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

Supreme Court, U. S.

FILED

SEP 13 1977

MICHAEL RODAK, JR, GubRaC

In the Supreme Court of the Huited States

OCTOBER TERM, 1977

No. 76-1799

TRANSCONTINENTAL GAS PIPE LINE

CORPORATION, PETITIONER

Vv.

FEDERAL POWER COMMISSION

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

MEMORANDUM FOR THE FEDERAL

POWER COMMISSION

Wape H. McCreg, JR.,

Solicitor General,

Department of Justice,

Washington, D.C. 20530.

ROBERT W. PERDUE,

Acting General Counsel,

Jon G. LortIs,

Assistant Litigation Counsel,

Federal Power Commission,

Washington, D.C. 20426.

SORE a

INDEX

Cases:

C onsolidated Edison Co. v. Federal Power

I, TOO We MIU ticncscdecnctratevdsconcnseiiins 2

Elizabeth Gas Co. v. Federal Power

Commission, D.C. Cir. No. 76-1465, argued

ES, ON ne eee 10

Federal Power Commission v. Idaho Power

a I i &

Federal Power Commission v. Louisiana

Power & Light Co., 406 U.S. 621 .................... 10

Federal Power Commission v. Trans-

continental Gas Pipe Line Corp., 423

I elaine SOT ew nee 1, 3,4

Statutes:

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

831, as amended, 15 U.S.C. 717r(b) ................... 8

In the Supreme Court of the United States

OCTOBER TERM, 1977

No. 76-1799

TRANSCONTINENTAL GAS PIPE LINE

CORPORATION, PETITIONER

Vv.

FEDERAL POWER COMMISSION

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

MEMORANDUM FOR THE FEDERAL

POWER COMMISSION

This case involves the Federal Power Commission's

rejection of a proposed settlement agreement which de-

termined natural gas entitlements of the customers of

Transcontinental Gas Pipe Line Corporation (“Transco”)

for the period November 1974 through October 1975. The

rejection was based on the plan’s inclusion of a com-

pensation scheme described below.

This case has previously been before this Court, when the

Court summarily reversed an order by the court of appeals

remanding the case to the Commission. Federal Power

Commission v. Transcontinental Gas Pipe Line Corp., 423

U.S. 326. Transco now seeks certiorari from another

remand order by that court issued November 29, 1976,

which appears at Pet. App. A, pp. la-22a.

(1)

The settlement agreement at issue was filed by Transco

in September 1974 and established an interim plan for the

curtailment of gas deliveries to Transco’s customers in 1974-

1975 based on a shortage in Transco’s supplies. The

agreement embodied both a plan for the allocation of

natural gas supplies among Transco’s customers and a

monetary compensation scheme under which customers

who received more gas than the system-wide average would

compensate customers who received less gas than the

average.

The Commission found the compensation feature of

the plan “patently unlawful,” in part because “it would

require high priority jurisdictional customers to pay in-

creased rates which are unrelated to the pipeline’s cost

of service plus reasonable rate of return.”' The Commis-

sion accordingly rejected the plan.

Transco then filed, under protest, an interim curtail-

ment plan without the offending compensation feature.

However, it also sought from the court of appeals an or-

der directing the implementation of the 1974-1975 plan that

the Commission had rejected. The court directed that the

plan be placed in effect and that compensation payments

under the plan be paid into an escrow account pending

determination of the lawfulness of the compensation fea-

ture. Consolidated Edison Co. vy. Federal Power Com-

mission, 511 F. 2d 372, 381 (C.A. D.C.).

On August |, 1975, after oral argument on petitions

to review the Commission's order, the court of appeals

directed the Commission to conduct an investigation into

Transco’s claim of need for curtailment. The court directed

'Order Finding An Emergency on Transco’s System and Denying

Motion for Interim Settlement As to Curtailment Rules, FPC

Docket No. RP72-99 (November 12, 1974) at 13.

iw

the Commission to subpoena Transco’s books and rec-

ords, conduct a field survey, and complete the investi-

gation and report back to the court within 30 days (Pet.

App. D, pp. 27a-34a). A stay of the court’s order was ob-

tained from this Court pending the filing and determina-

tion of a petition for a writ of certiorari. On January 19,

1976, this Court granted the petition and summarily re-

versed. Federal Power Commission vy. Transcontinental

Gas Pipe Line Corp., supra.

