Petition — Transcontinental Gas Pipe Line Corp. v. Federal Energy Regulatory Commission

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Supreme Coud, U. &

| JUN 17 W977

No.

—=- or ~T ) CLERK

IN THE

Supreme Court of the United States

OcTOBER TERM, 1976

— 76-1799

TRANSCONTINENTAL GAS Pipe LINE CORPORATION,

Petitioner,

FEDERAL POWER COMMISSION

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

Tuomas F.. RYAN, JR.

Rospert G. HARDY

GALLAGHER, CONNOR AND BOLAND

821 Fifteenth Street, N.W.

Washington, D.C. 20005

Attorneys for Petitioner

Transcontinental Gas Pipe Line

Corporation

Of Counsel:

Brian E. O’NEILL, Senior Vice

President and General Counsel

WILLIAM N. Bonner, JR.

Transcontinental Gas Pipe Line

Corporation

Post Office Box 1396

Houston, Texas 77001

Press or Byron 8S. ADAMS PRINTING, INC., WASHINGTON, D. C.

INDEX

Page

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JURISDICTION ..... i cerkeenen wes eaedanéeesienendecees 2

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Is ois hanced d6eecaeates hat cekedecedeessa 3

Reasons FoR GRANTING THE WRIT .............+.05- 7

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pe PPP TTT TOT ET TTIT TEL eee TT Ter eee 35a

ROOM. Fs 660s candwoncceccesdsétsesadsvesetcuve 44a

I TE n'5 6:00 0:065d odnendeckad ede dncesxencdexs 52a

pf Perry rr eeTr erry TT TTT eT or Terrier Try Te d4a

RON Tix iiceShdiscdndduaceteseatanndvssseseets 57a

CITATIONS

American Public Gas Association v. FPC, D.C, Cir.

No. 76-2000, et al., decided June 16, 1977 ........ 10

Elizabethtown Gas Co. v. FPC, D.C. Cir. Nos, 75-

1767, et al., order issued March 29, 1977 ......... 7

Federal Power Commission vy, Louisiana Power &

Bee Wels Ge ES EE Kb bbe cdeccetesesecscess 10

ii Citations Continued

Page

Federal Power Commission v. Transcontinental Gas

Pipe Line Corporation, 423 U.S. 326 ........ 2-7, 12

Forsyth v. Hammond, 166 U.S. 506 «2.6.2... eee eee 3

Lend ¥. Dellat, BO UB. TEL 0. csccvcccsccccccccecss 3

Larson v. Domestic & Foreign Commerce Corp., 337

CT on dng ease sedérenecacceniecess ceceenss 3

Mobil Oil Corp. v. Federal Power Commission, 417

SS rrr re —ibbenadcnestneen wens 10

Philadelphia Gas Works v. F PC, D.C. Cir. No. 76-

1367, decided May 9, 1977 .......scccccccccccees 11

Public Service Commission of New York v. FPC, 467

Pp kB) es RS PPPPrePerererrerree 10

St. Louis, K.C. & C.R.R. Co. v. Wabash R.A. Co., 217

eee sce ciek Cedevasbaeeeeuieuanates 3

United States v. General Motors Corp., 323 U.S. 373... 3

IN THE

Supreme Court of the United States

OcTOBER TERM, 1976

No.

TRANSCONTINENTAL GAS Pipe LINE CORPORATION,

Petitioner,

Vv.

FEDERAL POWER COM MISSION

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

Transcontinental Gas Pipe Line Corporation

(Transco) hereby petitions for a writ of certiorari to

review an opinion and order of the United States

Court of Appeals for the District of Columbia Circuit

in this case,

OPINIONS BELOW

The opinion and order of the court of appeals (App.

A, infra, pp. la-22a), its order denying suggestions

for rehearing en banc on a 4-4 split vote (App. B, infra,

pp. 23a-24a), and its order denying rehearing (App.

C, infra, pp. 25a-26a) are not reported.

The court of appeals’ initial interlocutory order

(App. D, infra, pp. 27a-34a), issued August 1, 1975 in

this case, is not reported.

This Court’s January 19, 1976 opinion granting

certiorari, vacating the court of appeals’ initial order,

and remanding with instructions, is reported at 423

U.S. 326, 96 S. Ct. 579, 46 L.Ed 2d 533 (1976).

The court of appeals’ order and memorandum of

February 6, 1976 (App. E, infra, pp. 35a-43a) re-

manding to the Federal Power Commission (IPC or

Commission) is not reported.

The subsequent order of the Commission (App. F,

infra, pp. 44a-51la), issued June 25, 1976, is not re-

ported.

JURISDICTION

The opinion and order of the court of appeals (App.

A, infra) was entered on November 29, 1976. Timely

petitions for rehearing and suggestions for rehearing

en banc were denied by orders issued January 18, 1977

(Apps. B and C, infra). By order dated April 14, 1977

in No. A-834, Chief Justice Burger granted an exten-

sion of time for filing a petition for writ of certiorari

to and including June 17, 1977." The jurisdiction of

this Court is invoked under 28 U.S.C. 1254(1).

Although the opinion and order of the court of ap-

peals is interlocutory, this Court has jurisdiction to

review it by writ of certiorari. Indeed, this Court has

previously granted a writ of certiorari with respect to

a prior interlocutory order of the court of appeals in

this case. Federal Power Commission v. Transconti-

nental Gas Pipe Line Corporation, 423 U.S. 326.2 See

2On April 14, 1977, the Commission was granted a like extension

for filing a petition for a writ of certiorari in No. A-827. We are

advised, however, that the Commission has decided not to seek a

writ, as discussed at p. 7, n. 5, infra.

2 Hereinafter cited as FPC vy. Transco.

also, Forsyth vy. Hammond, 166 U.S. 506, 513, 514; St.

Louis, K.C.&C. RR. Co. v. Wabash R.R. Co., 217 U.S.

247, 251; United States v. General Motors Corp., 323

U.S. 373, 377; Land v. Dollar, 330 U.S. 731, 734, n.2;

Larson v. Domestic and Foreign Commerce Corp., 337

U.S. 682, 685, n.3.

QUESTIONS PRESENTED

1. Whether the court of appeals has once again

abused its diseretion and overstepped the bounds of

proper judicial review by ordering another remand to

the Commission, this time for extensive findings ‘‘re-

garding the duration, shape and causation of the alleged

{natural gas] shortage on the Traisco system”’,

2. Whether, having established that a natural gas

shortage does in fact exist on Transco’s system, the

“duration, shape and causation” of such shortage has

any conceivable bearing on the legality of “‘compensa-

tion” for unequal curtailment under the Natural Gas

Act.

STATUTE INVOLVED

Section 19(b) of the Natural Gas Act, 52 Stat. 831,

as amended, 15 U.S.C. 717r(b), is set forth in Appen-

dix G, infra, pp. 52a-53a.

STATEMENT

1. Over a year and a half ago, this Court determined

that ‘‘swift and priority consideration’’ should be given

to this case by the court of appeals. FPC v. Transco,

supra, 423 U.S. at 334. Yet, the court of appeals still

has not reached the merits of the case, which involves

the lawfulness of a so-called ‘‘compensation” provision

contained in a curtailment plan of Transco covering

natural gas deliveries to Transco’s customers for the

limited one year period November, 1974 through Oc-

tober, 1975. The point of controversy presented here is

the continued insistence of the court of appeals in this

case of dictating to the Commission the methods and

procedures for determining the reality of the shortage

of natural gas o1 Transco’s system.

2. In the prior chapter of this same proceeding, this

Court ruled that the court of appeals “overstepped the

bounds of its reviewing authority” in “dictating to the

agency the methods, procedures and time dimension”’

of an evidentiary inquiry thought by the court of ap-

peals to be essential to meaningful judicial review of

the curtailment compensation provision. PPC v. Trans-

co, 423 U.S. at 331-3332 In remanding to the court of

appeals, this Court authorized the lower court either to

proceed to decide the case on the merits or, because it

was “conceivable” that there was some nexus between

the existence of the shortage and the lawfulness of the

compensation scheme, to remand to the Commission for

adequate findings.

3. The court of appeals opted for the latter course.

By its February 6, 1976 decision (Judge MacKinnon

dissenting) (App. FE, tufra), the court of appeals con-

cluded that evidence on the shortage was “absolutely

essential” to a decision. The court of appeals stated :

“

“We do not perceive how we could fairly consider

‘the lawfulness of the proposed compensation

scheme’ unless the Commission has first fulfilled its

*The background of that phase of the proceeding is set out in

the Court’s vpinion and will not be repested here.

duty to determine whether a real shortage exists.

Thus far the Commission has refused to certify the

existence of the shortage claimed by Transco .. .”

(App. E, infra, p. 39a) (emphasis supplied).

4. In response to the court of appeals’ mandate, the

Commission found ‘‘that a natural gas supply shortage

has in the past and continues to exist on Transco’s sys-

tem’’ requiring curtailment of service. Order of June

25, 1976 (App. F, infra, p. 51a). The Commission’s

findings and conclusions were based upon a stipulation

and agreement among the parties to FPC Docket No.

RP75-51 (an investigation of Transco’s curtailment

situation) which in turn was based upon relevant por-

tions of the record in that case. Such stipulation is set

forth as Appendix H, infra, pp. 54a-56a. In so con-

firming the reality of the shortage, the Commission

pointed out that ‘deliverability (the amount of gas

capable for delivery in a fixed time period) evidence

is more relevant to the issue of need for curtailment

than is evidence on total proved reserves.’? (App. F,

infra, p. 50a). .

5. In its November 29, 1976 opinion and order (App.

A, infra), the court of appeals concluded that the Com-

mission’s order on remand was deficient.‘ Whereas the

court in its original order of May 28, 1975 had re-

quested certification of proved reserves and in its Feb-

ruary 6, 1976 order (App. FE, infra) had merely asked

the Commission to certify whether ‘‘a real shortage ex-

ists”, the same panel now wanted ‘‘to be able to assess

the nature, extent and duration of shortage” along cer-

tain preconceived lines of inquiry. The court was criti-

cal of the fact that the Commission focused on evidence

*In this action and all preceding actions on the same subject,

the panel was divided 2 to 1.

regarding deliverability rather than reserves, and

opined that deliverability evidence :

“does not necessarily constitute substantial evi-

dence of actual and legitimate long-term shortage

if, for example, a pipeline or producer could, by

more or less simple acts, make its proved reserves

more deliverable.” (App. A, infra, p. 10a).

The court below also speculated that sizeable reser-

voirs of gas might “by physically and economically

achievable acts” be moved from “possible’’ or “prob-

able” categories into the category of ‘proved reserves”.

Such category of gas was characterized as “provable”

reserves, a term heretofore unheard of in the natural

gas industry. While the court of appeals conceded

that deliverability evidence might suffice as proof of

an immediate shortage, it now expressed its belief that

the determination of the legality of compensation re-

quired a ‘‘broader base of information’’.

In summary, the court of appeals now decided to re-

quire answers to sweeping questions looking far into the

future, despite the fact that the compensation issue on

review is tied to a one year time period (November 15,

1974 through October 31, 1975) long since past.

6. Transco filed a petition for rehearing and a sug-

gestion for rehearing en banc (App. I, infra, pp. 57a-

66a), as did the Commission‘ and several other parties.

The suggestions for rehearing en banc were denied by

virtue of a 4-4 split among the judges of the circuit

in regular active service who voted on the case (App.

B, infra), and the majority of the 3-judge panel, con-

sisting of Chief Judge Bazelon and Judge Edwards

(of the Sixth Circuit Court of Appeals), thereupon

denied rehearing, with Judge MacKinnon continuing

to dissent (App. C, infra).

REASONS FOR GRANTING THE WRIT

This case presents an important question concerning

the propriety of a reviewing court attempting to recast

and reshape a lawsuit to fit its own ideas of appropriate

issues and areas of inquiry, despite the fact that no

private or publie party to the case raised such matters

or believed that the Commission’s determination of the

existence of the shortage was inadequate to a resolu-

tion of the case. More specifically, Transco submits

5 We have been advised that the Commission is not seeking cer-

tiorari this time although, as evidenced by the motion for extension

of time in Nv. A-827, the Commission had earlier requested the

Solicitor General to seek certiorari in this case. This request to the

Solicitor General was recently withdrawn by the Commission after

the same court of appeals inexplicably scheduled oral argument in

three other pending ‘‘compensation’’ cases without requiring the

same gas supply inquiry as is being required by that court in the

instant case. Order issued March 29, 1977 in Elizabethtown Gas Co.

v. FPC, D. C. Cir. Nos. 75-1767, et al. Aithough the reasoning for

the Commission’s sudden change of position will have to be supplied

by the Commission itself, the fact that Transco apparently will

now be the only pipeline singled out for such an inquiry does not

make the judicial interference any less unlawful. Indeed, the ac-

tions of the court of appeals cannot in our judgment be reconciled

if there is any validity to the court’s claim that verification of the

shortage is ‘‘absolutely essential’’ to determining the legality of

‘*compensation’’.

that the court below overstepped the bounds of proper

judicial review by imposing its judgment of technical

matters upon the expert agency, and by ordering a

second remand of the case for “exceptionally complex

findings and prophecies”* which, under the cireum-

stances, have no possible bearing on the question in-

volved in the lawsuit.

Although the court of appeals couches its latest de-

cision in terms of lack of ‘‘substantial evidence”, the

plain fact is that the court has again dictated to the

Commission the methods and procedures for determin-

ing the existence of the natural gas shortage on Trans-

co’s system.’ The court of appeals takes no issue with

the quantum of evidence used by the Commission to

determine that the shortage really exists. Rather, it de-

termines that the Commission went about its inquiry in

the wrong way. It disagrees with the Commission (the

supposed expert body) that deliverability (the ability

of attached wells to produce) is the best test of exist-

ence of an actual shortage and then orders the Commis-

sion to embark upon a wholly new line of inquiry, one

to determine the “duration, shape and causation of the

alleged shortage”. And in so doing, it tells the Commis-

sion that it must look at “provable’’ reserves, a brand-

new term which the court defines as reserves which

could become proved through “physically and economi-

“ally achievable acts lying entirely within the control

of a pipeline or a producer”, This aetion by the court

of appeals, we submit, constitutes even greater judicial

interference with the administrative process than that

* As stated by Judge MacKinnon in his dissenting opinion, App.

A, mfra, p. 20a.

"In the prior chapter, the court of appeals also dictated the time

dimension for the inquiry, Only that element is missing this time.

which this Court overturned in the prior chapter of

this case.

