pipelines.

    Those were increased at the same time and the Commission suspended those increases and set a hearing on them, but on the — on the changes which affected this rate to Mobile which were changes in form leaving a 10.7 cent rate in effect which was the equivalent of what the average payment under the old rate had been and therefore involved no substantial change as of that date.

    That was allowed to go into effect.

    Now, the controverted filing which is involved here occurred on June the 24th, 1953 when United filed two new sheets increasing this 10.7 cent per Mcf rate to 14.5 cents.

    The same time it requested waiver of the 30-day notice requirement of the statute and asked that the new increase rate go into effect in 20 days on July the 15th.

    There’s no issue here about that waiver.

    I might just explain that the statute does permit the Commission for good cause shown to permit a rate to go into effect without the 30-day notice.

    And the Commission in that instance refused to do that and by an order that was issued on July the 10th ordered that the rate should not go into effect in advance of 30 days, leaving it to go into effect at the end of the 30 days provided by the statute.

    Howard E. Wahrenbrock:

    It set a hearing on all the new rates which were provided for, the increase rates which were provided for.

    It consolidated that hearing with hearings which were already pending on United’s rates, on all of United’s rates and suspended all of the increase except the one increase here involved in the amount charged for gas resold by Mobile to the Ideal Cement Company.

    That being a sale of gas for resale for industrial use fell within the provisions of the Power Act which are printed on page 102 of our brief, the provision that the Commission shall not have authority to suspend the rate charge classification or service with the sale of natural gas for resale for industrial use only.

    So, that rate could not be suspended.

    It went into effect then on July the 25th, but the Commission did by this order set a hearing on that together with all other rates and consolidated that hearing with the pending, the proceeding that was then pending before it.

    I may say incidentally that this prohibition on suspending industrial rates is one which the Commission has year after year recommended to Congress be repealed.

    Four weeks later, Mobile —

    Is there some explanation as to why it’s not been repealed?

    What — what’s the good reason for that exception.

    Howard E. Wahrenbrock:

    I know of none.

    It’s been — this has been stated in our annual reports year after year.

    Is that a part of Section 4?

    Howard E. Wahrenbrock:

    That’s part of Section 4 (e), yes, on page 102 of our brief.

    What about the suggestion that he made some place that was not –that was — it is put in there because they’re in a position to pass it on?

    Howard E. Wahrenbrock:

    The legislative history of the provision is somewhat obscure, but the explanation — that seems as good as an explanation as any if Your Honor please.

    The Mobile’s petition filed four weeks later asked that the Commission modify the order which had entered on July 10th in these respects.

    It asked that it reject the filing of the increase for this industrial gas to Mobile, reject the filing or alternatively that it set a separate hearing on the rate to Mobile and that it provide for refund to Mobile of any excess ultimately determined over what the Commission should ultimately determine to be a just and reasonable rate for this gas.

    The Commission on December the 7th entered the order which is here under review, dismissing Mobile’s petition.

    It refused to reject United’s proffered rate increase, pointing out that although there was a previous contract for the earlier rate, the rate schedule of filing conforms to the Act and to the rules.

    It said that it was the only way in which a natural gas company could increase its rates by filing its — its increase with the Commission.

    The Commission refused to separate the proceedings from the other hearing saying that the issues as to the reasonableness of this rate to Mobile involved very many common issues with all of the other rates of the United Gas Pipe Line and it declined to order a refund saying that the Commission’s authority with respect to refunds was limited to those cases in which it had power to suspend.

    There is no issue presented here on the refund in view of the decision taken by the court below, but I might just say that the Commission’s basis for that is found in the provision of Section 4 (e) on — printed in our brief at page 102 where the Act says, “If the proceeding has not been concluded at the expiration of the suspension period, on the motion of the natural gas company, the proposed change shall go into effect,” and then the next sentence, “where increased rates or charges are thus made effective, the Commission may by order require the natural gas company to furnish a bond to refund with interest, the portion of such increase rates or charges by its decision filed and not justified.”

    Based on that as it seems, the clear reading of the statute, the Commission declined to refund.

    May I ask you?

    Your — your statement of facts has sent me a little confused as to this question.

    Have you properly stated the question on page 2 of your brief?

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    Is that the only question involved?

    Howard E. Wahrenbrock:

    Yes.

    The question is whether United by filing this increase in its rates, whether the Commission had to accept that filing, properly accepted that filing where there was an outstanding contract by United to sell at the higher rate and where the customer objected to as —

    Hugo L. Black:

    Who was the customer?

    Howard E. Wahrenbrock:

    Mobile.

    Hugo L. Black:

    Mobile had a contract with United by gas?