This Court “agree{d] with the Court of Appeals that

the existence of actual shortage of gas supplies forms

the factual predicate necessary for the Commission’s

assertion of authority * * * to approve the curtailment of

gas already contracted for.” 423 U.S. at 331. However,

the Court held that the court of appeals had exceeded

its authority in “dictating to the agency the methods,

procedures, and time dimension of the needed inquiry

and ordering the results to be reported to the court with-

out the opportunity for further consideration on the basis

of the new evidence by the agency.” 423 U.S. at 333.

On the need for the inquiry, the Court stated (423

U.S. at 334):

We are unable to determine with certainty, from

this vantage point and on the partial record now be-

fore us, whether the evidence regarding Transco’s

actual shortage with which the instant order is con-

cerned 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

it was not, it is at least conceivable that the Court

of Appeals could determine that the lawiuiness oi

the proposed compensation scheme is partially a func-

tion of the actual severity of the shortage. Cf. FPC

v. Louisiana Power & Light Co. [406 U.S. 621]. Ac-

cordingly. the court below is free on remand either

to proceed to the merits of the issues presented by

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.

Noting “the potential importance of a resolution on the

merits of the compensation issues presented by the in-

stant case,” this Court then remanded the case for “swift

and priority consideration of this case by the Court of

Appeals on remand * * *.” 423 U.S. at 334-335.

On February 6, 1976, the court of appeals remanded the

case to the Commission,’ stating that it “* * * could [not]

fairly consider ‘the lawfulness of the proposed compensa-

tion scheme’ unless the Commission has first fulfilled its

duty to determine whether a real shortage exists * * *”

(Pet. App. E, p. 39a). The court concluded that “‘the

evidence regarding Transco’s actual shortage with which the

instant order is concerned is absolutely essential to * * *

decision’ of the instant case” (id. at 38a). Judge Mac-

Kinnon dissented from this conclusion. He would have

reached the merits and would have upheld the

Commission's ruling that “the compensation scheme

constituted an undue discrimination” (id. at 42a).

>Transcontinental Gas Pipe Line Corporation vy. Federal Power

Commission, No. 74-2036, (D.C. Cir.. February 6, 1976 (unpublished

per curiam)) (Pet. App. E. pp. 35a-43a).

On June 25, 1976, the Commission issued its order on

remand (Pet. App. F, pp. 44a-Sla), finding (id. at p. Sia):

Upon consideration of the mandate of the remand

by the Court of Appeals and 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.

The next day, the Commission lodged the order with

the court of appeals together with supporting documents,

which included a stipulation by all of the parties to the

Transco proceeding that Transco’s available supply of nat-

ural gas “has been declining since 1971 and has been,

and continues to be, insufficient to enable Transco to

satisfy the certificated requirements of its customers”

(Pet. App. H, p. 55a). The Commission also submitted the

affidavit of Wayne M. Thompson, a Commission expert,

who described the results of a deliverability study cover-

ing 18 randomly selected fields supplying 11.9% of

Transco’s available gas. Mr. Thompson's principal conclu-

sion was that “for these 18 fields, Transco’s deliverability

estimates were reasonably accurate” (Pet. App. F, p. 50a).

Mr. Thompson also stated “that a further [staff] review

of 19 additional fields accounting for approximately 9% of

Transco’s gas supply did not change his opinion * * *”

(Pet. App. H, pp. 55a-56a).

On November 29, 1976, the court of appeals issued

the decision that this Court is now asked to review. The

court again declined “to assess the legality of the com-

pensation scheme at issue here” (Pet. App. A, p. 14a) and

for the third time remanded the record to the Commission

(Pet. App. A, pp. la-22a). Petitioner Transco seeks

certiorari.

Central to the court of appeals’ decision was its con-

clusion that the Commission’s “deliverability study” was

inadequate to determine the need for curtailment and,

hence, for compensation (Pet. App. A, p. 10a):

Diminished deliverability does not necessarily

constitute substaniial evidence of actual and legiti-

mate long-term shortage if, for example, a pipeline

or producer could, by more or less simple acts, make

its proved reserves more deliverable. Similarly, di-

minished proved reserves may not support a finding

of long-run shortage if by physically and economi-

cally 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’.