First, the court of appeals has ordered a far-reach-

ing inquiry, complete with its own term and definition,’

into matters which are fraught with inherent uncer-

tainties and which, in any event, are far beyond the

power of the agency to control. The “duration” and

“shape” of the future shortage on Transco’s system

will require crystal ball gazing of the highest magni-

tude and will offer little assistance in resolving any is-

sue, much less the issue of the legality of compensation

in a curtailment case. Quite obviously, with the Com-

mission having found that the existing shortage is gen-

uine, the duration—and we might add, degree—of fu-

ture shortage will be dependent upon a great many un-

knowns, the principal one being the amount of new re-

serves found and dedicated by producers to Transco’s

system. This, in turn, will be a function of the eco-

nomies of exploring for and developing new reserves,

as well as the existence and magnitude of the reserves

in the ground.

By this, we do not intend to suggest that a court

could not comprehend the geologie, engineering, eco-

nomie and regulatory complexities of gas production,

but rather that the court of appeals’ desire to satisfy

* As dissenting Judge MacKinnon aptly stated:

‘Originally the majority were concerned with ‘proved re-

serves’... . The majority now expand their prior remand *

inelude so-called * provable reserves '—not just proved reserves.

The industry reports (/d.) do not refer to any such eclass:tica-

tion. So unless some industry support can be cited for the

term ‘provable reserves’, it must be eoneluded that the ma

jority ‘ave coined an ad hoe detinition and gratmitous’y &

dowed » h their own non-scientifie trappings.” (App. A,

infra, } * 4-I6a,n.1).

its curiosity ° cannot possibly be meaningful, particu-

larly in the context of the powers and responsibilities

of the Commission and the judiciary, respectively.

One thing is certain, however, and that is that neither

the Federal Power Commission nor the court of ap-

peals can force producers to drill wells, which is the

only way that gas can be brought to the surface of the

earth for transportation by pipelines.”°

Second, it is inconceivable that the “duration, shape

and causation” of the gas shortage, with all of the ne-

°**Curiosity’’ may be an understatement. ‘udge MacKinnon

pointedly observes that the majority of the panel is ‘‘apparently

obsessed with the idea that there is no actual gas or oi] shortage’’

(App. A, infra, p. 15a). Such a notion has no foundation in the

record on review and is flatly contrary to this Court’s recognition

of the energy shortage in prior gas cases. See, ¢.g., FPPC v. Louisiana

Power & Light Co., 406 U.S. 621, and Mobil Oil Corp. v. FPC, 417

U.S, 283. And, some five years age, in Public Service Commission

of New York v. FPC, 467 F.2d 361, 371 (D.C. Cir. 1972), the

court below took notice of ‘‘our national critical shortage of nat-

ural gas’’; most recently, in American Public Gas Association v.

FPC, [The Second National Natural Gas Rate Cases’’], D.C.

Cir, No, 76-2000, et al., decided June 16, 1977, the court of appeals

characterized the gas shortage as a ‘‘national emergency’’ (Slip

Op., p. 61).

“A prime example of the attempt by the court of appeals to

interfere with the functions of the expert administrative agency

and impose its erroneous notions of the gas industry upon the

Commission is found in the following statement:

**Diminished deliverability does not necessarily constitute sub-

stantial evidence of actual and legitimate long-term shortage

if, for example, a pipeline or producer could, by more or less

simple acts, make its proved reserves more deliverab!e.’’ (App.

A, tafra, p. 10a).

Since the pipeline has no control over the drilling of wells by its

producers, the court’s reference to the pipeline is clearly wrong.

More fundamentally, however, the statement is totally erroneous,

since the way to improve deliverability of proved reserves is to

drill more wells in existing fields and while such actions would

alleviate the short-term shortage, they would aggravate the long-

term shortage by depleting known reserves at a faster rate.

bulous judgments which would attend any such find-

ings,’ could have any bearing upon the issue of the

lawfulness of “compensation’”’ in the context of this

ease. While it was conceivable that the existence of a

true shortage could bear upon the lawfulness of “com-

pensation” as this Court previously determined, we

submit that the Commission has now adequately an-

swered that question (App. H, infra), particularly

since the compensation here involved covers only a

past period. Furthermore, we fail to see how the new,

expanded inquiry ordered by the court of appeals has

any relationship to the threshold legal issue of whether

any compensation plan is lawful. The Commission has

determined that all plans are unlawful on their face;

it is this issue and this issue alone which is before the

court of appeals, and speculation on how long the gas

supply shortage is going to last will not aid in that

determination.

Furthermore, if the court of appeals is correct, it

would seem to follow logically that the ‘‘duration, shape

and causation’’ of the shortage would permeate the gas

allocation features of all curtailment plans as well as

the ancillary compensation schemes that have accom-

panied some.” While we firmly believe that all such in-

quiries would be fruitless in the long run, the logical

effect of the court of appeals’ order would be to im-

11 F.g., how much new gas will be found, in what supply areas

will it be found, and when? How much of that which will be found

in its supply area will Transeo acquire and when ?

12 We have pointed out above (p. 7, n.5) that the court of appeals

has set for argument three other eases involving the legality of

compensation plans. In addition, the court has decided the mexits

of the gas allocation feature of curtailment plans, including one

involving Transeo (Philadelphia Gas Works v. FPC, D.C. Cir. No.

76-1357, decided May 9, 1977). We cannot reconcile these actions

with the one here at issue.

pede the Commission’s ability to oversee curtailment

practices and policies in the short run.

Finally, although the court’s order is interlocutory,

its effect is immediate and irreparable. Transco submits

that, in terms of judicial interference, the latest order

is even more grievous than the court of appeals’ Au-

gust 1, 1975 order which was summarily reversed by

this Court. As this Court there determined, any re-

view of the propriety of the order must be immediate

to the meaningful. FPC v. Transco, 423 U.S. at 330,

331.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

THomMAS IF’. Ryan, JR.

Rosert G. Harpy

GALLAGHER, CONNOR AND BOLAND

821 Fifteenth Street, N.W.

Washington, D.C. 20005

Counsel for Petitioner

Of Counsel:

Brian FE. O'NEILL, Sentor Vice

President and General Counsel

WiLi1aAM N. Bonner, JR.

Transcontinental Gas Pipe Line

Corporation

Post Office Box 1396

Houston, Texas 77001

June 1977.

APPENDIX

APPENDIX A

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 74-2036

TRANSCONTINENTAL GAS PIPE LINE CORPORATION, ET AL.,

PETITIONERS

Vv.

FEDERAL POWER COMMISSION, RESPONDENT

PIEDMONT NATURAL GAS Co., INC.

FARMERS CHEMICAL ASSOC., INC.

GAS SECTION

GEORGIA MUNICIPAL ASSO.

MANUFACTURES INSTITUTE, INC.

STAUFFER CHEMICAL Co.

OWENS-CORNING FIBERGLAS CORP.

PUBLIC SERVICE Co. OF NORTH CAROLINA

THE BROOKLYN UNION GaAs Co.

LONG ISLAND LIGHTING Co.

CONSOLIDATED EDISON Co. OF NEW YORK, INC.

PHILADELPHIA GAS WORKS

ALUMINUM Co. OF AMERICA

SOUTH JERSEY GAS Co.

ATLANTA GAS LIGHT Co.

PUBLIC SERVICE ELECTRIC AND GAS Co.

INTERVENORS

No. 75-1038

PIEDMONT NATURAL GAS COMPANY, INC., PETITIONER

FEDERAL POWER COMMISSION, RESPONDENT

GENERAL Motors Corp.

AMERICAN TEXTILE MANUFACTURES INSTITUTE INC.

TRANSCONTINENTAL GAS PIPE LINE Corp.

OWENS-CORNING FIBERGLAS CorP.

CONSOLIDATED EDISON Co. OF NEW YorRK, INC.

SOUTH JERSEY Gas Co.

EASTERN SHORE NATURAL Gas Co.

PHILADELPHIA GAS WoRKS

BROOKLYN UNION Gas Co.

PUBLIC SERVICE Co. OF NORTH CAROLINA, INC.

PUBLIC SERVICE ELECTRIC & Gas Co.

ALUMINUM Co. OF AMERICA

PUBLIC SERVICE COMMISSION FOR THE

STATE OF NEW YORK

NORTH CAROLINA NATURAL GAs Co.

FARMERS CHEMICAL Asso. INC.

LONG ISLAND LIGHTING Co.

INTERVENORS

No. 75-1045

ELIZABETHTOWN GAS COMPANY, PETITIONER

Vv.

FEDERAL POWER COMMISSION, RESPONDENT

GENERAL Motors Corp.

PIEDMONT NATURAL GAS Co. INC.

THE AMERICAN TEXTILE !1[ANUFACTURING INSTITUTE INC.

TRANSCONTINENTAL GAS PIPE LINE Corp.

OWENS-CORNING FIBERGLAS CORP.

CONSOLIDATED EDISON CO. OF NEW YORK, INC.

SouTH JERSEY GAS Co.

PHILADELPHIA GAS WORKS

PUBLIC SERVICE ELECTRIC AND GAs Co.

PuBLIC SERVICE COMPANY OF NORTH CAROLINA INC.

EASTERN SHORE GAS Co.

BROOKLYN UNION GAs Co.

FARMERS CHEMICAL Asso. INC.

PUBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK

ALUMINUM Co. OF AMERICA

NorTH CAROLINA GAS CORP.

LONG ISLAND LIGHTING Co.

INTERVENORS

Oe es ee ne

No. 75-1077

CONSOLIDATED GAS SUPPLY CORPORATION, PETITIONER

FEDERAL POWER COMMISSION, RESPONDENT

TRANSCONTINENTAL GAS PIPE LINE

PIEDMONT NATURAL GAS Co.

AMERICAN TEXTILE MANUFACTURES INSTITUTE

OWENS-CORNING FIBERGLAS

SOUTH JERSEY GAs Co.

CONSOLIDATED EDISON Co. oF NEW YORK

GENERAL Motors Corp.

PHILADELPHIA GAS WORKS

- PUBLIC SERVICE ELECTRIC & GAS Co.

PUBLIC SERVICE Co. OF NORTH CAROLINA

EASTERN SHORE NATURAL Gas Co.

THE BROOKLYN UNION Gas Co.

FARMERS CHEMICAL Asso., INC.

NORTH CAROLINA NATURAL GAS CorP.

THE PUBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK

ALUMINUM Co. OF AMERICA

LONG ISLAND LIGHT Co.

INTERVENORS

No. 75-1099

ATLANTA GAS LIGHT COMPANY, PETITIONER

Vv.

FEDERAL POWER COMMISSION, RESPONDENT

AMERICAN TEXTILE MANUFACTURERS INSTITUTE INC.

TRANSCONTINENTAL GAS PIPE LINE Corp.

GENERAL Motors Corp.

OWENS-CORNING FIBERGLAS CorP.

FARMERS CHEMICAL Asso. INC.

NORTH CAROLINA NATURAL GAS CORP.

THE PUBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK

ALUMINUM Co. OF AMERICA

PIEDMONT NATURAL GAs Co. INC.

BROOKLYN UNION GAS CoO.

PUBLIC SERVICE Co. OF NORTH CAROLINA INC.

PUBLIC SERVICE ELECTRIC & GAs Co.

INTERVENORS

No. 75-1103

CONSOLIDATED EDISON COMPANY OF NEW York, INC.,

PETITIONER

Vv.

FEDERAL POWER COMMISSION, RESPONDENT

AMERICAN TEXTILE MANUFACTURERS INSTITUTE INC.

TRANSCONTINENTAL GAS PIPE LINE CorP.

GENERAL Motors Corp.

OWENS-CORNING FIBERGLAS CorP.

FARMERS CHEMICAL Asso., INC.

NORTH CAROLINA NATURAL GAS CoRP.

PuBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK

ALUMINUM Co. OF AMERICA

PIEDMONT NATURAL GAS Co., INC.

LONG ISLAND LIGHTING Co.

PHILADELPHIA GAS WORKS

BROOKLYN UNION GAs Co.

PuBLIC SERVICE Co. OF NORTH CAROLINA INC.

PUBLIC SERVICE ELECTRIC & GAS Co.

EASTERN SHORE NATURAL GAS Co.

SouTH JERSEY GAS Co.

INTERVENORS

remem ae

No. 75-1200

STATE OF NORTH CAROLINA AND NORTH CAROLINA

UTILITIES COMMISSION, PETITIONERS

Vv.

FEDERAL POWER COMMISSION, RESPONDENT

PIEDMONT NATURAL GAS CoMPANY, INC.

FARMERS CHEMICAL Assoc. Co.

EASTERN SHORE NATURAL Gas Co.

PHILADELPHIA GAS WoRKS

SOUTH JERSEY GAs Co.

GENERAL Motors Corp.

NORTH CAROLINA NATURAL GAS Corp.

PUBLIC SERVICE ELECTRIC AND Gas Corp.

CAROLINA PIPELINE COMPANY

THE PUBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK

PUBLIC SERVICE Co. OF NORTH CAROLINA, INC.

OWENS-CORNING FIBERGLAS CORP.

On Proceedings Subsequent to Remand

Filed November 29, 1976

Before: BAZELON, Chief Judge, Epwarps,* United

States Circuit Judge for the Sixth Circuit;

and MACKINNON, Circuit Judge

Opinion for the Court filed by Chief Judge BAZELON.

Dissenting Opinion filed by Circuit Judge MACKINNON.

* Sitting by designation

seusaen pursuant to Title 28 U.S.C.

BAZELON, Chief Judge: At issue in this case is an in-

terim curtailment plan negotiated by the Transconti-

nental Gas Pipe Line Corporation (Transco) and its

customers, in response to the natural gas shoriage said

to exist on the Transco pipe line. The plan is designed

to allocate this gas shortfall among Transco’s distributor

customers. One element of the proposed plan is a com-

pensation scheme, whereby those Transco customers cur-

tailed less than the system-wide average would com-

pensate those curtailed more than the average. The Fed-

eral Power Commission found the compensation scheme

violative of the Natural Gas Act, and therefore rejected

the proposed interim plan. This appeal followed.

On August 1, 1975, this court withheld consideration

of this case, “until the Commission has completed its

own investigation and report to this court of Transco’s

claims of reduced reserves... .” On January 19, 1976,

the Supreme Court granted certiorari, vacated this court’s

order, and remanded with instructions that we should:

either . . . proceed to the merits of the issues pre-

sented by ‘the compensation scheme and only there-

after deal with the adequacy of the record in regard

to the evidence of shortage, or immediately remand

the case to the Commission for the required inquiry.