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    And how much per, whatever this —

    Howard E. Wahrenbrock:

    At 10.7 cents.

    Hugo L. Black:

    10.7 and United came in and — how long did the contract been in effect?

    Howard E. Wahrenbrock:

    The contract had been in effect since 1936 and had it 1930 — 1962 to run.

    Hugo L. Black:

    And United then came into the Commission and said, “We want to raise the rates.”

    Howard E. Wahrenbrock:

    Filed an increase in its rate schedule.

    Hugo L. Black:

    Well, they — they’d be asked to raise it to what?

    Howard E. Wahrenbrock:

    To 14.5.

    Hugo L. Black:

    14.5 and they — and the Commission has permitted that rate to take place without a hearing?

    Is that the issue?

    Howard E. Wahrenbrock:

    The Commission said that it — that the rate would go into effect but it set it for a hearing.

    Hugo L. Black:

    I understand that, but did it permit it to go into effect without a hearing?

    Howard E. Wahrenbrock:

    The — yes.

    The Commission said that it had (Voice Overlap) the Commission had no power to do anything but let it go into effect.

    Hugo L. Black:

    I’m — I’m trying to get just what the issue is.

    Howard E. Wahrenbrock:

    The question here is whether —

    Hugo L. Black:

    Did the Commission — did the Commission permit the increase rate to go in effect over the Mobile’s objection?

    Howard E. Wahrenbrock:

    The Commission refused to reject the filing of the increase.

    Hugo L. Black:

    It didn’t go into effect?

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    Well, the Commission let it go in effect —

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    — 14.5 cents?

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    And the issue — is the issue as stated right here that the Mobile says, “That’s wrong,” because the Commission should have interfere without a prior contract, but that helped holding hearing determined reasonableness before it permitted the change to be made?

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    That’s the issue?

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    Solely?

    Howard E. Wahrenbrock:

    Yes.

    Is your position is —

    And that — that applies only to what was sold to the Mobile for resale to other clients?

    Howard E. Wahrenbrock:

    That is right.

    Not for consumption?

    Howard E. Wahrenbrock:

    That’s right.

    But your position is then that United had the right under the statute to raise this rate by filing this increased rate whether the Commission wanted to or not?

    And been — it had then be attacked and revised afterwards and they — had the right and the Commission didn’t permit it, but the company under the statute raised it.

    Howard E. Wahrenbrock:

    Yes.

    Is that right?

    Howard E. Wahrenbrock:

    That’s right.

    Now, would you mind pointing to the statute which you say permits that contract to be changed that way?

    Howard E. Wahrenbrock:

    Yes.

    Felix Frankfurter:

    Mr. Wahrenbrock, I would like to permit to ask the preliminary question —

    Howard E. Wahrenbrock:

    Yes.

    Felix Frankfurter:

    — to make it clear.

    Do I understand that there is no power in the policy (Inaudible)

    Howard E. Wahrenbrock:

    In every rate, in the — and it has such power in every case, except where this prohibition applies where it may not suspend and that is where the gas is resold for industrial use.

    In every other case, the Commission may suspend exactly as the — as the Interstate Commerce Commission does and it did —

    Felix Frankfurter:

    Is it settled?

    And when you come to a point on the statute — the legislation is clear, that the Commission would be prohibited to suspend a rate which changes theretofore an existing legal contract clear?

    Is the statute clear on that point?

    Howard E. Wahrenbrock:

    We say it is and that is the basis of our —

    Felix Frankfurter:

    (Inaudible)

    Howard E. Wahrenbrock:

    — we say that it is and that’s the conflict here.

    That’s the question here.

    Felix Frankfurter:

    (Inaudible) that power even this case that the statute — the Congress has said in appropriate language that you could not, reading the legislation say that in case where a rate implies which displaces, disadvantageous, an outstanding contract even in that case, you cannot suspend a newly filed higher rate long enough to take a look, is that what you’re saying?

    Howard E. Wahrenbrock:

    That’s right.

    Felix Frankfurter:

    All right.

    Well, as I understood you to my other question that means that in (Inaudible) specific provision in the statute that says that very thing.

    The Power Commission has recommended against that provision and would like to have it changed, but it hasn’t been changed.

    Howard E. Wahrenbrock:

    That’s right.

    Yes, sir.

    Hugo L. Black:

    Now, would you refer us to that provision?

    Howard E. Wahrenbrock:

    The provision —

    Felix Frankfurter:

    Have you any other — is that the only ground that Congress hasn’t made the specific recommendation?

    Often, Congress doesn’t pass an Act (Inaudible)

    How do you come to that?