Accordingly the court again (Pet. App. A, pp. |2a-13a)

remanded the case to the Commission for development

of —

substantial information regarding the duration,

shape, and causation of the shortage on the Transco

system. Such information 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 suf-

ficient volumes of gas available as proved or prov-

able reserves so that greater total deliverability can

be foreseen in the short-term future? Are present lev-

els o: curtailment likely to continue for the indef-

inite future, or to deepen? And more specifically:

will compensation be a short-term financial adjust-

ment hetween customers of the the pipeline to keep

some of those customers financially afloat until the

supply situation stabilizes, or wi. it be a permanent

cross-subsidization? We believe that without such

information, 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 landscape vastly altered by end-use

curtailment.

Judge MacKinnon again dissented. He noted that none of

the parties had disputed the existence of a shortage in

Transco’s system, and observed that “the majority,

apparently obsessed with the idea that there is no actual gas

or oil shortage, have taken the bit in their teeth and sua

sponte determined to compel the Commission to make an

extensive and complex investigation, study and report on

that issue” (Pet. App. A, pp. I5a-17a). Judge MacKinnon

concluded that (Pet. App. A, pp. 2la-22a):

*** the majority are overcomplicating the case,

unreasonably burdening the parties without any as-

surance that it is necessary to do so, and unreason-

ably delaying a decision on the facial validity of the

compensation scheme.

On January 18, 1977, the court of appeals by an evenly

divided vote denied the Commission’s suggestion for re-

hearing en banc (Pet. App. B, pp. 23a-24a), and the panel

denied the Commission's petition for rehearing (Pet. App.

C, pp. 25a-26a).

Petitioner challenges the court of appeals’ order on

two grounds: first, that the court abused its discretion and

overstepped the bounds of proper judicial review by

ordering a remand to determine the “duration, shape, and

causation” of the alleged shortage; and second, that given

the Commission’s finding that a natural gas shortage did

exist on Transco’s system, the “duration, shape, and

causation” of such a shortage has no substantial bearing on

the legality of the compensation scheme contained in

Transco’s curtailment plan (Pet. 7-12).

We agree with both contentions.

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

831, as amended, 15 U.S.C. 717r(b), a court of appeals

reviewing a Federal Power Commission order has authority

“to affirm, modify, or set aside such order in whole or in

part.” “But that authority is not power to exercise an

essentially administrative function.” Federal Power

Commission v. Idaho Power Co., 344 U.S. 17, 21.

In its earlier decision in this case, supra, this Court held

that the court of appeals by its initial remand order had

“overstepped the bounds of its reviewing authority,” which

ordinarily “is to be confined to ‘consideration of the decision

of the agency * * * and of the evidence on which it was

based,’ United States v. Carlo Bianchi & Co., 373 U.S. 709,

714-715 (1963).” 423 U.S. at 331. While the court of appeals

this time has avoided some of its earlier errors (e.g., by not

setting a deadline for the Commission's investigation), it has

again “propel[led] the court into the domain which

Congress has set aside exclusively for the administrative

agency. SEC v. Chenery Corp., 332 U.S. 194, 196 (1947).”

423 U.S. at 333.

The central issue in this proceeding is whether a cur-

tailment plan that includes a compensation scheme by

which customers receiving more gas than the system-

wide average compensate those receiving less is unlawful

under the Natural Gas Act. This is an important and re-

curring issue under the Act and needs to be resolved. The

panel of the court of appeals in this case has put off re-

solving it for three years. The panel has now remanded to

the Commission for the third time for an inquiry that not

only thrusts the judiciary into the province of adminis-

trative agencies (and of legislative organs that are also

considering the problem of energy supply), but that has

no substantial relevance to the legal issue in this case.

2. The court-ordered inquiry would shed little light on

the issues presented here. To be sure, this Court has stated

that the “actual shortage of gas supplies forms the factual

predicate necessary for the Commission's * * * authority

* * * to approve the curtailment of gas already contracted

for” (423 U.S. at 331), and that “it is at least conceivable that

the Court of Appeals could determine that the lawfulness of

the proposed compensation scheme is partially a function of

the actual severity of the shortage” (id. at 334). But the

necessary factual predicates have been amply established.

As noted above, pp. 4-5, supra, in response to the court's

second remand of February 6, 1976, the Commission on

June 26, 1976, submitted to the court its finding 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” (Pet. App.

F, p. Sla). Supporting this finding were (1) a stipulation

of all parties that during the 1974-1975 period covered

by the compensation plan at issue, Transco’s natural gas

was “insufficient to enable Transco to satisfy the certi-

ficated requirements of its customers” (Pet. App. H, p.