44 U.S.L.W. 3418; 96 S.Ct. — (1976). On February 6,

1976, we followed the latter course and remanded to

the Commission ‘

1 Notwithstanding our local Rule 13(d) governing remands

“of the record” and “of the case” or the specific Supreme

Court language we quoted in our February 6 order, and in

light of the Supreme Court’s purpose here of remand for

supplementation of the record, we do not read our prior order

as surrendering jurisdiction. Upon the Commission’s motion

to lodge its order of June 25, 1976 and attached documents,

the court determines to treat the motion as a motion to file and

to supplement the record in a case over which it has on-going

jurisdiction, and as such grants it.

|W jell aware that the Commission has disapproved

this compensation scheme rather than approved it,

we do not see how we can fairly weigh the legality

of that decision unless the record contains a basis

for our deciding whether or not the agreement was

a truly voluntary response to an actual shortage. No

such basis is provided absent the Commission’s in-

vestigation of the shortage question and findings of

fact on this issue which can be properly reviewed

by this court.

Memorandum accompanying Order of February 6, 1976,

at 4-5.

Because we find that the information provided by the

Commission on return of remand is still inadequate we

must, reluctantly, remand the record once again.

I. DEFICIENCIES ON PRIOR REMAND

On remand, in an attempt to expand the record to

establish proof of an actual gas shortage, the parties en-

tered into a stipulation of “facts [which] demonstrate

that Transco has had, and continues to have, a necessity

to curtail service to its customers. .. .” Among the

recitations was that, “The annual volume of natural

gas available from Transco’s producer-suppliers has been

declining since 1971 and has been and continues to be,

insufficient to enable Transco to satisfy the certificated

requirements of its customers. .. .” In support of the

accuracy of this statement, the stipulation summarizes

the affidavit of FPC staff witness, Wayne M. Thompson,

a geologist in the Gas Supply and Production Section of

the Bureau of Natural Gas. Thompson testified that

staff initially undertook a review of the delivery capa-

bility of 18 fields connected to the Transco pipeline sys-

tem and responsible for 12% of its supply. Thompson

concluded that “Transco’s projections of deliverability

are reasonably accurate, although somewhat lower than

our own.” Affidavit at 2. He further concluded that “if

the fields studied are representative of the entire Trans-

co supply,” then “curtailment on Transco’s system will

be necessary, roughly to the extent Transco itself has

stated.” The stipulation also recites that Thompson

“stated that a further staff review of 19 additional fields

accounting for approximately 9% of Transco’s gas sup-

ply did not change his opinion... .” Stip. at 2.

The Administrative Law Judge certified the stipula-

tion to the Commission, along with relevant record evi-

dence. On June 25, 1976, the Commission issued an

eight-page order with these underlying materials as at-

tachments. The principal Commission finding states,

Upon consideration of the mandate of the remand by

the Court of Appeals and the record evidence prop-

erly before the Commission we find that a natural

gas supply shortage has in the past and continues

to exist on Transco’s system which has necessitated

some curtailment of service to Transco’s customers.

Order of June 25, 1976, at &.°

We find that the record here, even as supplemented on

remand, lacks the “ ‘substantial evidence’ . . . necessary

to support any such finding |of shortage] by the Com-

mission.” 44 U.S.L.W. at 3414; 96 S.Ct. — (1976).

* This finding negates the dissenter’s view that “If Transco

has curtailed its customers in the past, or does so in the fu-

ture, because of any shortage which is fictitious or self-

induced, or in any way wrongful, it can be sued for damages.”

Dissent at 4. We note that a recent FPC news release indi-

cates that in the gas year just ended (April 1975-March 1976),

Transco was curtailing 35% of firm requirements system-

wide. FPC Report of June 18, 1976 on 1976-77 Projected

Natural Gas Pipeline Curtailments, Schedule I of Bureau

of Natural Gas Staff Report. For the current gas year (April

1976-March 1977), Transco projects a deficiency of 42.98%

of firm requirements. Jd. Plainly the question of whether a

shortage is “fictitious,” “self-induced,” or “in any way wrong-

ful” is not simply a related or future question, but goes to

the heart of the propriety of compensation.

1V0a

This court has previously suggested that the existence

and legitimacy of shortage on the Transco system could

best be proven by thorough examination of the pipeline’s

proved reserves. But the Commission order on remand,

while finding that a natural gas supply shortage has

existed and continues to exist, does so exclusively in

terms of “deliverability.” The Commission states that

“deliverability (the amount of gas capable of delivery in

a fixed time period) evidence is more relevant to the

issue of need for curtailment than is evidence on total

proved reserves.” Order, supra, at 7. Deliverability may,

indeed, be “more relevant” to the question of whether

curtailment is required on any given day; however, it

eeems clear that at least some explanation of the rela-

uonship between Transco’s present deliverability crisis

and its proved reserves, and the reasons for Transco’s

alleged inability to bring sufficient gas onstream, is re-

quired in order for the Commission and a reviewing

court to be able to assess the nature, extent, and dura-

tion of shortage.

Diminished deliverability does not necessarily consti-

tute substantial evidence of actual and legitimate long-

term shortage if, for example, a pipeline or producer

could, by more or less simple acts, make its proved re-

serves more deliverable. Similarly, diminished proved

reserves may not support a finding of long-run shortage

if by physically and economically achievable acts lying

entirely within the control of a pipeline or producer,

sizeable reservoirs of gas might be moved from the

‘possible’ or ‘probable’ categories into the category of

‘proved reserves’.®

In a related context, the Commission has noted that

the need for curtailment may arise in two legally dis-

tinct situations. In the first, reduction of service comes

* Gas which could be so moved into “proved reserves” will

be termed “provable” throughout this opinion.

lla

about because of government-ordered curtailment “nec-

essary as a result of the [legitimate] gas shortage.” In

the second, “the pipeline’s need to curtail resulted from

its own negligence, bad faith, or other wrongful con-

duct.” See United Gas Pipeline Co., 49 F.P.C. 1211,

1220 (1973). We fail to see how the Commission can

distinguish between these two shortfall conditions em-

ploying deliverability data alone.

However, even assuming that the deliverability data

now in the record constituted proof of Transco’s imme-

diate shortage sufficient to justify curtailment of some

sort, a determination of the legality of compensation

would require a broader base of information.

II. SCOPE OF THE PRESENT REMAND OF RECORD

Because of ambiguities in the Commission orders of

November 12, 1974, and January 10, 1975, we are unable

to determine whether the Commission concluded that all

like compensation plans employed in the context of end-

use curtailment would be barred by the Act, or whether

instead it concluded only that this particular plan is

improper.‘ But whether the opinions are intended to be

read broadly or narrowly, we believe it is clear that any

proposed compensation plan cannot be measured against

*There would appear to be serious questions about the

validity of a broad ban on all compensation plans. See Missis-

sippi Public Service Commission v. FPC, 522 F.2d 1345 (Sth

Cir. 1975), cert. denied, 45 U.S.L.W. 3220. In that case the

Fifth Circuit set aside an FPC order denying extraordinary

relief from a curtailment plan. The relief sought consisted of

a compensation plan, and the Commission denied the relief

because it concluded that it lacked jurisdiction to order or

approve any plan of compensation. The court disagreed, hold-

ing that “‘the imposition of compensation payments as a con-

dition for the receipt of higher priority gas is within the

statutory power of the FPC ....” Jd. at 1350.

l2a

the strictures of § 4 of the Act’ without substantial in-

*The overarching requirement of the Natural Gas Act is

that all rates and charges by natural gas companies subject to

FPC jurisdiction, and all governing rules and regulations,

must be “just and reasonable,” and those that are not are

deemed unlawful. §4(a). Under the compensation plan at

issue in the instant case, the pipeline’s distributor customers

would pay differing prices for gas depending upon whether

they were being curtailed more or less than the systemwide

average. A threshold determination, therefore, would be

whether the financial burdens and benefits related to compen-

sation constitute “rates” or “charges” within the reach of

§ 4(a) for regulatory purposes.

Although we need not now reach this issue, we note that the

Fifth Circuit has determined that such payments do not con-

stitute “rates”: “[{[C]Jompensation payments are not ‘rates’

but in the nature of surcharges imposed in the context of a

curtailment plan to insure that the burdens of curtailment are

spread evenly and equitably among those affected. . . .”” Missis-

sippi Public Service Commission, supra, at 1350. The court

suggested that “compensation plans are more analogous to

the penalty payments included by the Commission in various

curtailment plans to deal with the problem of overtakes.”

Id. “Surcharges” and “penalty payments,” however, suggest

limited application of a pricing mechanism for a short dura-

tion to achieve a clearly defined purpose; higher prices for gas

sold as emergency relief or improperly taken in excess of cur-

tailment, may not necessarily be analogous to varying perma-

nent prices for gas allocated by the curtailment plan itself.

Assuming that compensation payments were found to be

regulable “rates” or “charges,” they would have to meet the

non-discrimination requirements of § 4(b) of the Act, as well

as the “just and reasonable” test of § 4(a). Section 4(b)

provides:

(b) No natural gas company shall, with respect to any

transportation or sale of natural gas subject to the juris-

diction of the Commission, (1) make or grant any undue

preference or advantage to any person or subject any

person to any undue prejudice or disadvantage, or (2)

maintain any unreasonable difference in rates, charges,

l3e

formation regarding the duration, shape and causation

of the alleged shortage on the Transco system. Such in-

formation is simply not provided by deliverability data

alone. We believe that the legality of compensation may

well turn, at least in part, on answers to the following

sorts of questions: Are sufficient volumes of gas avail-

able as proved or provable reserves so that greater total

deliverability can be foreseen in the short-term future?

Are present levels of curtailment likely to continue for

the indefinite future, or to deepen? And more specifi-

cally: will compensation be a short-term financial ad-

justment between customers of the pipeline to keep some

of those customers financially afloat until the supply

situation stabilizes, or will it be a permanent cross-

subsidization? We believe that without such informa-

tion, neither the Commission nor the court can hope to

give meaning to statutory terms such as “rates,”

“charges,” and “classes of service” in a regulatory land-

scape vastly altered by end-use curtailment.

service, facilities, or in any other respect as between

localities or classes of service.

15 U.S.C. §717c. Determining whether compensation fees

(if held to be regulable “rates” or “charges’’) constitute un-

due preference or disadvantage, or involve unreasonable

differences as between localities or classes of service would

be difficult. It is unclear, in the context of deep end-use

curtailment, what the statutory phrase “classes of service” has

come to mean. For example, when two distributor customers

of a pipeline have vastly different consumer loads, one with

mostly high priority volumes and transacting near-normal

business, the other selling almost no gas because its mostly

low priority volumes have been fully curtailed, are they simi-

larly situated from the perspective of § 4(b)(2) simply be-

cause the underlying contractual terms of sale from the regu-

lated pipeline are identical? Upon decision of this question may

turn the lawfulness of differing gas prices charged those

distributor customers under compensation.

l4a

III. CONCLUSION

In remanding the case to this court, the Supreme Court

noted, “. . . it is at least conceivable that the Court of

Appeals could determine that the lawfulness of the pro-

posed compensation scheme is partially a function of the

actual severity of the shortage.” 44 U.S.L.W. 3413; 96

S.Ct. (1976). This court has so determined, as we

suggested in our order of February 6, 1976. The addi-

tional information we now require in this second remand

of the record is necessary to determine how Transco is

marshaling its resources and proved and provable re-

serves to produce maximum deliverability in the future.

Only when the anticipated duration and shape of the

shortage is in better perspective will this court be able

to assess the legality of the compensation scheme at issue

here. The Clerk is instructed to remand the record here-

in to the Federal Power Commission for supplementation

in accordance with this opinion.

So ordered.

15a

MACKINNON, Circuit Judge, dissenting: The foregoing

opinion finds it necessary to again remand this case

(rather the record) to the Federal Power Commission.

The stated objective of such a remand is

to determine how Transco is marshaling its re-

sources and proved and provable |") reserves to pro-

duce maximum deliverability in the future. Only

when the anticipated duration and shape is in bet-

ter perspective will this court be able to assess the

legality of the compensation scheme at issue here.

Maj. op. p. 9 (emphasis added).

In my view the foregoing misconceives the issues here

and this court’s ability to deal with them.

This court has before it a curtailment plan involving

a compensation scheme. If the compensation scheme is

invalid the entire curtailment plan falls and it would be

unnecessary to consider any of the facts and issues that

the remand directs the Commission to determine and

consider. However, the majority, apparently obsessed

with the idea that there is no actual gas or oil shortage,’

‘ Originally the majority were concerned with “proved re-

serves” (Majority op. p. 10), which term has a precise

meaning in the accepted geological and engineering concepts

and methods used throughout the oil and gas industry, i.e.:

{[P]roved reserves [are] the current estimated quantity

of natural gas and natural gas liquids which analysis

of geologic and engineering data demonstrate with rea-

sonable certainty to be recoverable in the future from

known oil and gas reservoirs under existing economic

and operating conditions. Reservoirs are considered

proved that have demonstrated the ability to produce

by either actual production or conclusive formation test.

The area of a reservoir considered proved is that por-

tion delineated by drilling and defined by gas-oil, gas-

water contacts or limited by the structural deformation

or lenticularity of the reservoir. In the absence of fluid

l6a

contacts, the lowest known structural occurrency of

hydrocarbons controls the proved limits of the reservoir.

The proved area of a reservoir may also include the ad-

joining portions not delineated by drilling but which

can be evaluated as economically productive on the basis

of geological and engineering data available at the time

the estimate is made. Therefore, the reserves reported

. . . should include total proved reserves which may be

in either the drilled or undrilled portions of the field or

reservoir.

28 AMERICAN GAS ASSN., RESERVES OF CRUDE OIL, NATURAL

Gas LIQUIDS, AND NATURAL GAs 102 (1974).

[P]roved reserves .. . include gas and natural gas re-

serves of all types regardless of size, availability of

market, ultimate disposition or use.

Id. at 96-97. The majority now expand their prior remand

to include so-called “provable reserves”—not just proved re-

serves. The industry reports (id.) do not refer to any such

classification. So unless some industry support can be cited

for the term “provable reserves,” it must be concluded that the

majority have coined an ad hoc definition and gratuitously

endowed it with their own non-scientific trappings. They

define it to mean sizeable reservoirs of gas which might be

moved from the “possible” or “probable” categories (both un-

defined) into the category of “proved reserves” by “physically

and economically achievable acts lying wholiy within the con-

trol of a pipeline or producer.” Majority op. p. 10 & n.3. The

term “proved reserves” already includes considerable quanti-

ties of natural gas that are not absolutely proved and which

may be said to involve some degree of “possibility” or “prob-

ability’”—such as reserves in the “undrilled portions of the

field or reservoir.” AMERICAN GAS ASSN., supra at 102.

How much more “possible” or “probable” the majority want

the Commission to go in their now expanded effort to find

some additional basis for supporting the remand, they do not

say. Whether this attempt by the majority to now expand

the inquiry into this nebulous area is practical remains to be

seen. At the present time no industry or scientific support

has been cited to justify it. If the Commission or the parties

considered this request to be impractical, they can move for

its modification.

l7a

have taken the bit in their teeth and sua sponte deter-

mined to compel the Commission to make an extensive

and complex investigation, study and report on that issue.