    Howard E. Wahrenbrock:

    Well, that — that is the — the — I’m now stating the Commission — the Commission’s position after the Commission dismissed this petition —

    Hugo L. Black:

    Would you state please or refer me to the statute —

    Howard E. Wahrenbrock:

    Page —

    Hugo L. Black:

    — when you say bars the Commission from doing it.

    Howard E. Wahrenbrock:

    It’s Section 4 (e) printed on page 102.

    Hugo L. Black:

    And that’s the only one?

    Howard E. Wahrenbrock:

    Yes, sir.

    Hugo L. Black:

    Thank you very much.

    Howard E. Wahrenbrock:

    Yes, sir.

    Hugo L. Black:

    Page 101 of your brief.

    Howard E. Wahrenbrock:

    102.

    Hugo L. Black:

    102?

    Howard E. Wahrenbrock:

    Yes.

    It’s a proviso about two-thirds the way down.

    Howard E. Wahrenbrock:

    That’s right.

    Provided that the Commission shall not —

    Hugo L. Black:

    The proviso —

    Howard E. Wahrenbrock:

    Yes, sir.

    Hugo L. Black:

    Thank you very much.

    Howard E. Wahrenbrock:

    Yes, sir.

    (Inaudible)

    Howard E. Wahrenbrock:

    Yes, yes.

    And I understand the challenge is now pending here.

    Howard E. Wahrenbrock:

    The Commission set a hearing and that hearing — at that hearing, the reasonableness of this rate would be examined into.

    Now, that — that hearing was set and that — that question was preserved, but the Commission simply did not suspend the rate from taking effect.

    The only question we have here is the power of suspension between the time it was put in and what is passed on by the Commission.

    Howard E. Wahrenbrock:

    Well, we have here the question of whether the Commission properly allowed United to file this increase, the increase unless the Commission should subsequently find it unreasonable and hold it unlawful in which case there would be no increase.

    But in the mean time, allow it to take effect or what — the reasonableness, the — the lawfulness of the Commission’s rejecting that — that finding.

    That means to me.

    Perhaps, I don’t fully understand it.

    That the only question we have here is a temporary — it’s a permanent rate, I would — maybe.

    Howard E. Wahrenbrock:

    Yes, yes.

    But it only last from the time, so long — until the Commission can get to it to say whether it’s validated or invalidated.

    Howard E. Wahrenbrock:

    Yes.

    If the Commission finds subsequently that the increase is unlawful, then it was unlawful from the time it came in.

    If on a — on a contrary the Commission initiated its own proceeding, it could only act prospectively from the end of the proceeding instead from the beginning.

    So, there is a period of time here during which it was not suspended that there maybe an unrecoverable amount.

    What about the requirement of the Commission that money being paid in over the old contract rate should be paid in the Court?

    Howard E. Wahrenbrock:

    The — the Commission said that it has no — no power to require a refund for that difference in the meantime because the refund power is only where there is a rate that is capable of suspension.

    We have this prohibition here.

    What — what says now the statute?

    Howard E. Wahrenbrock:

    That is the language which I referred to that begins following at the bottom of page 102 and the top of 103.

    “If the proceeding has not been concluded and an order made at the expiration suspension period, the proposed charge shall go into effect where increase rates are charged,” thus made effect if the Commission may require the refunding operations, but it’s only in those cases where there has been a suspension.

    Hugo L. Black:

    Now, this proviso that I just read, it refers to schedule and tariffs.

    Does it say anything about contract?

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    Where — where is that?

    Howard E. Wahrenbrock:

    The — the proviso shall not have authority to suspend the rate or charge for the resale for industrial use only.

    The — the proviso does not deal with — with contracts as (Voice Overlap) —

    Well, what it does above it?

    I just looked at it.

    I’m — I’m trying to find just where the Commission claims its bar from forcing a company to abide by its contract unto the hearing.

    Howard E. Wahrenbrock:

    What was here filed was a rate schedule and the question was whether the Commission — your question is whether the Commission should have suspended that.

    There was no question of suspending a contract.

    Hugo L. Black:

    Well, whether you suspended it or not, the effect of this is to increase the price to Mobile above the agreement that it made by the gas?

    Howard E. Wahrenbrock:

    Subject to the Commission’s ultimate determination of its lawfulness.

    Hugo L. Black:

    I understand that, but —

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    — until that time, it’s got to pay more than it needs to pay?

    Howard E. Wahrenbrock:

    Yes.

    Hugo L. Black:

    And — and the only authority you have, your — (Inaudible) has been on (e)?

    Howard E. Wahrenbrock:

    That’s right.

    Hugo L. Black:

    And it said nothing about contracts.

    How do you get contract (Inaudible)?

    Howard E. Wahrenbrock:

    Well, this is —

    Felix Frankfurter:

    The (c) and (d).