55a), and (2) an unchallenged gas deliverability study by

a Commission staff expert confirming the need for

curtailment.

While the court of appeals disparaged the Commission’s

study as not “constitut[ing] substantial evidence of actual

and legitimate long term shortage * * *” (Pet. App. A, p.

10a), evidence as to the long-term duration of the shortage

has little if any relevance to the lawfulness of compensation

during the 1974-1975 period to which the Commission's

orders relate and in which there was a proved “actual * * *

shortage.” The Commission presented evidence based on its

deliverability studies showing that “actual” curtailments did

take place during that period and demonstrating the need

10

for such curtailments.} This finding is consistent 'with this

Court’s recognition in Federal Power Commission v.

Louisiana Power & Light Co., 406 U.S. 621, 626, of “a

pattern of temporary and chronic natural gas shortages

throughout the Nation.” If, as the Commission found, there

was an actual shortage of gas during the period in,question,

the necessary factual predicate for the determination of the

validity of the compensation scheme is established. The case

therefore called for that determination on the existing

record.

3. Although the court of appeals’ decision is incorrect, its

effects appear to be limited to this case. A case currently

pending before a different panel of the District of Columbia

Circuit presents the issue of the lawfulness of cOmpensation

schemes similar to the scheme involved in this case.4 On

‘The court of appeals, however, on the basis of its view that the

relevant inquiry should focus on the long-term duration of the short-

age. concluded that the Commission's findings concerning Transco’s

capacity to deliver gas during the relevant period were insufficient, and

that the Commission should determine such questions as whether, “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’ (Pet. App. A, p. 10a). “Gas which could be so moved”

was designated by the majority as “provable” reserves. /d. at 10a, n.

3. But as Judge MacKinnon pointed out (id. at |Sa-l6a, n. 1), “pos-

sible.” “probable” and “provable” reserves are not recognized

concepts in the industry, and no party to the proceedings sug-

gested the appropriateness of such an inquiry. The majority's inven-

tiveness seems inconsistent with principles of judicial deference to

the expertise of administrative agencies. Whatever the court may have

meant by “provable” reserves, a transition from one category to another

is wholly beyond the power of any pipeline customer, such as Transco,

of a gas producer.

‘Elizabethtown Gas Co. v. Federal Power Commission, D.C.

Cir. No. 76-1465, argued June 17, 1977.

February 9, 1977, the court sua sponte asked the parties in

that case, which had been placed in abeyance pending

Transco, whether that case should be similarly remanded

for the development of evidence as ordered by the panel in

this case. The Commission opposed the remand on the

ground that evidence of actual shortages on the gas-supply

system involved in that case was undisputed (as it is in this

case). By order of March 29, 1977, the court, apparently

agreeing with the Commission, set the case for argument,

and it was argued on June 17, 1977.

There thus appears to be a reasonable probability that the

Commission will be able to obtain a ruling on the merits of

the important issue of the lawfulness of such compensation

schemes in the reasonably near future.’ In that event, the

inguiry ordered here, although burdensome and

unnecessary, would not in itself be sufficiently important to

warrant the Commission’s seeking a writ of certiorari,

although we do not oppose petitioner's petition. If the court

of appeals in the pending case remands that case for an

inquiry similar to that ordered by the panel in this case, the

propriety of such action might well be sufficiently important

to warrant this Court's review. Or if the court in that case

fails for some other reason to rule on the lawfulness of the

compensation scheme, the order of the present panel might

assume sufficient importance to merit review.

Accordingly, we suggest that this Court defer ruling on

the present petition for certiorari until the District of

Columbia Circuit decides the pending case. When that

‘Because of the relevance of the pending case, we sought and obtained

an extension of time in which to file a petition for a writ of certiorari to

and including June 17. 1977, and subsequently sought and obtained an

extension of time in which to file a response to Transco’s petition to

and including August 23, 1977.

12

decision has been rendered, we will promptly file a

memorandum supplementary to this one. While we recog-

nize that the suggestion is unusual, we believe it is war-

ranted by the unusual posture of this case. We have been

authorized by counsel for petitioner to state that petitioner

has no objection to this suggestion.

Respectfully submitted.

WabDE H. McCRrEE, JR.,

Solicitor General.

ROBERT W. PERDUE,

Acting General Counsel,

Jon G. Loris,

Assitant Litigation Counsel,

Federal Power Commission.

SEPTEMBER 1977.

DOJ-1977-09