This same effort is being substantially duplicated for

other gas producing areas by Congress, Ashland Oil, Inc.

v. FTC, —— U.S.App.D.C. . F.2d (Nos.

76-1174 & 76-1304, Sept. 20, 1976), and other agencies,

FTC v. Texaco, Inc., 170 U.S.App.D.C. 323, 517 F.2d 137

(1975), vacated pending rehearing en banc (Feb. 6,

1976). :

In determining that it has the right to do this, the

majority hangs on the strict language of the sentence in

the Supreme Court remand order which, inter alia, states:

|I}t is at least conceivable ... that the /awfulness

of the proposed compensation scheme is partially a

function of the actual severity of the shortage.

FPC v. Transcontinental Gas Pipe Line Corp., 423 U:S.

326, 334 (1976) (emphasis added).

However, to my mind, the reliance of the majority

does not fully consider the import of the Supreme Court

order. First, to the extent that the Supreme Court sup-

ported the theory of the majority it did so by saying it

was only “conceivable.” That is not much support. Sec-

ond, the Supreme Court recognized that the validity of

the compensation scheme was, at best, dependent only

“partially [on] . .. the actual severity of the shortage.”

Id. This recognizes that this court could pass on that

part of the plan that involved the va..dity of any compu-

tation scheme inter sese without the necessity of deter-

mining the existence or non-existence or exact extent of

a gas shortage on the line. In fact, the two alternatives

which the Supreme Court gave this court on remand?

* [T]he court below is free on remand either to proceed

to the merits on the issues presented by the compensation

scheme and only thereafter deal with the adequacy of the

18:8

are another recognition that it was not necessary to pass

on the validity or extent of the gas shortage in order to

rule that the plan was invalid because the Natural Gas

Act does not permit the incorporation of any compensa-

tion scheme. Third, when the Supreme Court referred

to the “lawfulness of the proposed compensation scheme”

(emphasis added) as being only “partially a function

of the actual severity of the shortage” (emphasi. added),

it indicated to me that it recognized that (1) the Commis-

sion might find the scheme to be lawful under the Natu-

ral Gas Act, but that (2) in its application to curtailed

users, the same plan might at some later date be deter-

mined to involve an unlawful breach of their contracts

because of Transco’s “negligence, bad faith, or other

wrongful conduct.” This conduct might then also be

found to violate the Natural Gas Act even though the

Commission had ; reviously approved the plan.

In my view of the present proceedings, none of the

parties has raised any issue as to the lawfulness of the

application of the plan to particular parties or in par-

ticular circumstances. Transco started back over 5 years

ago on May 17, 1971, responding to the Commission’s

Order No. 431 to file proposed permanent curtailment

plans for use in such future shortages as might arise.

The presently proposed curtailment plan is a continua-

tion of that original start as modified by subsequent al-

terations and such orders of the Commission and of this

court as have compelled it to alter its plans. Also, the

parties eventually negotiated a settlement among them-

selves involving the presently questioned compensation

scheme.

record in regard to the evidence of shortage, or immedi-

ately to remand the case to the Commission for the re-

quired inquiry.

423 U.S. at 334, quoted in majority op. p. 7.

19a

The principal concern of the parties and the Commis-

sion with the plan is the validity of any compensation

scheme in a curtailment plan in which priorities are

based wholly or in part on end use criteria. And the in-

herent validity of such a compensation scheme is not

dependent upon the existence of any particular degree

of shortage, real or spurious. The plan is to be applied

over a wide range of possible degrees of shortages. If

Transco has curtailed its customers in the past, or does

so in the future, because of any shortage which is ficti-

tious or self-induced, or in any way wrongful, it can be

sued for damages. Alternatively, parties aggrieved could

conceivably petition the Commission for relief. But that

is not this case and such issues have not been raised

and cannot be decided on this record. We are restricted

to acting on the basis of the record before us. However

material the bona fides of a particular gas shortage

might be to litigation involving the application of a cur-

tailment plan to particular parties in particular circum-

stances, it is not “absolutely essential to a decision by

[this court] on the issues presently before [this] court

for review,” FPC v. Transcontinental Gas Pipe Line

Corp., 423 U.S. 326, 334 (1976), i.e., to the validity of

a monetary compensation scheme in a curtailment plan

based on end use criteria. The question as to the bona

fides of the shortage, and possibly the bona fide charac-

ter of various degrees of shortages, that the majority

now seek to interject into the proceeding for a Commis-

sion determination should be left to a more appropriate

time and proceeding. So far as the parties are concerned,

they have not raised any of these issues in this proceed-

ing, and the determination of proved and provable re-

serves which the majority order by the present remand

is premature and might never be required if this court

passed on the issue involving the facial validity of the

compensation scheme.

As previously indicated, the compensation scheme which

was negotiated with Transco’s customers would be in-

valid if Transco fraudulently misrepresented the exist-

ence or extent of a gas shortage, and the customers re-

lied thereon in agreeing to the scheme and thereby suf-

fered damage. But the more immediate question, and

the one raised in this proceeding by those priority cus-

tomers of Transco who would be required to pay com-

pensation to lower priority customers, is whether the

compensation scheme, per se, creates an “unreasonable

difference in rates, charges, service ... or in any other

respect . . . as between classes of service.” 15 U.S.C.

§717c(b) (1970). The Commission determined that the

scheme was a facial violation of the Act. That issue can

easily be ruled on by this court, right now, without any

further delay and inconvenience to the parties and to

the Commission and without the necessity of determining

the amount of proved reserves, provable reserves, re-

serves economically achievable by acts lying wholly with-

in the control of a pipeline or producer, etc. In my opin-

ion we should rule on the merits of the facial validity

of the compensation scheme before the Commission is

forced to make the exceptionally complex findings and

prophecies * that the majority orders, because if we find

* The majority assert:

We believe that the legality of compensation may well

turn, at least in part, on answers to the following sorts

of questions: Are sufficient volumes of gas available

as proved or provable reserves so that greater total

deliverability can be foreseen in the short-term future?

Are present levels of curtailment likely to continue for

the indefinite future, or to deepen? And more specifically :

will compensation be a short-term financial adjustment

between customers of the pipeline to keep some of those

customers financially afloat until the supply situation

stabilizes, or will it be a permanent cross-subsidization ?

We believe that without such information, neither the

Commission nor the court can hope to give meaning

Pla

the scheme to be facially invalid there is no necessity

for the additional investigation. Certainly such procedure

would work an economy of the time of this court and

all parties concerned. A finding that the compensation

scheme of the plan violated the Act would doom the

entire plan for unlawfulness and no second reason for

reaching the same conclusion would be necessary.

The majority assert that answering some of the ques-

tions “would be difficult” and that the meaning of the

phrase “classes of service” is unclear.‘ Apparently the

majority has some initial difficulty with whether the

compensation called for by the compensation scheme is

subject to regulation by the Commission. On the latter

point the majority cites a Fifth Circuit case as holding

that compensation payments do not constitute “rates,”

i.e., “|Cjompensation payments are not ‘rates’ but in

the nature of surcharges . .. .”* (Emphasis added.)

Well, the statute says “rates” and “charges” and cer-

tainly the majority would not have any great difficulty

in holding that a “surcharge” is a “charge.” And as to

whether “classes of service” are involved, the cases on

permissible classification run into the thousands.

It is thus clear that the majority are overcomplicating

the case, unreasonably burdening the parties without any

assurance that it is necessary to do so, and unreasonably

delaying a decision on the facial validity of the com-

to statutory terms such as “rates,” “charges,” and

“classes of service” in a regulatory landscape vastly al-

tered by end-use curtailment.

Majority op. p. 13 (emphasis added).

* Majority op. pp. 12-13 n.5.

* Mississippi Public Service Commission v. FPC, 522 F.2d

1345, 1350 (5th Cir. 1975), petition for cert. filed, 45 U.S.L.W.

3061 (U.S. May 19, 1976), quoted in majority op. p. 12 n.5.

ors)

weil

pensation scheme. Nothing would be lost by this panel

immediately coming to grips with that issue and decid-

ing it. If we decided the scheme was invalid the further

inquiry would be unnecessary. If we decided the scheme

was facially valid then the majority could remand for

such additional information as they desired. That is

the sensible way to approach the situation. In addi-

tion to the foregoing I do not find that the majority has

fairly considered the record furnished by the Commis-

sion in response to the remand and I also object to the

indefinite and imprecise nature of the second remand

that the majority now orders.

I respectfully dissent.

* It is argued that the FPC should not consider the compen-

sation agreement without first determining that there is a

legitimate shortage. To my mind that question should be

explored and determined when it is raised by the parties—

and certainly not when the Commission has found the scheme

to be invalid for other reasons which made it unnecessary to

determine the existence of a legitimate shortage.

I would pass on the case that was presented to us by the

parties. In that respect I would apply the Supreme Court’s

finding that the majority “overstepped the bounds of its re-

viewing authority .. . [by not confining its review] to ‘con-

sideration of the decision of the agency . . . and of the evi-

dence on which it was based.’ U.S. v. Carlo Bianchi & Co.,

373 U.S. 709, 714-715 (1963).” FPC v. Transcontinental Gas

Pipe Line Corp., 423 U.S. 326, 331 (1976).

23a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA

September Term, 1976

No. 74-2036

TRANSCONTINENTAL Gas Pipe Line Corporation, Petitioner

FeperaAL Power Commission, Respondent

PrepmMont Naturat Gas Co., Inc., et au, Intervenors

And Consolidated Case Nos. 75-1038, 75-1045, 75-1077,

75-1099, 75-1103 75-1200

Berore: BazeLton, Chief Judge; Wricut, McGowan,

Tamm, LeventHaL, Ropinson, MacKinnon, Ross and

Wrkey, Circuit Judges

Order

(filed January 18, 1977)

Upon consideration of the suggestions for rehearing en

banc filed by Consolidated Gas Supply Corporation, Con-

solidated Edison Company of New York, Inc., Elizabeth-

town Gas Company, Piedmont Natural Gas Company and

Transcontinental Gas Pipe Line Corporation, respectively,

petitioners for review herein, and by respondent Federal

Power Commission, and a majority of the Judges of the

Court in regular active service not having voted in favor

thereof, it is

—

24a

OrpvereD by the Court, en banc, that the aforesaid sug-

gestions for rehearing en banc are denied.

Per Curiam

For the Court:

/s/ Grorce A. FIsHER

George A. Fisher

Clerk

Circuit Judge McGowan did not participate in the fore-

going order.

Circuit Judges Tamm, MacKinnon, Robb and Wilkey

would grant the suggestion for rehearing en banc.

25a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA

(Caption omitted in printing)

BeroreE: Bazeton, Chief Judge; Epwarps*, United States

Circuit Judge for the Sixth Circuit; MacKinnon,

Circuit Judge

Order

Upon consideration of the petitions for rehearing filed

by Consolidated Gas Supply Corporation, Elizabethtown

Gas Company, and Piedmont Natural Gas Company, Inc.,

petitioners for review herein, and by respondent Federal

Power Commission, and of the petition for rehearing

lodged in the Clerk’s Office by Intervenor Brooklyn Union

Gas Company, and of the petitions for rehearing and/or

suggestions for rehearing en banc lodged in the Clerk’s

Office by Consolidated Edison Company of New York,

Ine. and by Transcontinental Gas Pipe Line Corporation,

petitioners for review herein, it is

Orperep, by the Court, that the Clerk is directed to file

the petition for rehearing lodged by intervenor Brooklyn

Union Gas Company and the petitions for rehearing and/

or suggestions for rehearing en banc lodged by Consoli-

dated Edison Company of New York, Inc. and Transcon-

_tinental Gas Pipe Line Corporation, respectively, petition-

ers for review, and to enter the same on the docket, and

it is

* Sitting by designation pursuant to 28 U.S.C. § 291(a). Circuit

Judge MacKinnon would grant the instant petitions.

iene. 7a

26a

FurtHer Orperep, by the Court, that all of the afore-

: “a ' 4 APPENDIX D

said petitions for rehearing are denied.

Per Curiam —

For the Court: United States Court of Appeals for the District of

/s/ Geornce A. FisHEr Columbia Circuit

George A. Fisher SEPTEMBER ‘l'ERM, 1974

Clerk

| Filed August 1, 1975]

No. 74-2036

TRANSCONTINENTAL Gas Pipe Ling Corporation,

mi PETITIONER

FEDERAL PoWER COMMISSION, RESPONDENT

PrepMont Natura Gas Co., INC., ET AL.,

INTERVENORS,

AND CONSOLIDATED CASES

Before: Bazeton, Chief Judge; MACKINNON, Circutt

Judge and KEpwarops,' United States Cirewit Judge

for the United States Court of Appeals for the Sixth

Circuit.

ORDER

On receipt and consideration of the briefs and ree-

ord in the above-styled ease; and upon consideration

‘ Sitting by designation pursuant to Title 28 U.S.C. § 291(a).

28a

of the replies of the parties to this court's order of

May 28, 1975, and to the order to show eause of this

court entered on June 17, 1975;

Noting the refusal of the Federal Power Commis-

sion to certify to figures supplied by Transecontinen-

tal Gas Pipe Line Corporation purporting to support

its claim of necessity for a severe curtailment of sup-

ply with consequent economic and financial hardship

to many thousands of industrial, commercial and house

heating customers on the Eastern Seaboard;

Now, therefore, this court will hold in abeyance

any decision upon the order of the Federal Power

Commission concerning Transeo’s plan for allocating

the allegedly searee gas supply until the Commission

has completed its own investigation and report to this

court of Transco’s claims of reduced reserves by im-

mediate subpoena of Transco’s books and records per-

taining to all gas supplies in which it has any legal

interest, whether by ownership, lease, contract or

other means and by field investigation has determined

the extent of the reduced reserves and the bona fides

of Transco and its suppliers in meeting their past and

future contract commitments:

Aud further, reecgnizing that time is of the essenee,

and for the reasons stated in the attached memoran-

dum opinion, that said investigations and report to

this court be made within 30 days from the effective

date of this order.

Per Curiam.

Huan FE. Kune, Clerk.

MEMORANDUM

It was in April of 1971 that the Federal Power

Commission promulgated Order No. 431, 36 Fed. Reg.

7905, which required pipelines within FPC jurisdie-

ont

29a

tion to indieate whether an inadequate supply of na-

tural gas would require curtailment of deliveries to

customers. FPC vy. Louisiana Power & Light Co., 406

U.S. 621, 623. In early cases, it was argued that FPC

authority to accept curtailment plans arose from Sec-

tion 7(b) of the Natural Gas Act, 15 U.S.C. §717f(b),

the provision respecting abandonments in whole or

part of facilities or service within FPC jurisdiction.