    Hugo L. Black:

    The (c) and (d) does?

    Howard E. Wahrenbrock:

    (e), the filing — you’re talking about the suspension provision which deals only with what is filed which is a new rate schedule, all the rest of (c) and (d) deal equally in parallel terms with contracts and with rates.

    There is no distinction between them.

    Felix Frankfurter:

    But you must bring in contract under the Suspension Clause of (e).

    Howard E. Wahrenbrock:

    That’s right.

    We — we’ve got —

    Hugo L. Black:

    That’s what you’re going to (Voice Overlap) — that’s what you’re going to show?

    Howard E. Wahrenbrock:

    Yes.

    Now —

    Felix Frankfurter:

    Before you move on, may I ask you one more question?

    If the charge (Inaudible) do I read in — reading in haste that the changed schedule can take effect for 30 days, is that right?

    Howard E. Wahrenbrock:

    That’s right.

    Felix Frankfurter:

    Therefore 30-days in which something can be done?

    Howard E. Wahrenbrock:

    Yes.

    Felix Frankfurter:

    Is there anything to present the Commission when it change of an existing contract rate to put the case down for a rehearing with —

    Howard E. Wahrenbrock:

    A hearing.

    Felix Frankfurter:

    (Inaudible)

    Howard E. Wahrenbrock:

    No and that’s what the Commission did here.

    Instead for hearing within 10 days.

    It started its hearing right away on that.

    Felix Frankfurter:

    On the pleadings and — even though the hearing is under way, it has no power, it can’t delay the effectuation of the date.

    Howard E. Wahrenbrock:

    That’s right.

    As to industrial?

    Howard E. Wahrenbrock:

    Only on these industrial rates, that’s right.

    Felix Frankfurter:

    That’s the rule that the Commission rules out?

    Howard E. Wahrenbrock:

    Yes.

    No, that’s what the statute —

    Felix Frankfurter:

    I know but when you read the statute (Inaudible)

    Howard E. Wahrenbrock:

    Alright.

    Felix Frankfurter:

    All I want to know is if there had been any interpretation of this, except the old practice?

    Howard E. Wahrenbrock:

    Well, yes.

    That’s — there’s an awful lot of law on that, if Your Honor please.

    But our — the Mobile then on — on a denial of its petition, petition for rehearing, rehearing was denied.

    It petitioned the Court of Appeals for the Third — Second Circuit for review.

    The Third Circuit reversed with Judge Hastie dissented and United and the Federal Power Commission petitioned for certiorari here.

    Now, the problem is solely on the statutory construction as Mobile agreed in — in the court below.

    That question is, “Did Congress exempt filed rates from change by a new filing in cases where the customer has a contract for the old rate and objects?”

    We believe that a careful reading of the statutory terms will show that the Commission read them correctly and I might start out by saying that Sections 4 and 5 (a) are the Sections that are here involved and I’ll just point out that Section 5 (a) is the usual provision that appears on page 103 of our brief and 104.5 (a) is the usual provision that the Commission may investigate rates if it finds them unlawful may prescribe just and reasonable rates to be thereafter observed and enforced.

    That’s the Commission fixing.

    Now, 4 is — Section 4 is the rate we have here involved, the two subsections which precedes (c) that appears on page 101 are the sections which established the standards, statutory standard, (a) says, “Rates must be just and reasonable.

    (b) says they must be not unduly discriminatory or preferential.”

    Those are the two Sections establishing the statutory standard.

    Then, we come to (c) and (c) says that, “Every natural gas company must file its — all of its rates which are subject to a regulation of the Commission with the Commission and file all contracts affecting or relating to such rates.”

    Howard E. Wahrenbrock:

    Now, the effect of that filed rate procedure is under the — under the Natural Gas Act and the Federal Power Act as well.

    It’s just what it is under the Commerce Act.

    As this Court said in the Montana-Dakota case, petitioner can claim no rate as a legal right that is other than the filed rate, whether it’s fixed or merely accepted by the Commission and not even a Court can authorize the Commerce and the commodity on other terms than those that are filed.

    Section (d) then is the one which provides for the changing of rates which are on file with the Commission.It starts out, “Unless the Commission otherwise orders, no change shall be made by any natural gas company in any such rate, charge, classification or service or in any rule, regulation or contract relating thereto.”

    And I’d like to interrupt myself to say that the statute speaks of a change made by the natural gas company, not by the parties to the contract or not by the Commission made by the natural gas company and it speaks equally of a change in a rate and a change in the contract.

    And then, I might say that Mobile objects.

    “How can these words of prohibition, no change shall be made.”

    They tortured into an affirmative grant of power to change a contract, but Mobile’s objection ignores the exception which follows, for the statute goes on to say, “No change shall be made except after 30 days notice to the Commission and the public.

    Such notice shall be given by filing with the Commission and keeping open for public inspection new schedules stating plainly the change or changes to be made in the schedule or schedules then enforced and the time when the change or changes will go into effect.”

    Now, notice that it says new schedule.

    No change shall be made in any rate or contract except by filing new schedules, not by filing —

    Hugo L. Black:

    Where are you reading from now?

    Howard E. Wahrenbrock:

    I’m reading from Section 4 (e), at the bottom of page — 4 (d) at the bottom of page 101, unless the Commission orders, no change shall be made except after 30 days notice.

    Such notice shall be given by filing with the Commission and keeping open for public inspection new schedules.

    Now, new schedules are schedules of rates, not contracts.

    It doesn’t imply that there must be agreement of the other party.

    It’s the public, the natural gas company which must file the new schedule stating the change and the time when the change or changes will go into effect.

    They will go into effect, no question about it.

    Statute makes them go into effect.

    The question is then whether Mobile is right in saying that this —

    Hugo L. Black:

    It stated the Commission may allow changes in contract?

    Howard E. Wahrenbrock:

    Yes.

    Pardon?

    Hugo L. Black:

    Where is that?

    Howard E. Wahrenbrock:

    It says no change shall be made in any rate or contract relating thereto except, except after notice.

    Hugo L. Black:

    Where is that provision that you just read?

    Howard E. Wahrenbrock:

    The — the paragraph beginning on the middle of 101 (d), “Unless the Commission otherwise ordered, no change shall be made by any natural gas company in any such rate, charge, classification or service or in any rule, regulation or contract relating thereto except after 30 days notice to the Commission and to the public.”

    Felix Frankfurter:

    I didn’t get your clause on, “Unless the Commission otherwise ordered.”

    What is your thought on that?

    Howard E. Wahrenbrock:

    The ‘unless’ is what is taken care of the last clause in the paragraph, the last sentence which begins two lines from the bottom of 101.

    Howard E. Wahrenbrock:

    “The Commission for good cause shall and may allow changes to take effect without requiring the 30 days notice.”

    That’s just the waiver of the notice that I spoke of before.

    We can forget that then.

    Felix Frankfurter:

    (Inaudible)

    I mean —

    Howard E. Wahrenbrock:

    Yes, there’s no question as to that.

    Felix Frankfurter:

    There is no question.

    Howard E. Wahrenbrock:

    No, no.

    Felix Frankfurter:

    (Inaudible) that I — I can do all about it.

    Howard E. Wahrenbrock:

    Yes.

    Well, I have no doubt you could sir.

    Felix Frankfurter:

    I mean, but why (Inaudible)

    Howard E. Wahrenbrock:

    There’s — there’s no problem there.

    That — that —

    Felix Frankfurter:

    Well, (Inaudible) doesn’t tell me that.

    That will be —

    Howard E. Wahrenbrock:

    I agree with you, but —

    Felix Frankfurter:

    The Commission otherwise orders, but then, there’s a specific — there’s a specific requirement, namely, that in any event (Inaudible)

    Howard E. Wahrenbrock:

    There is no other order here.

    The Commission has not otherwise ordered.

    Felix Frankfurter:

    I understand that, but that’s (Inaudible)

    Howard E. Wahrenbrock:

    I think it’s not relevant here.

    There’s no — no issue I think between us on that.

    Felix Frankfurter:

    (Inaudible)

    Howard E. Wahrenbrock:

    I’m sorry.

    Felix Frankfurter:

    I was told by you that the Commission cannot if it wants to suspend this.

    Is that right?

    Howard E. Wahrenbrock:

    Yes.

    Felix Frankfurter:

    And you say that’s appropriate by the legislation.

    And I find only this — the commission otherwise ordered, accept that for 30 days it can be in effect, accept that for 30 days.

    Felix Frankfurter:

    If I were restricted to those words, I could find what the Commission otherwise ordered.

    My orders can’t be for three months.

    Howard E. Wahrenbrock:

    I’d like a chance to think about that some more.

    It’s never been suggested.

    I’m not aware of any possibility on that (Voice Overlap).

    The suspension section is in (e).

    Felix Frankfurter:

    All right.

    Howard E. Wahrenbrock:

    It is in (e) and this is a separate Section.

    I think there is no relation between the suspension power and this.

    Felix Frankfurter:

    And that is through all the provision of the statute?

    Howard E. Wahrenbrock:

    I know, but — so far as I know, there’s nothing in the case law or in the practice or in the issues it have been raised.

    Felix Frankfurter:

    I know (Inaudible) that I’m agreeing on that.