That provision denies to a jurisdictional company the

power to abandon such facility or service unless and

until there is a 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 or

necessity permit such abandonment.” Decisions of the

Supreme Court and this Court have held (without

holding that Section 7(b) is inapplicable under all

circumstances) that the curtailment power of the

FPC is embraced within the Commission’s transporta-

tion jurisdiction, as implemented by Section 4 of the

Act. Michigan Power Co. vy. F PC, 161 USS. App. D.C.

221, 494 FF. 2d 1140 (D.C. Cir. 1974); FPPC v. Louisi-

anu Power & Light Co., supra.

The substantive standard governing FPC evaluation

of curtailment plans is found in $4 (b) of the Act:

No natural-gas company shall, with respect to

any transportation or sale of natural gas sub-

ject to the jurisdiction of the Commission (1)

make or grant any undue preference or advan-

tage to any person or subject any person to any

undue prejudice or disadvantage, or (2) main-

tain any unreasonable difference in rates,

charges, serviee, facilities, or in any other re-

speet, cither as between localities or as between

classes of service. 15 U.S.C. S717e(b)

30a

As indicated above, the FPC processes curtailment

plans under 4, including subsection (b) quoted above

and subsections (d) and (e).

In Loutsiana Power & Light, the Supreme Court

found a ‘pattern of temporary and chronic natural

gas shortages throughout the Nation,” and supplier

inability ‘‘to meet all of its eontraet commitments

during peak demand periods.”’ 406 U.S. at 626. In

part, the Supreme Court relied for its finding of

shortage upon the FPC's own Staff Report No. 2,

National Gas Supply and Demand 1971-1990 (1972).

That ease, which defined the breadth of FPC eurtail-

ment power, said, “ln the present cause, the issue is

whether the FPC, acting under the head of its trans-

portation jurisdiction and its broad mandate under

416, may order pipelines facing shortages to develop

and submit rational curtailment arrangements.’? After

distinguishing United Gas Pipe Line Co. vy. Mobile

Gias Service Corp., 350 US. 332 (1956), whieh held

that a pipeline may not unilaterally alter its contraec-

tual arrangements, the Court stated, “‘we conelude

therefore that the FPC has the jurisdiction asserted

here and that the Natural Gas Aet fully authorizes

the method chosen by the FPC for its exercise.”

The Louisiana Power & Light ease uphelds [sie]

the proposition that the FPC may require enrtailment

plans of pipelines ‘‘facing shortages.” and there can

be no doubt that actual shortage both underlies the

concept of eurtailment and justifies its application.

In light of that proposition, we have before us five

challenging facts. First, in this case, Transeo reported

the highest proven reserves of gas in its history in

1969, yet less than five ve cs later was reporting a

shortage as severe that it required curtaihnenuts of

43.22 percent in this coming winter heating season, and

——_~

3la

53.13 percent next summer. Response of Petitioner

Elizabethtown Gas Company ‘To Court’s Order to Show

Cause at 2. Second, the FPC “does not necessarily

endorse the accuracy of the data supplied by Traneo,”’

[sic] has not confirmed the existence of the claimed

shortage, and is not now proceeding to do so for the

purpose of this case, despite the Commission’s ap-

proval of previous curtailment plans.’ Response of

FPC to Order Of May 29, 1975 at 2. Third, the FPC

has informed this Court that the House Subcommit-

tee on Oversight and Investigations of the Committee

on Interstate and Foreign Commerce “has referred

eertain matters to the Justice Department for possible

eviminal proeseention,” possibly for perjury charges

eoneerning the extent of natural gas reserves. Fur-

ther, Subcommittee Chairman, John E. Moss, “has

specifically requested the Commission and _ its. staff

to refrain from contacting Mitehell Mnergy and De-

velopment. Corporation and Cities Service Oil Corpo-

ration pending the present series of Subcommittee

hearings on June 26 * * * and pending * * * [the

Commission’s| coordination with the Justice Depart-

ment.” Letter From John i. Moss to Hon. John N.

Nassikas, June 19, 1975. Fourth, Transeo’s response

to our show cause order states, “Beeause of claims of

confidentiality of certain data supplied by independ-

ent producers, some of the underlying information

may not be available on a pubhe basis without ob-

taining a release from the producers (not from

Transeo). Towever, such data is regularly shown to

FPC staff members for their review and analysis.”’

'We note that the Commission, by Order Amending Prior

Order and Broadening Scope of Investigation, issued July 1,

1975, has expanded their investigation in Docket No. PR 75 51

[sie RP 75-51]. however, we do not believe that that proceeding

mects the requirements of the instant litigation.

32a

We think this comment tends to indicate reluetance

on the part of Transeo to disclose the extent of com-

mitted contractual entitlements which it holds, and

from whieh it committed itself to supply [astern

Seaboard ultimate customers. Fifth, Chairman Moss

has advised the FPC Chairman that it is his view

that the instant order of this Court “is not only

justified but essential.” Letter of John E. Moss to

Hon. John N. Nassikas, June 25, 1975.

In a pending ease, United States Steel ve FPC,

U.S. App. D.C. ——, 510 F. 2d 689 (1).C. Cir.,

No. 74-2117, January 10, 1975), we denied a motion

to stay the Commission’s denial of emergency relief,

saying, “Only an ageney sufficiently aware of the over-

all state of natural gas supply and demand could

posstbly handle requests for emergeney relief seri-

atim, and yet avoid the circumstances where relief

grants, each with a de minimus impaet upon compet-

ing customers, cumiulate in outright suffering for all.”

Clearly, that statement postulates that actual short-

age, and the Commission’s detailed knowledge there-

of, underlies any curtailment and emergeney relief

therefrom. Further, we deferred to this detailed

knowledge of the Commisison, “sinee all these pieces

of data are required to decide each request for emer-

geney relief, and since in the absenee of detailed in-

formation our decision would have to be hased upon

speculation of the rankest sort, chaos would likely

result.” We believe now as then, and our order of

January 10th was clear notice to the ageney if notice

it had not had before, that a solid hase of data is ab-

solutely essential for just determination of enrtail-

ments and relief therefrom.

Thus, requiring that the Commission undertake the

Investigation ordered today, and complete the same

33a

within thirty days, is hy no mearis so stark a eom-

mand as that time limit viewed alone might suggest.

Indeed, in light of the record in this ease and the

abundant notice given to the agency in the past, we

would think the Commission highly remiss in_ its

duties had it not begun that undertaking long before

today’s order. Certainly, a responsible administrator

would have attempte [ste] to determine whether a

shortage requiring curtailment presently exists, at

least sines attention was called to the matter by the

people’s representatives in Congress. To summarize,

Order No. 431, respecting the filing of curtailment

plans predicated upon actual shortage was promul-

gated more than four vears ago. Order No, 467, set-

ting forth general policy respecting curtailment based

upon “end-use” and establishing categories with re-

spect thereto, has been in foree since January 8,

1973. Surely the Commission has long been on notice

that substantial data are required to justify eurtail-

ment, which is, after all, the denial of an amount of

gas otherwise contracted for. As we said in Pacific

Gas & Electrie Co. v. FPC, U.S. App. D.C. '

406 F. 2d 33, 35 (1.C. Cir. 1974); “The eountry ap-

pears to be experiencing a natural gas shortage which

necessitates the eurtailment of supplies to certain cus-

tomers during peak demand periods.”? (emphasis

added) (footnote omitted). The only rationale ad-

vaneed in support of any curtailment plan is actual

shortage of natural gas to the pipeline, and that faet

remains to be established by the investigation today

ordered,

MackKinnxoyx, Crrewt Judge: The curtailment plan

we consider here ts the result of a settlement amone

the parties based on an alleged shortage of natural

gas. If the shortage is not as severe as we have beer

34a

led to believe, then the parties to the settlement may

also have been misled, and may have reached their

agreement based on misinformation. The fairness of

the terms of the settlement is one factor in the Federal

Power Commission’s determination whether to ap-

prove the proposed eurtailment plan, and thus Neces-

sarily a consideration in our review of the Commis-

siun’s action. While the existence of an actual short-

age is peripheral to our obligation to pass on the legal-

ity of the curtailment plan, it is not wholly irrelevant.

Nevertheless it is not our primary funetion in re-

viewing the instant plan to become involved in that

complex factual inquiry. Since other bodies are in-

vestigating the extent of Transeo’s shortage, with

more direct authority than ours, | would reach the

merits of the eurtailment plan we are asked to con-

sider. It seems misdirected to me to imply neglect by

the Commission when it has acted promptly to dis-

approve the proposed plan. Our failure to review the

agency’s decision and to pass on the merits of the

challenged compensation feature will only delay our

judgment on an aspect of ‘Transeo’s curtailment plan

to whieh all parties coneerned seem dedicated.

Thus, while T am not opposed to verification of the

existence and extent of the alleged shortage, | believe

that it would be more in keeping with the jurisdiction

eenferred upon us by Congress with respeet to this

matter to affirm the action of the Commission on the

instant order and direct the Commission to determine

the existence and extent of the gas shortage prior to

passing on any subsequent eurtatiment plan.

35a

APPENDIX E

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA

(Caption omitted in printing)

Berore: Bazeton, Chief Judge; *Evwarvs, United States

Circuit Judge for the Sixth Circuit; and MacKinnon,

Circuit Judge

Order

(filed February 6, 1976)

On consideration of the per curiam opinion of the Su-

preme Court of the United States granting the petition

for certiorari, vacating the order of this Court, and re-

manding the case to this Court for further proceedings

consistent with the Supreme Court’s opinion, it is

OrvereD by the Court that the above cases are re-

manded to the Federal Power Commission for further

proceedings not inconsistent with the opinion of the Su-

preme Court of the United States and the attached deci-

sion by this Court.

Per Curiam

Circuit Judge McKinnon dissents for the reasons set

forth in his attached statement.

* Sitting by designation pursuant to Title 28 U.S.C. § 291(a).

36a

No. 74-2036—Transcontinental Gas Pipeline Co. v. FPC

Per Curiam. On August 1, 1975, this court issued the

following order in the above-styled case:

On receipt and consideration of the briefs and ree-

ord in the above-styled case; and upon consideration

of the replies of the parties to this court’s order of

May 28, 1975, and to the order to show cause of this

court entered on June 17, 1975;

Noting the refusal of the Federal Power Commis-

sion to certify to figures supplied by Transcontinental

Gas Pipe Line Corporation purporting to support its

claim of necessity for a severe curtailment of supply

with consequent economic and financial hardship to

many thousands of industrial, commercial and house

heating customers on the Eastern Seaboard;

Now, therefore, this court will hold in abeyance

any decision upon the order of the Federal Power

Commission concerning Transeo’s plan for allocating

the allegedly searee gas supply until the Commission

has completed its own investigation and report to this

court of Transco’s claims of reduced reserves by im-

mediate subpoena of Transco’s books and records

pertaining to all gas supplies in which it has any

legal interest, whether by ownership, lease, contract

or other means and by field investigation has deter-

mined the extent of the reduced reserves and the

bona fides of Transeo and its suppliers in meeting

their past and future contract commitments:

And further, recognizing that time is of the essence,

and for the reasons stated in the attached memoran-

dum opinion, that said investigations and report to

this Court be made within 30 days from the effective

date of this order.

rears ae wer en 2

Sia

Thereafter the Commission petitioned The Supreme

Court of the United States for a writ of certiorari. Sub-

sequently on January 19, 1976, the Supreme Court handed

down a per curiam opinion granting the petition for cer-

tiorari, vacating the order of this court, and remanding

the case to this court for further proceedings consistent

with the Supreme Court’s opinion.

The Supreme Court held that this ecourt’s order, to the

extent that it prescribed for the ageney *‘the methods,

procedures, and time dimension of the needed inquiry and

order[ed] the results to be reported to the court without

opportunity for further consideration on the basis of the

new evidence by the ageney[.]’’ invaded the administra-

tive domain.

The Court also, however, held:

Second. We agree with the Court of Appeals that

the existence of actual shortage of gas supplies forms

the factual predicate necessary to the Commission's

assertion of authority under its transportation juris-

diction, §1(b) of the Act, 15 U.S.C. 717b, to approve

the curtailment of gas already contracted for. FPC

v. Loutsiana Power d& Light Co., 406 U.S. 621 (1972).

Certainly that Court would properly conclude that

the Commission would have abused its discretion had

it approved eurtailment plans in the absence of evi-

dence whereby it ‘‘could have reasonably believed’’

the shortage to exist, Citizens to Preserve Overton

Park v. Volpe, 401 U.S. 402 (1971), and that ‘‘sub-

stantial evidence’’ in the record is necessary to sup-

port any such finding by the Commission.

The Supreme Court also held:

Fourth. We are unable to determine with certainty,

from this vantage point and on the partial record

now before us, whether the evidence regarding Trans-

38a

co’s actual shortage with which the instant order is

concerned is absolutely essential to a decision by the

Court of Appeals on the issues presently before that

court for review. Although Judge MacKinnon in his

separate statement was apparently of the view that

the Court of Appeals could determine that the lawful-

ness of the proposed compensation scheme is par-

tially a function of the actual severity of the short-

age. Cf. FPC vy. Louisiana Power & Light Co., supra.

Accordingly, the Court below is free on remand

either to proceed to the merits of the issues presented

hy the compensation scheme and only thereafter deal

with the adequacy of the record in regard to the

evidence of shortage, or immediately remand the case

to the Commission for the required inquiry. It is ap-

parent that under neither alternative need the Court

of Appeals’ ability fully and effectively to review the

administrative process regarding the implementation

of curtailment plans and their underlying factual

premises be relinquished.

Obedient to the views expressed by the Supreme Court,

including its suggestion that ‘‘swift and priority consid-

eration of this case’’ be given, we have considered whether

or not on the partial record before us ‘‘the evidence re-

garding Transco’s actual shortage with which the instant

order is concerned is absolutely essential to . . . decision’’

of the instant case. We conclude that it is, and hence this

case is immediately remanded to the Commission for the

required inquiry ‘‘in regard to the evidence of shortage.”’

We have noted with interest a case decided after the

date of our preceding order and referred to in the Su-

preme Court’s per curiam opinion without comment.

Mississippi Public Service Com’n v. F.P.C., 522 F.2d

1345 (5th Cir. 1975). In this ease the Fifth Cireuit held

that contrary to the view expressed by the Federal Power

— TD

SA ee ne

39a

Commission, the Commission did have jurisdiction ‘‘to

effectuate relief of the type sought in the petition for ex-

traordinary relief.’’ Jd. at 1349. The relief sought in this

Fifth Cireuit case was a Federal Power Commission order

to implement the same sort of proposal as is before us for

high priority users who are scheduled to receive above

average allotments of gas to compensate lower priority

users who are allotted below average amounts of gas.