    (Inaudible)

    Howard E. Wahrenbrock:

    That’s right.

    The contracts we say are as a result of the statute, subject to modification by whatever rate is lawfully effective under this statute.

    The contracts are therefore modifiable and as modified, they are enforceable as contracts and continuous contracts.

    That’s because you can’t make a fixed contract since you might make — a gas company might make it so low that they’ll put all the burden carrying a gas on others?

    Howard E. Wahrenbrock:

    It — it would — it would put it beyond the power of regulation to control.

    (Inaudible)

    Howard E. Wahrenbrock:

    Yes, the — the public interest as stated here is in the maintenance of just and reasonable rates.

    A rate that is too low doesn’t have to be so low as to make the company go bankrupt.

    It’s a question of whether the company is continuing to earn a sufficient rate of return that will enable it to finance additions and betterments and not raise its cost of money which would adversely affect the public interest.

    Hugo L. Black:

    But this rate has been in effect for a number of years as a just and reasonable rate under the Commission’s order is it not?

    Howard E. Wahrenbrock:

    The — it had been but costs were going up.

    Hugo L. Black:

    It had been?

    Howard E. Wahrenbrock:

    That’s right.

    Hugo L. Black:

    And now you — you say that you got to keep them always subject to the Commission’s order, but you say that the Commission has no power at all to prevent a company raising it above what’s been held a just and reasonable rate by contract and by the Commission?

    Howard E. Wahrenbrock:

    There had been no determination by the Commission that this was a just and reasonable rate and as soon as this increase was filed, the Commission —

    Hugo L. Black:

    How was it in effect?

    How was the 10.5 cent rate in effect?

    Howard E. Wahrenbrock:

    Because it had been filed.

    Hugo L. Black:

    But was it valid?

    Howard E. Wahrenbrock:

    Yes, sir.

    Hugo L. Black:

    Would — does that mean if the Commission accepted it, it’s just and reasonable rate?

    Howard E. Wahrenbrock:

    It was the lawful rate.

    Its reasonableness had never been determined.

    There was a proceeding before the Commission pending to determine that and it had not been resolved.

    Meanwhile, that proceeding was pending.

    This increase was filed and the Commission said that it could not reject the increase.

    (Inaudible)

    Howard E. Wahrenbrock:

    The — the Commission already had a proceeding.

    William O. Douglas:

    And who could initiate?

    Howard E. Wahrenbrock:

    Under Section 5 (a), anybody but the seller virtually, I might say.

    The seller is one that may not initiate a complaint.

    A state Commission —

    William O. Douglas:

    Mobile?

    Howard E. Wahrenbrock:

    Mobile could have, yes.

    And has — as I understand it (Inaudible)

    Howard E. Wahrenbrock:

    No, no, there’s a — there was a —

    The customer objects?

    Howard E. Wahrenbrock:

    Mobile objected and as a result and the Commission did set the rate down for investigation.

    But no Section 5 (a) proceeding (Inaudible)

    Howard E. Wahrenbrock:

    Yes.

    They — that was the proceeding with which this was consolidated.

    Now, I have arranged to divide my time with other counsel and I haven’t forgotten my argument, but I feel an injustice to my other counsel.

    I’ve got to give him that time.

    Earl Warren:

    Mr. Fletcher.

    Thomas Fletcher:

    May it please the Court.

    Earl Warren:

    Mr. Fletcher.

    Thomas Fletcher:

    I think I have a little bit different view of the questions and I have two questions presented and then I should like to make an additional statement which I believe would clarify some of the questions which were asked.

    Thomas Fletcher:

    United presents two questions here.

    Its first question is whether Congress, pursuant to the Commerce Clause in enacting the Natural Gas Act as a complete and exclusive scheme of regulation, intended and provide that a private contract fixing rates subject to the jurisdiction of the Commission and filed with the Commission as a rate schedule should render inoperative and unenforceable.

    The rate provisions of Section 4 of the Act show that a natural gas company cannot make or file with the Commission a change in rates contemplated and required by Section 4 (d) and so that the Commission cannot permit or accept, but must reject the filing of a change in rate for the natural gas company until first such private contract is set aside as against the public interest in a proceeding brought specially for that purpose.

    The second question United presents is whether Congress —

    Felix Frankfurter:

    — specific provision of the statute for that purpose?

    Thomas Fletcher:

    I think so, Mr. Justice Frankfurter, and I would like to develop —

    Felix Frankfurter:

    — there cannot be done in that situation to what you call your first question covered by the specific provision of the statute?

    Thomas Fletcher:

    I believe it to be.

    I believe it results necessarily, Mr. Justice Frankfurter, from Section 1 (a) considered in conjunction with particularly Sections 4 (a) and 4 (b) which declare the public policy of the Congress and which set up yardsticks of prohibition in respect to the Act following which the provisions which my friend read from Sections 4 (d) and (e) I believe fall naturally into place and I will come to that in just a second, sir.

    The second question presented is whether Congress in the Natural Gas Act has empowered the Federal Power Commission by its own order or the Court’s empowered to direct the Commission by order to require a refund of moneys collected from a change in rates for the sale of natural gas for a resale for industrial use only, where those rates are not subject to suspension under the Act.

    Those are the two questions which United presents.

    Now, catching up first before I come to the question which you asked me, sir, I would like to do this.

    In the original contract, there was an expressed provision made before the enactment of the Natural Gas Act, that the contract should at all times be subject to all lawful rules, orders and regulations of all state and federal bodies having lawful jurisdiction.

    This particular contract or amendment involved here was known as supplement 10 to supplement 7.

    It went from 46 to 56.

    It was a consent on the part of United to take less than the minimum declared by the 90% or 80% of the proceeds received by the distributor.

    In every contract and in every amendment which was filed, the Commission put up what I call a caveat.

    The last one on the one, on the particular contract involved here is set verbatim on page 4 of my brief, in which the Commission said that, “In permitting these contracts to be filed, that Act was not to be construed by it as any approval of any contract right or term, claimed or asserted by virtue of the contract filed.”

    Now, we say — United says that by that caveat, Mobile and United were wrong.

    That the Commission did nothing in permitting supplement 10 to supplement 7 to be filed, except to permit the money arrangement itself and that the Commission never at any time approved that portion of the contract which was a firm contract for firm rates for a firm period, which I say and will undertake to develop in a moment was contrary to the scheme of the Act.

    Now, secondly, with this conversion tariff, by the rules and regulations of the Commission, all price index and percentage arraignments and Tax Adjustment Clause which was a 100% of supplement 10 to supplement 7 were outlawed and prohibited and we were compelled to file a conversion tariff.

    Also, by the rules and regulations of the Commission, Section 154.85, we were required to file as a service agreement those portions of the several contracts not superseded and replaced by the conversion tariff.

    We filed that statement and that statement showed that supplement 10 to supplement 7 in its entirety was dropped because it was in conflict with the applicable rules and regulations and that docket G2019 in 1952, the Commission ordered that conversion tariff as to these rates filed.

    Mobile did not object to the statement that dropped supplement 10 to supplement 7.

    United did not object.

    Nobody took a 19 (b) appeal and in the court below, we contended under the sunshine and for side case that was res judicata and that the contract thereupon and thereby was replaced and that the contract which the court below ordered, reinstated had not been in existence for more than a year.

    Now, I come to the Act itself.

    In Section 1 (a), the Congress declares that it is its purpose to take over what we may call the (Inaudible) gap with which this Court is familiar.

    It said that that business was affected with a public interest and required regulation.

    In Section 4 (a), it declared that all rates should be just and reasonable and that any rate, not just unreasonable was unlawful.

    Thomas Fletcher:

    No exceptions, no provisos, no evens and buts, either just unreasonable or unlawful.

    It did not rest on that.

    It came to Section 4 (b) and it got specific and it said, “No natural gas company shall charge or demand or collect a rate that is tainted with undue preference or advantage or undue reasonableness between classes of the same service or localities.”

    When it came to Section 4 (c), it required the natural gas company within a time certain to file all rate schedules and conditions of service.

    Together with is the language of the Act and the Court will find that set out in the appendix to my brief on page 3, “together with,” says the Act, “all contracts relating thereto.”

    In Section 4 (b), I remind you, this Court has said that Section 4 is the heart of this Act and as we go along, I shall undertake to describe the fact that rate-wise, Section 4 is the point of inception and origin of all rate business before the Commission.

    It is where the stream and the volume of the Commission business arises and comes in to full bloom and Section 5 (a) is the policeman of the Act and by which the Commission can dial in to be sure that proper performance is held.

    Hugo L. Black:

    Has it — has it yet acted on this rate?

    Thomas Fletcher:

    Yes, sir.

    Hugo L. Black:

    When?

    Thomas Fletcher:

    There is — there was a settlement of the rate case made, Mr. Justice Black, and it was put into effect as to all except one party who did not agree to it and except as to Mobile who undertook to reserve as of course it had the right to reserve its position in this litigation.

    William J. Brennan, Jr.:

    Has the Commission ever passed on the reasonableness of this 40.5 cent rate of Mobile yet?

    Thomas Fletcher:

    No, sir.

    William J. Brennan, Jr.:

    Then it started in 1952?

    Thomas Fletcher:

    Yes, sir, yes.