In our instant case, however, the Commission was pre-

sented with a negotiated agreement between higher prior-

ity users and lower priority users for the former to com-

pensate the latter. This court has been urged by Transco

and various of its distributing companies to find that the

Commission’s disapproval of this ‘‘voluntary agreement’’

is not supported by the record. We do not perceive how

we could fairly consider ‘‘the lawfulness of the proposed

compensation scheme’’ unless the Commission has first

fulfilled its duty to determine whether a real shortage

exists. Thus far the Commission has refused to certify

the existence of the shortage claimed by Transco, and as

far as our record shows, has not completed any investi-

gation of its own.

While, of course, we are well aware that the Commis-

sion has disapproved this compensation scheme rather

than approved it, we do not see how we can fairly weigh

the legality of that decision unless the record contains a

basis for our deciding whether or not the agreement was

a truly voluntary response to an actual shortage. No such

basis is provided absent the Commission’s investigation

of the shortage question and findings of fact on this issue

which can be properly reviewed by this court.

For these reasons (to employ the words of the Su-

preme Court) we ‘‘immediately remand the case to the

Commission for the required inquiry.”’

ee ee ee ao

40a

Mackinnon, Circuit Judge, dissenting: My views on

this case were initially set forth in the memorandum ac-

companying the order of this court of August 1, 1975. We

deal here with a disapproval by the Commission of a com-

pensation scheme in a curtailment plan. If the Commis-

sion is affirmed by the court, then it is unnecessary to de-

termine the existence or extent of a gas shortage because

the compensation scheme is invalid on its face and it is

not necessary to go further and determine the existence

or extent of a gas shortage because such factual predi-

eate is only necessary to a valid plan. It is true that if

the record does not furnish the Commission with a basis

for reasonably believing that a gas shortage exists or is

imminent the Commission would not have authority to

approve a curtailment plan but certainly the Commission

ean disapprove a compensation scheme in a curtailment

plan submitted by the parties thereto when the scheme

appears to be facially invalid and the existence of a

shortage is not questioned by any party to the proceed-

ing.

As to the substantive issue concerning the validity of

the compensation scheme, it is my opinion that the Com-

mission properly held the scheme to be an undue dis-

crimination prohibited by section 4(b) of the Natural

Gas Act.

Under FPC v. Louisiana Power & Light Co., 406 U.S.

621 (1972), curtailment plans are to be weighed against

section 4(b) of the Natural Gas Act. This section pro-

vides:

No natural-gas company shall, with respect to any

transportation or sale of natural gas subject to the

jurisdiction of the Commission, (1) make or grant

any undue preference or advantage to any person or

subject any person to any undue prejudice or disad-

vantage, or (2) maintain any unreasonable difference

in rates, charges, service, facilities, or in any other

tla

respect, either as between localities or as between

classes of service.

15 U.S.C. §717e(b). There is no question that the rates

here are diser.uiinatory; many natural gas rates are. The

question is whether they are unduly discriminatory. Ad-

dressing this point, it is clear that under the settlement

proposal Transeo would charge different rates to simi-

larly situated customers which rates were not the result

of differences in Transco’s cost of serving these ecustom-

ers. In actual operation, different rates would result from

the varying degree to which each customer is curtailed

and the degree of curtailment would be determined in

part by the character of the use of the gas by the ens-

tomer. Neither of these factors, degree of curtailment or

nature of the use, is related to Transco’s cost of service;

but standing alone this is an insufficient ground upon

which te base a finding of illegality. The issue is whether

the ‘‘difference in . . . charges, service . . . or in any

other respect,’’ based as it is on the nonpipeline costs

specified in the settlement curtailment plan, is reasonable

under the circumstances here present.

Under the proposed compensation scheme contained in

the settlement curtailment plan it is obvious that high

priority customers will be charged more for their gas and

lower priority customers will pay less. Thus, the compen-

sation plan would penalize high priority users for the

benefit of low priority users, and in so doing would oper-

ate inconsistent with the approved objective of the Com-

mission to base curtailment on our use.’ This inconsist-

ency would result from the fact that the higher price re-

quired to be paid by high priority users would deter such

*FPC v. Louisana ower & Light Co., 406 U.S. 621, 641-647

(1972): American Smelting & Refining Co. v. FPC, 161 U.S.App.

D.C. 6, 17, 494 F.2d 925, 936, cert. denied sub nom. Southern Cali-

fornia Gas Co. v. FPC, 419 U.S. 882 (1974).

42a

priority customers from fully satisfying their needs and

would thereby make the unused portion of their full en-

titlement to gas available for low priority users which

in many instances is the more inefficient use. In any event

it has been determined to be the lower priority use and

favoring such low priority use, to the extent that the ecom-

pensation scheme does, would frustrate and interfere with

the operational scheme of the curtailment plan by inter-

jecting factors that work against the principles upon

which the plan is based. Upon such reasoning the Com-

mission acted properly within its authority in rejecting

the proposed compensation scheme.’

It is also significant that the record does not support

any showing of compelling need to discriminate in favor

of the low priority users who would benefit from the com-

pensation scheme. The Commission noted:

{T]he payments unrelated to costs, losses or hard

data of any sort, are as certain to be hurtful to one

group of consumers as they are to [be] helpful to

another, without visible regard to the question of how

much helpfulness is actually needed. (R. 11689)

It is accordingly my view that the settlement agree-

ment was properly rejected because the compensation

scheme constituted an undue discrimination in that it

would maintain unreasonable difference in ‘‘charges,

service, facilities [and] in other respect{[s] . .. as be-

tween .. . classes of service’’ contra to section 4(b).’ I

would thus affirm the decision of the Commission. I see

no necessity for getting into matters that are not neces-

sary to determine the invalidity of the plan. Finding the

plan invalid on one ground is sufficient. If it were to be

* FPC v. Louisiana Power & Light Co., supra, note 1, 406 U.S.

at 646-47.

* Td.

ree Det =

43a

found invalid because of an insufficient shortage, the re-

sulting invalidity would not be changed in any way. I

thus see no necessity for a remand. I would rule on the

principal issue.

I thus respectfully dissent from the finding in the fore-

going opinion that ‘‘the evidence regarding Transco’s

actual shortage .. . is absolutely essential to . . . decision’’

of the instant case.

tta

APPENDIX F

UNITED STATES OF AMERICA

FEDERAL POWER COMMISSION

Before Commissioners: Richard L. Dunham, Chairman:

Don S. Smith, John H. Holloman III,

and James G. Watt.

Transcontinental Gas Pipe Line ) Docket No. RP72-99

)

Corporation

ORDER UPON REMAND BY THE COURT OF APPEALS

(Issued June 25, 1976)

Presently before the Commission is a remand by the

United States Court of Appeals for the District of Columbia

Circuit 1/ ordering the Commission to find whether or not

a natural gas shortage exists on the interstate pipeline

system of Transcontinental Gas Pipe Line Corporation

(Transco). The Court of Appeals has stated that it must

first have evidence of an actual gas shortage on Transco's

system before it can rule upon the consolidated appeals

before it concerning the validity of the Commission's

prior orders rejecting a proposed compensation provision

included in a proposed interim curtailment plan settlement

previously filed by Transco. We find that a natural gas

shortage does in fact exist on Transco'’s system which has

necessitated some curtailment of service.

To better understand how the Commission has arrived at

this conclusion it is first advisable to review the lengthy

and intricate procedural history surrounding this curtail-

ment proceeding.

(1) Pursuant to Order No. 431 2/, Transco on May 17,

1971, tendered for filing its first permanent curtailment

plan which the Commission suspended for one day and set for

hearing by order of May 27, 1971, in Docket No. RP71-118.

Then by order of November 15, 1971 (46 FPC 1212) the

Commission conditionally approved an interim settlement

agreement filed by Transco on October 26, 1971, which

l/ Transcontinental Gas Pipe Line Corporation, et al. v. FPC,

2/ 45 PPC 570 (1971).

DC-31

per Curiam.

Docket No. RP72-99

established a pro rata curtailment plan to be in effect

from November 16, 1971, through November 15, 1972, and it

accordingly terminated that docket.

(2) Thereafter on January 17, 1972, Transco tendered

for filing its second proposed permanent curtailment plan

which the Commission by order of February 16, 1972, again

suspended and set for hearing in Docket No. RP72-99.

Thereafter by order of November 15, 1972, (48 FPC 1060)

the Commission approved a second interim settlement agreement,

this time filed by Transco on September 12, 1972. This

settlement provided an interim pro rata curtailment plan to

be in effect from November 16, 1972, through November 15, 1973.

(3) Notwithstanding the fact that the second interim

settlement agreement bound Transco to file a new curtailment

plan, Transco filed on May 1, 1973, a motion requesting a

one-year extension of this second interim curtailment plan;

however, by order of May 23, 1973, (49 FPC 1141) the Commis-

sion denied this motion and moreover directed Transco to

file a new curtailment plan by July 1, 1973, noting in passing

that Transco should consider the curtailment priorities and

procedures outlined in Order No. 467-B. 3/ In response thereto

Transco on June 29, 1973, tendered for filing a new curtail-

ment plan embodying Order No. 467-B priorities, but on

July 6, 1973, it nevertheless renewed its motion for a one-year

extension of its second interim curtailment plan. By order

of July 30, 1973, (50 FPC 281) the Commission denied this

renewed motion, suspended the 467-B type plan until November 16,

1973, and set the matter for hearing. Rehearing of this order

was denied on September 17, 1973 (50 FPC 803). Immediately

thereafter on September 18, 1973, one of Transco's direct

customers, Consolidated Edison Company of New York, petitioned

the United States Court of Appeals for the District of Columbia

Circuit for review of the abovementioned May 23, July 30, and

September 17 orders. It also moved for stay of the same

orders, which the Court of Appeals granted on November 9,

1973. 4/ The Court of Appeals subsequently clarified this

order 3/ by stating that, while the Commission should proceed

with hearings on Transco's permanent plan, the second interim

curtailment plan would continue in effect pending further

3’ 49 FPC $83 (1973).

4/ Consolidated Edison Company of New ies Inc. v. FPC,

No. ° D. C. Cir. November 9, 1973).

S/ Consolidated Edison Company of New York, Inc. v. FPC,

No. - D. C. Cir. December 14, 1973).

46a

Docket No. RP72-99

Court order. This appeal was ultimately denied by the

Court of Appeals 6/, as will be discussed in greater detail

subsequently.

The second interim curtailment plan, which was originally

contemplated to operate only for the period from November 16,

1972, through November 15, 1973, in fact remained in effect

beyond the end of that period and through most of 1974 as well

due to the continued operation of the November 9, 1973, Court-

imposed stay.

(4) Having received several complaints from Transco's

customers that this pro rata plan endangered high priority

service in light of an increased level of curtailment, the

Commission on September 12, 1974, file » motion with the

Court of Appeals requesting permissic imvestigate these

complaints and to take appropriate a . for the 1974-75

winter season. On Ictober 4, 1974, v.... Court of Appeals,

however, ordered ti.uat the second interim plan remain in effect

until the Commission could implement a permanent plan, except

that Transco was free to file a new interim plan with the

Commission.

Between the Commission motion and Court order Transco

had in fact on September 30, 1974, tendered for filing a

third interim settlement agreement to cover the period from

November 16, 1974, through November 15, 1975. This proposed

interim curtailment plan basically functioned 50% on a pro rata

basis and 50% on an end-use 467-B type basis. It also contained

a compensation provision by which the least curtailed customers

would compensate the most curtailed customers. By order of

November 12, 1974, the Commission rejected this third interim

settlement agreement because of the compensation provision

contained therein; however, the Commission also found that

in light of the deepening gas crisis on Transco's system

continuation of the pro rata second interim plan would not

be in the public interest. It therefore noted that it was

going to seek dissolution of November 9, 1973, stay of its

orders putting Transco's 467-B related plan in effect.

Although on November 13, 1974, Transco did file this

467-B type interim plan, it thereafter appealed the November 12,

1974, order and after consolidated oral argument on November 21,

1974, the Court of Appeals on November 26, 1974, 7/ modified

6/ Consolidated Edison Company of New York, Inc. v. FPC,

F. D. C. Cir. 5) (Con Ed II).

7/ Consolidated Edison Company of New York, Inc. v. FPC,

~ ‘SID F.2d 373 (D. Cc. Cir. 1974), per curiam. (Con Ed I)®

eee

dia

Docket No. RP72-99

its earlier stay of November 9, 1973, by implementing

Transco's third interim settlement agreement rejected by

the Commission on November 12, 1974, having found that

neither the earlier pro rata second interim settlement

agreement nor the 46/7-B type plan is appropriate under

current conditions. The Court of Appeals did, however,

require that all compensation provision payments be placed

in escrow. The Commission complied with the Con Ed I order

in its order of January 10, 1975, on rehearing of the

November 12, 1974, order. It also found that the record

of the permanent proceeding should be reopened for purposes

of environmental review. .

In the previously noted Con Ed II decision of May 28,

1975, supra note 6, besides affirming the Commission orders

of May oy. July 30, and September 17, 1973, the Court of

Appeals moreover stated that “we release our grip on the

interim curtailment arrangements," noting, that the stay

which imposed Transco's third interim settlement agreement

would continue until the Commission moved for its dissolution.

By order of July 25, 1975, the Court of Appeals went further

by stating that the Commission had the authority to approve

and effectuate a curtailment plan without express Court

permission.

Several petitions for review of the November 12, 1974,

and January 10, 1975, Commission orders rejecting the com-

pensation provision of Transco's third interim settlement

agreement were filed with the Court of Appeals. It is this

appeal which is presently before the Court of Appeals and

for the resolution of which this order on remand is requested.

Following oral ar nt of this appeal the Court of

Appeals on May 28, 1978, issued an order sua sponte requesting

the parties to supply answers to a series Of questions con-

cerning Transco's proven reserves. 8/ This was followed on

June 7, 1975, by an order to show cause why the Court should

not require the Commission to complete within thirty days

an investigation of Transco'’s claim of reduced reserves in

light of the Commission's refusal to certify to curtailment

figures it had received from Transco and had offered in

answer to the Court's May 28, 1975, questions. 9/

4Sa

Docket No. RP72-99

Thereafter on August 1, 1975, the Court of Appeals in fact

did issue such an order hclding resolution of the appeal

in abeyance pending completion of the Commission's investiga-

tion of Transco's gas supply using subpoena and field

investigation. 10/ The Court denied rehearing en banc of

the order on August 28, 1975.