    William J. Brennan, Jr.:

    And as I —

    Thomas Fletcher:

    Now —

    William J. Brennan, Jr.:

    — as I understand it, it’s your position and that is the Commission that there’s no way at all, even if it’s held to be an unreasonable rate, 40.5 cent for Mobile to get anything back?

    Thomas Fletcher:

    I think that is correct, sir.

    That’s my position and I believe that is the necessary effect of the Act.

    Now, in Section 4 (d), the Commission — I mean, the Act placed upon the natural gas company the duty to initiate changes in rates.

    When?

    Whenever it became necessary from day-to-day to preserve and maintain just and unreasonable, what is just and unreasonable, equal and uniform application of the same rate to all members of the same class at all times, and the statute inception 4 (a) did not accept one single solitary condition whether it’d be private contract, whether it’d be whatever inducements make a private contract.

    Now, Mobile did not file a 5 (a) as it could have done here to allege that any rate was unreasonable.

    It first came in and asked permission to intervene in the case in which the increase rates were sought.

    That was granted.

    It then filed a separate proceeding, first on — I’m sorry, filed in the same proceeding, a motion to compel the Commission to order a recall of this order.

    Now, that case was a consolidated case.

    It involved docket G-2210 which was the Mobile rates, docket G-2019 which was the pipeline rates and docket G-1142 which was a 5 (a) proceeding which the Commission had itself initiated in 1948 on all of United’s rates so that there was in the one consolidated proceeding a 5 (a), a 4 (e).

    Now, Mobile then sought a separate collateral proceeding which was by the docket G-2227 notified a proceeding, Mr. Justice Minton.

    Thomas Fletcher:

    There had — Mobile has never filed a 5 (a) proceeding and it said to the Commission, “We want you to recall the order that you issued and a knowledge and deny the filing because we have a contract and we have not consented.”

    And the Commissions says, “Your consent is not essential.

    They have complied with the statute.

    This must be hammered as the statute requires and we deny that.”

    Mobile secondly says, “We want you to cancel the consolidation order and order a separate hearing as to Mobile solely and alone.”

    And the Commission says, “No, we deny that because this is a consolidated proceeding.

    The — the proceeding is already underway, evidence is in course.

    We think in our own experience is more helpful to us to have the consolidated hearing and we deny that.”

    Thirdly, Mobile says, “We want you to cancel and annul paragraph D of your order which permitted these rates to go into effect and substitute an order denying the new rates to become effective as filed under Section 4 (d) and the Commission said, “We can’t do that because that would be improper.

    We have no authority to suspend an industrial — for resale rate only.

    We can’t do that.

    We must go forward with this hearing.”

    And that one was not raised in the motion for a rehearing either.

    Or, they said, “We want you to enter an order requiring a refund of the difference between the proposed rates and whatever rates you finally approved as an outcome of the hearing and the Commission said, “No, we deny that because we cannot order a refund of a non-suspendable rate.

    Our authority to refund is limited solely to suspendable rates and that brings the issue here.

    Now, I’m coming, Mr. Justice Frankfurter —

    Felix Frankfurter:

    (Inaudible) the argument that if I have to file here, it should be found to be unreasonable this new rate that it was unreasonable from the beginning and therefore you will end up being rich for hanging on something that doesn’t belong to you.

    Thomas Fletcher:

    Well, Mr. Justice Frankfurter —

    Felix Frankfurter:

    It’s just a matter of that.

    Thomas Fletcher:

    If that be the case, I think the case is allegiant and they are cited in our brief.

    That hardship and that matter is for the Congress and not for the Court, but this Court had that to say in the Montana-Dakota case.

    That would be true and I would agree with Your Honor that it would be harsh.

    Yes, sir?

    Hugo L. Black:

    That might — that would be much hardship for United, was it?

    Thomas Fletcher:

    Oh, I didn’t say it would be hardship for United, Mr. Justice Black.

    No, sir.

    I did not so state it.

    Felix Frankfurter:

    You meant whether Montana gets hardship for some of us.

    Thomas Fletcher:

    Yes, sir, I do.

    Felix Frankfurter:

    Or in the case.

    Thomas Fletcher:

    I do.

    I remember and I have read that and I’m quite familiar with that.

    Now, the question then comes.

    What was the intent of Congress, if Congress intended that it should have uniform and equal regulation applicable to all alike, it would be wholly obstructive and destructive by these purposes if you could have a contract that grow superior to the statute and superior to the purpose and intent which it had in enacting the law.

    You simply could not do that, otherwise, the even and uniform application which in Section 1 (a), it specified and which in Section 4 (a) and 4 (b) it demanded would be frustrated.

    I want to reserve the balance of my time.