While the Commission commenced compliance with this

Court order by ordering the Secretary to issue a subpoena

duces tecum to Transco in the ongoing investigation Tate

Transco’s curtailment, Docket No. RP/5-51, infra, it petitioned

the Supreme Court in October 1975 for a writ Of certiorari

to the Court of Appeals August 1, 1975, order, supra note 10.

By per curiam opinion the Supreme Court on January 9, 1976,

granted the Commission's petition for certiorari, vacated

the August 1, 1975, order, and remanded to the Court of

Appeals either to proceed on the merits or to remand to the

Commission for required inquiry into Transco's actual gas

shortage. 11/ It is upon this remand that the Court of Appeals,

upon concluding that evidence of Transco's actual gas shortage

is essential, remanded the case to the Commission, supra

note l.

(5) By order of November 28, 1975, the Commission

accepted and approved Transco's fourth interim settlement

agreement, which it had introduced into evidence — the

permanent plan hearings on October 15, 19/5. The resulting

interim curtailment plan, which is directed to ————

high end-use priority loads, is in effect from November 16,

1975, through October 31, 1976. In the meantime the proceed-

ing to establish a permanent curtailment — continues wich

Staff's environmental presentation the only unfinished segment

of the hearing.

(6) A separate —. related prgeeotins commenced

when by order of January 8, 1975, the Commission instituted

an investigation into the level of curtailment on Transco's

system for the 1974 winter hearing season. Thereafter by

order of July 1, 1975, the Commission expanded this investiga-

tion to determine the need for any curtailment at all by

10/ Transcontinental Gas Pipe Line Corporation v. F.P.C.,

No. 74-2036 (D.C. Cir. Tagust I, 1375), per curiam.

, per curiam.

SR ee ee NT tae oO

EE POET ete ewe EET

49a

Docket No. RP72-99

Transco in its deliveries to its resale customers. Then

on August 8, 1975, as noted above, the Commission ordered

the Secretary to issue a subpoena duces tecum to Transco

pursuant to the August l, 1375 order of the Court of Appeals.

On the same date the Commission also ordered Transco's

nineteen large ee ee which together furnish

Transco with 80% of its gas supplies, pursuant to Section 10

of the Natural Gas Act to report certain preliminary informa-

tion in furtherance of this Transco investigation.

Although hearings in Docket No. RP75-51 have not been

completed at this time, the parties to that proceeding have

entered into a stipulation and agreement in order to assist

in our expeditious response to the Court of Appeals remand,

supra note l, and the Presiding Administrative Law Judge

n 75-51, Curtis L. Wagner, Jr., certified (APPENDIX A)

this stipulation and agreement, along with related portions

of the record to the Commission on May 26, 1976.

Against this historic backdrop we turn to the evidence

before us and conclude that Transco has both suffered in the

past from and continues to suffer from an actual gas supply

shortage which has necessitated the curtailment of service

to both direct and resale customers. In reaching this con-

clusion we turn first of all to the stipulation and agreement

certified to us from the record (Tr. 3131-3132) of Docket

No. RP75-51 (APPENDIX B). We note that this stipulation

is expressly limited to the "question of Transco's necessity

to curtail service to its customers." In considering this

stipulation our ew A is similarly limited, and this order

is in no way intended to prejudice the other issues pending

in RP75-51. We find particularly relevant and a

the following stipulated facts: (1) Ever since 1971 the

total annual o ——r received from Transco from its

producer-supplier has been er and has been and con-

tinues to be insufficient to meet all of Transco's certif-

icated requirements. (2) System-wide curtailment by Transco

has been increasing as the flowing gas wiry declines:

1971 - 3.9%; 1972 - 8.3%; 1973 - f3° 12, 1974 - 24. 8%;

1975 - 33.7%; and 1976 (projected) - 41%. (3) Evidence

introduced by Commission Staff (Exh. 74; Tr. 2582, 2583,

2621) indicates that, based upon review of a sample of the

fields supplying gas to Transco, Transco's deliverability

projections were reasonably accurate, and Transco needed

to curtail service. Although we do not rely exclusively

upon the agreement of the parties in Docket No. RP75-51

that "Transco has had, and continues to have, a necessity

to curtail service to its customers" (Tr. 3131), the c lete

absence of any opposition to and the active support b” almost

all parties for the stipulation and agreement (Tr.312u -3130)

(APPENDIX C) do enhance the veracity and significance of this

document.

50a

Docket No. RP72-99

Our review of the certified evidence in Docket No. RP75-51l

(Exh. 74; Tr. 2582, 2583, 2621) (APPENDIX 0D) upon which the

stipulation is predicated reinforces our finding of an actual

natural gas shortage on Transco's system necessitating cur-

tailment. Exhibit 74, which is an affidavit of Commission

Staff witness Thompson, presents the results of Staff's

deliverability study. Preliminarily we agree with witness

Thompson (Exh. 74, p. 2) that deliverability (the amount of

gas capable of delivery in a fixed time period) evidence is

more relevant to the issue of need for curtailment than is

evidence on total proved reserves. Moreover, while this

Staff study did not include all of the many fields supplying

Transco, Staff was justified in randomly selecting

certain fields. 12/ After calculating the deliverability

for these 18 fieIds for a 13 month test period Staff

then compared its findings with Transco's deliverability

projections and found that, while comparisons

on individual fields varied to a greater degree,

Staff's total deliverability figure for the 18 fields for

~ae 13 month period (July 1975 through July 1976) was only

6.77% higher than Transco's related estimate. Staff witness

Thompson concluded from these results that for these 18

fields Transco's deliverability estimates were reasonably

accurate. In light of Staff witness Thompson's unimpeached

expertise in gas supply matters, as well as the reliable

methodology employed in Staff's study, we find that, not

only were Transco's deliverability estimates reasonably

accurate for the 18 fields considered, but it is also reason-

able to project that Transco's estimates for the remainder of

the 171 fields are sufficiently accurate for our present

purposes.

Since Transco's deliverability estimates indicate its

available = supply over a fixed time period, which Transco

in curn relies upon in projecting the volume and percent of

curtailment (Exh. 74, p. 6), we are justified in ee

from Exhibit 74 that at least for the period from July 197

through July 1976 Transco in fact has Seen experiencing a

yas supply shortage which has necessitated curtailment

generally to the extent projected.

12/ The corpus of Staff's raw data for this study was the

tremendous quantity of gas supply documents delivered

pursuant to the Commission's August 8, 1975, subpoena

duces tecum, supra. Staff. determined therefrom that

Transco was purchasing gas from producers out of 171

fields containing 1700 reservoirs and 3000 wells. Since

this study was made in response to the Court of Appeals

order directing the Commission to investigate Transco's

gas supply, pvpra note 10, Staff could not determine

the delivera ty for all 171 fields, and it acted

ore in randomly selecting 18 fields which

produced 11.9% of Transco's avaflable gas supply.

ree oe Eres

Ae ee ee

Docket No. RP72-99

The conclusions we have reached above upon analysis of

Exhibit 74 are strengthened by the additional certified

evidence (Tr. 2582, 2583, 2621) that a further deliverability

study of another 19 fields did not alter Staff witness

Thompson's conclusion.

Finally, we reference our November 28, 1975, order

accepting Transco's fourth interim settlement agreement in

which we found (Slip Op. at 7) that "Transco's supply

situation has deteriorated within the last year . ,

as well as finding "the existence of an emergency on Transco's

eyeeem .. -+ «”

The Commission further finds:

Upon consideration of the mandate of the remand by the

Court of Appeals and record evidence properly before the

Commission we find that a natural gas supply shortage has in

the past and continues to exist on Transco's system which has

necessitated some curtailment of service to Transco's customers.

The Commission orders:

(A) We direct the Commission's Solicitor this dav to file

a motion to lodge this order and appended documents with

the United States Court of Appeals for the District of

Columbia Circuit.

(B) Upon the cenclusion of the proceedings in Docket No.

RP75-51 the Commission will issue whatever order is appropriate

in light of the record evidence therein.

By the Commission.

(S E A L)

Kenneth F. Plumb,

Secretary.

52a

APPENDIX G

The Natural Gas Act, 52 Stat. 821-833, as amended, 15

U.S.C. 717-717w, provides in pertinent part:

Section 19(b):

Any party to a proceeding under this act aygrieved

by an order issued by the Commission in such proceed-

ing may obtain a review of such order in the circuit

court of appeals of the United States for any circuit

wherein the natural gas company to which the order re-

lates is located or has its principal place of business, or

in the United States Court of Appeals for the District

of Columbia, by filing in such court, within sixty days

after the order of the Commission upon the application

for rehearing, a written petition praying that the order

of the Commission be modified or set aside in whole or in

part. A copy of such petition shall forthwith be trans-

mitted by the clerk of the court to any member of the

Commission and thereupon the Commission shall file with

the court the record upon which the order complained of

was entered, as provided in scction 2112 of title 28,

United States Code. Upon the filing of such petition such

court shall have jurisdiction, which upon the filing of the

record with it shall be exclusive, to affirm, modify, or set

aside such order in whole or in part. No objection to the

order of the Commission shall be considered by the court

unless such objection shall have been urged before the

Commission in the application for rehearing unless there

is reasonable ground for failure so to do. The finding of

the Commission as to the facts, if supported by substan-

tial evidence, shall be conclusive. If any party shall apply

to the court for leave to adduce additional evidence, and

shall show to the satisfaction of the court that such addi-

tional evidence is material and that there were reason-

able grounds for failure to adduce such evidence in the

proceedings before the Commission, the court may order

such additional evidence to be taken before the Commis-

53a

sion and to be adduced upon the hearing in such manner

and upon such terms and conditions as to the court may

seem proper. The Commission may modify its findings as

to the facts by reason of the additional evidence so taken,

and it shall file with the court such modified or new find-

ings, which if supported by substantial evidence, shall be

conclusive, and its recommendation, if any, for the modi-

fication or setting aside of the original order. The judg-

ment and decree of the court, affirming, modifying, or set-

ting aside, in whole or in part, any such order of the

Commission, shall be final, subject to review by the Su-

preme Court of the United States upon certiorari or cer-

tification as provided in [former] sections 239 and 240

of the Judicial Code, as amended (U.S.C., title 28, sec.

1254). [15 U.S.C. 717r(b)].

Sta

APPENDIX H

Berore THE

FeperaL Power ComMIssION

WASHINGTON, D.c. 20426

Docket No. RP75-51

In the Matter of

TRANSCONTINENTAL Gas Pipe Line CorporaTION

Stipulation and Agreement

Wuereas, the instant proceeding was instituted by the

Commission’s Order issued January 8, 1975, for the pur-

poses of investigating the circumstances underlying the

projections of Transcontinental Gas Pipe Line Corpora-

tion (‘*Transeo”) for increased curtailment on Transco’s

system during the 1974-1975 winter, and a determination

as to the then-current projections of curtailment for

Transco’s system; and

Wuereas, the scope of the aforesaid investigation was

enlarged by Commission Order of July 1, 1975 to encom-

pass, inter alia, ‘‘the extent of the alleged necessity for

any curtailment on the system of Transco’’; and

Whereas, in order to enable the Commission to comply

with the February 6, 1976 order of the United States

Court of Appeals for the District of Columbia Circuit in

Transcontinental Gas Pipe Line Corporation, et al., v. F.

P. C., Nos. 74-2036, et al., issued in furtherance of the

Supreme Court’s January 19, 1976 order calling for

‘*swift and priority consideration’’ of that proceeding,

the parties agree that the Supreme Court’s directive and

the public interest would be served by prompt resolution

of the threshhold question of Transco’s necessity to cur-

tail natural gas service to its customers; and,

5da

Wuereas, the parties agree that such questions should

he severed and submitted on stipulation because it is un-

likely that other matters involved in the instant investiga-

tion can promptly be resolved under present procedures;

Now THEREFORE, the parties stipulate and agree, pursu-

ant to Section 1.25 of the Commission’s Rules of Practice

and Procedure, that the following facts demonstrate that

Transco has had, and continues to have, a necessity to

curtail service to its customers:

1. The total annual volume of natural gas available from

Transco’s producer-suppliers has been declining since

1971 and has been, and continues to be, insufficient to

enable Transco to satisfy the certificated requirements

of its customers, and Transco instituted mandatory

curtailment of its customers commencing in June, 1971.

Such curtailment has been effectuated under a series

of curtailment plans filed by Transco and approved by

the Commission, or placed into effect pursuant to

Court order;

2. System-wide curtailment percentages have steadily in-

creased due to the continuing decline in flowing gas

supplies, as follows: 1971-3.9%; 1972-83%; 1973 -

13.1% ; 1974 - 24.8% ; 1975 - 33.7%; and system average

curtailment is projected to be 41% for 1976.

3. The Commission’s staff initially undertook a review

of the delivery capability of 18 fields connected to

Transco’s system accounting for approximately 12%

of Transco’s supply. On the basis of such review,

Staff’s witness, Mr. Wayne M. Thompson, expressed

his opinion that the projections of deliverability made

by Transco are ‘‘reasonably accurate’’ and that ‘‘cur-

tailment of Transco’s system will be necessary,

roughly to the extent Transco itself has stated.’’ (Ex.

74). Mr. Thompson also stated that a further review

56a

of 19 additional fields accounting for approximately

9% of Transco’s gas supply did not change his opin-

ion stated above (Tr. 2582, 2583, 2621).

The foregoing Stipulation and Agreement is entered into

for the purpose of resolving promptly the question of

Transco’s necessity to curtail service to its customers,

pursuant to the directions on remand by the Court of

Appeals in D.C. Cir. Nos. 74-2036, et al., supra, and is

without prejudice to the positions which any party hereto

may take with respect to any and all questions which

have been raised or which may be raised in the instant

proceeding, other than that stipulated to herein, ie.,

Transco’s need to curtail service to its customers.

The parties hereto agree that the foregoing Stipulation

and Agreement and the record in this proceeding shall be

certified to the Commission pursuant to Section 1.30(c)

of the Commission’s Rules of Practice and Procedure,

and request that the Commission promptly enter its find-

ings regarding Transco’s need to curtail based upon this

Stipulation and Agreement.

ee =a ee _

57a

APPENDIX I

IN THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 74-2036

TRANSCONTINENTAL Gas Pipe Line CorporaTION, ET AL.,

No. 75-1038

PrepMont NaturaL Gas Company, Inc.,

No. 75-1045

ELizaBETHTOWN Gas Company,

No. 75-1077

Consotipatep Gas Supp.y CorporaTIon,

No. 75-1099

ATLANTA Gas Licut Company,

No. 75-1103

Conso.matep Epison Company or New York, Inc.,

No. 75-1200

State or Nortn Carotina anp NortH CaRouina

Urimitres Commission,

Petitioners,

Vv.

FeperaL Power Commission, Respondent.

Petition for Rehearing and Suggestion for Rehearing En Banc

Transcontinental Gas Pipe Line Corporation

Comes now Transcontinental Gas Pipe Line Corpora-

tion (Transco) and, pursuant to Rules 35 and 40 of the

Federal Rules of Appellate Procedure, respectfully sub-

—e—_—

5Sa

mits its petition for rehearing with respect to the opinion

issued by this Court on November 29, 1976, in the above-

captioned proceedings. Because the matter involved here-

in is of exceptional importance, Transco submits that re-

hearing en banc is appropriate. In support of this peti-

tion, Transco avers as follows:

STATEMENT OF THE CASE

This case arose originally because the Federal Power

Commission (‘‘FPC’’ or ‘‘Commission’’) refused, on the

threshold of the 1974-75 winter, to approve a one-year

interim settlement of the curtailment rules on the pipe-

line system of Transcontinental Gas Pipe Line Corpora-

tion (‘‘Transco’’). Because of the urgency caused by the

Commission’s action, which took place on November 12,

1974, only three days before Transco’s then-effective rules

were to expire, Transco and General Motors Corporation

jointly appealed to this Court on November 18, 1974 and

requested a ‘‘stay” of the Commission’s action, i.e., that

the Court order into effect the gas allocation method pro-

vided by the settlement. After argument held on Novem-

ber 21, 1974, on motions made in this case and in Consolt-

dated Edison Company of New York, Inc., et al., v. FPC,

Nos. 73-1999, et al., another panel of this Court on No-

vember 24, 1974 took the unprecedented step, because of

‘‘a shortage on the Transco system of what appears to be

crisis proportions’’ of ordering the allocation procedures

into effect commencing as of November 16, 1974. 511 F.

2d 372, 382. At the same time, at the suggestion of

Transco and others, the Court provided for placing in

escrow the funds relating to the issues of ‘‘compensa-

tion’’, the claimed illegality of which was the sole basis

for rejection of the settlement by the FPC.*

1 Pursuant to the order of this Court, approximately $19 mil-

lion collected pursuant to the compensation provision has been

placed in escrow pending disposition of the instant appeals.

59a

Briefs were thereafter filed with respect to the sole re-

maining issue of the legality of ‘‘compensation’’,? and

oral argument was held on May 21, 1975.

Commencing on May 28, 1975, there ensued a series of

unusual actions which have culminated over a year and

a half later with the Court’s opinion of November 29,

1976, as to which rehearing is here sought. First, on May

28, 1975, the Court issued an order, sua sponte, in which

it requested detailed information from ‘‘the parties’’ con-

cerning the history of ‘‘proven reserves’’ on Transco’s

system. Transco responded to this request, furnishing

data to the Court which had been filed over the years

with the Commission under oath and indicating, inter

alia, that Transco’s proved reserves at the end of 1974

were slightly less than half what they were at the end of

1966, the point of greatest volume.’ The response also in-

dicated that ‘‘Transco would be pleased to provide any

additional information desired by the Court for its evalu-

ation of the need for prompt action,’’ an indication that

Transco was puzzled as to the basis for the Court’s in-

quiry.

The FPC also responded (through its counsel, not by

formal action as a Commission) to the Court’s injuiry.

Unfortunately, the FPC’s response used the wrong infor-

mation from its public reports;? and counsel for the Com-

mission also indicated that ‘‘the Commission does not ne-

* Despite an open invitation from the Court to change settle-

ment allocation procedure if the evidence and expertise of the

Commission warranted any such change, 511 F. 2d. at 381-383,

the Commission made no move to effect any change. This issue was

therefore not briefed or argued and, upon expiration of the one-

year period, became moot.

* Letter of June 2, 1975.

*The errors were pointed out in Transco’s follow-up letter of

June 6, 1975.

60a

cessarily endorse the accuracy of the data . . ., [because]

Transco’s gas reserve and supply situation is currently

the subject of two separate Commission investigations

. ’ Seizing upon this disclaimer by counsel for the

Commission, the Court on June 7, 1975, issued an order

to show cause why the Court should not require the Com-

mission to subpoena Transco’s books and records and in-

vestigate in 20 days ‘‘the extent of the reduced reserves

and the bona fides of Transco and its suppliers in meet-

ing their past and future contract commitments.’’ In the

meantime, the Court suggested that it would hold in abey-

ance any decision . . . concerning Transco’s plan for

allocating the allegedly searce gas supply ... .’’ (empha-

sis supplied).? Despite unanimous opposition to the issu-

ance of the order, primarily on the ground of relevance,’

the Court did in fact order the subpoena and investiga-

tion. Because Transco felt that it was high time to dis-

1We repeat that the allocation method was not in dispute;

rather, the only issue briefed, argued and pending was ‘‘compen-

sation’’. Moreover, the ‘‘compensation’’ issue arose from a near-

unanimous settlement plan, not ‘‘Transco’s plan’’. See, 511 F. 2d.

at 381.

2In an attempt to be helpful, Transco in its letter advised the

Court that ‘‘the key question in determining the extent of a cur-

rent gas shortage is deliverability.’’ Although the Court did not

then even address this observation, it apparently now disagrees

with it.

*In its accompanying ‘‘Memorandum’’, the majority of the

Court cited ‘‘five challenging facts’’ as the bases for its action.

One of these ‘‘challenging facts’’ was that ‘‘Transco reported the

highest proven reserves of gas in its history in 1969, yet less than

five years later was reporting shortage as severe that it required

curtailments of 43.22% in this coming winter. . .’’ The actual

fact is that Transco reported its highest reserves at the end of

1966, not 1969, as shown in Transco’s June 2 and June 6 letters to

the Court. Another ‘‘challenging fact’’ was Transco’s indicated

‘reluctance . . . to disclose the extent of committed contractual

entitlements which it holds’’, a wholly unwarranted and baseless

Ola

pel the inferences and innuendoes that the shortage was

contrived, Transco opposed the Commission’s rehearing

request and urged a prompt investigation’ and for the

same reason, Transco did not participate in the Supreme

Court proceedings.

After summary reversal by the Supreme Court on Jan-

uary 19, 1976, the majority of this Court remanded the

ease to the Commission ‘‘to determine whether a real

shortage exists.’’* Responsive to that command and act-

ing upon a stipulation entered into by the active parties

to the Transco investigation (FPC Docket No. RP75-71),

the Commission issued an order on June 25, 1976 finding

‘‘that a natural gas shortage does in fact exist on

Transeco’s system.’’ Not satisfied with the Commission’s

determination, the Court’s opinion of November 29, 1976

followed. The majority of the Court has now decided that

the ‘‘reality’’ of the shortage cannot be measured in

allegation. Still another ‘‘challenging fact’’ was that an admitted

non-party to this ease, Congressman John Moss, in a letter to the

then-chairman of the FPC (with a copy to Chief Judge Bazelon, a

member of the panel on this case), advised that the contemplated

investigation ‘‘is not only justified but essential.’’ Transco finds

this last ‘‘fact’’ to be an astounding basis for the issuance of a

Court order of any kind, much less an order commanding an in-

vestigation which no party to the litigation requested or endorsed.

* Attached to Transco’s opposition to rehearing was a 1973 Staff

study of Transeo’s Gas Reserve & Deliverability Data for 1971.

The principal criticism of Transco’s reported reserves in that

study was that Transco used the Commission’s definition of

‘*proved reserves’’ instead of a more restrictive definition favored

by the Staff. The result of changing the definition would be to

further reduce Transco’s reported reserves, the opposite of the

result that would obtain if there were a ‘‘contrived’’ shortage.

2 FPC v. Transcontinental Gas Pipe Line Corporation, 423 U.S.

326 (1976).

* Memorandum opinion issued February 6, 1976, at p. 4 (unre-

ported).

62a

terms of deliverable quantities of gas but rather must he

determined by whether the pipeline or its producers ‘‘by

more or less simple acts’’ could turn ‘‘possible’’ or

‘‘probable’’ reserves into ‘‘proved’’ reserves. The Com-

mission is further ordered to obtain ‘‘substantial informa-

tion regarding the duration, shape and causation of the

alleged shortage on the Transco system’’ before the Court

will review the legality of the issue of ‘‘compensation’’.

Transco believes that the issue of ‘‘the duration, shape

and causation of the shortage’’ has absolutely nothing to

do with the single issue before the Court. Further, the

majority’s action in this narrow case would logically ex-

tend to all FPC actions on curtailment matters and bog

down the Commission in a morass of fruitless investiga-

tions. Finally, Transco, whose resources are already

strained in managing and trying to ameliorate a severe

gas shortage on its system without constantly fending

off ludricrous charges and insinuations of a contrived gas

shortage, desires this case to come to an end. It is there-

fore requested that rehearing be granted en banc. These

reasons are more fully developed hereinafter.

Reasons For Grantinc Reneartinc En Banc

A. The Extent, Duration and Causation of the Gas Short-

age on the Transco System are Totally Irrelevant to

the Compensation Question.

As noted by Judge MacKinnon in his dissent to the

Court’s November 29, 1976 order, ‘‘[t]he principal con-

cern of the parties and the Commission with the plan is

the validity of any compensation scheme in a curtailment

plan in which priorities are based wholly or in part on

end use criteria.’’ (emphasis in original) (p. 5). It is

patently clear that the Commission determined in its or-

ders below that any type of compensation feature in a

63a

curtailment plan constitutes a facial violation of the

Natural Gas Act. In establishing a permanent curtailment

plan on the Transco system in Opinion No. 778-A, issued

December 8, 1976, the Commission confirmed this view by

declaring that the orders under review herein ‘‘reject[ed]

any compensation plan as illegal per se... .’’ (mimeo.,

p. 23). Consequently, the particular depth—or duration

—of the gas shortage on Transco’s system has no bear-

ing on the strictly legal basis for the Commission’s de-

cision. Moreover, the compensation issue as presented to

the Court here was in an extremely narrow context. It

was presented as a settlement package by parties on both

sides of the question of the desirability of compensation

(much less its legality) and it covered only a one-year

period which is long past. Thus, without conceding the

relevance to a long-range curtailment plan of the Court’s

inquiries about the length of depth of curtailments in the

future or how permanent a ‘‘cross-subsidization’’ the

compensation is intended to be, such questions clearly

have no bearing on the one-year settlement that is now

history (except for the question of where the escrowed

money goes). Thus, insofar as the reality of the shortage

could be said to have any nexus with the issue of com-

pensation, it would be whether the curtailment which oc-

curred during the one-year period of the settlement was

necessary. And we know of no party (or non-party) who

contends it was not.’

* As a matter of logic, pipelines have no place to ‘‘hide’’ gas.

Once gas is received by them from producers, only their pipes and

storage fields of very limited capacity can hold the gas; otherwise

it must be sold.

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64a

B. The Majority Order Again Oversteps the Bounds of

Judicial Review and Is Ordering a Meaningless In-

vestigation.

The Commission and the active parties to Transco’s

investigation believed that they were complying with the

Court’s prior remand ‘‘to determine whether a real short-

age exists.’’ However, the present opinion of the majority

of the panel determines that data regarding ‘‘deliver-

ability’’, i.e., the ability of the wells attached to Transco’s

system to deliver gas, will not suffice. Rather, the Court

says, the Commission must conduct some kind of inquiry

in to ‘‘the relationship between Transco’s present deliver-

ability crisis and its proved reserves, and the reasons for

Transeo’s alleged inability to bring sufficient gas on-

stream... .’’ Only then, says the majority, can the Court

‘Sassess the nature, extent, and duration of shortage.’’

The Court goes on to explain why, in its judgment, de-

liverability ‘‘does not necessarily constitute substantial

evidence of actual and legitimate long-term shortage.”’

For example, says the Court, the pipeline or its producers

might make its proved reserves more deliverable ‘‘by

more or less simple acts.’’ Also, the pipeline or producer

might he able ‘‘by physically and economically achievable

acts’’ to move ‘‘possible’’ or ‘‘probable’’ categories into

the ‘‘proved’’ reserve category. The court even coins a

new term for this latter gas, ‘‘provable’’ reserves.

Aside from the obvious question as to why the Court

needs to determine a ‘‘long-term’’ shortage or to assess

the ‘‘nature, extent and duration of shortage’’ in the con-

text of the legality of a one-year settlement long since

past, Transco simply does not understand what ‘‘more or

less simple acts’’ the Court could be referring to or what

the ‘‘physically and economically achievable acts’’ are

that will create ‘‘proved’’ reserves.’

1 Although the terms ‘‘probable’’ and ‘‘possible’’ are recognized

65a

Thus, the inquiry ordered by the Court, we submit, will

not be meaningful, because it is obviously based on mis-

conceptions and misunderstandings of the natural gas

industry. Moreover, although the Court couches its order

in terms of lack of ‘‘substantial evidence’’, we submit

that the net effect of the latest order is the same (with-

out the time constraints previously imposed) as the Au-

gust 1, 1975 order which was summarily reversed by the

Supreme Court. We respectfully submit that the Court

has once again overstepped the bounds of judicial review.

C. The Court’s Order Would Logically Apply to All Cur-

tailment Orders Issued by the Commission.

‘*Compensation’’ is only an ancillary issue to a cur-

tailment order; the heart of the order is the manner of

spreading the shortage among the customers of the pipe-

line. Thus, if the ‘‘duration, shape and causation’’ of the

gas shortage is relevant in determining the validity of

‘“‘compensation’’, as this Court has thus far held, then it

would appear to follow as a matter of logic that the same

kind of inquiry must be undertaken on all pipeline sys-

tems (because they are all in curtailment) before any

curtailment order can be adopted by the Commission.

Because this would seem to be the necessary result of the

Court’s opinion and because such a result would, in

Transco’s judgment, seriously impair the Commission’s

ability to deal with curtailments, we believe the Court

should reconsider its action here.

terms in the industry, Transco has no such categories of gas re-

serves on its books and, in any event, would be precluded by the

Commission’s regulations from reporting such categories. More-

over, the only way that Transco is aware to ‘‘prove’’ reserves is to

drill wells, a function of producers, not pipelines.

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66a

Ill

ConcLUSION

For the reasons stated hereinabove, Transco respect-

fully submits that this Court should grant rehearing of

its November 29, 1976 opinion and order, and suggest

that rehearing en banc would be appropriate in the cir-

cumstances.

Respectfully submitted,

/s/ Thomas F. Ryan, Jr.

Tuomas F. Ryan, Jr.

Rosert G. Harpy

GaLLaGHER, Connor AND BoLaNnp

821 Fifteenth Street, N.W.

Washington, D.C. 2005

Attorneys for Transcontinental

Gas Pipe Line Corporation

(Certificate of Service Omitted in Printing)

December 23, 1976

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.