Petition — Arkla, Inc. v. Hall

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82 ' 1968 wy :

No. LER-

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1982

ARKLA, Inc. (formerly ARKANSAS LovisiANA GAs COMPANY),

Petitioner,

Vv.

Frank J. Hai, W. E. Hau, Jk., Mrs. W. E. Haut, Sr., Tre

H. M. HARRELL TeESTAMENTARY Trust, JAMES E. HARRELL, JOHN

K. HARRELL, Sr., Asa BENTON ALLEN, Stoney G. MEYERS, JR.,

W. O. Cocuran, THomas F. Puoityaw, Mrs. Enaine ALLEN, JAMES

A. Nor, D. B. McConnett, Mrs. Eva L. Weiss, Sot. KapLan and

NATIONAL AMERICAN BANK, NEW ORLEANS, Co-TESTAMENTARY

EXECUTORS OF THE SUCCESSION OF SEYMOUR WEISS

FEDERAL ENERGY REGULATORY COMMISSION,

Re spondents.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Rowert Rowerts, JR. (counsel of record)

W. Mickake. ADAMS

Kay CowbeEN MEDLIN

BLANCHARD, WALKER, O’QUIN & Ropers

First National Bank Tower

Post Office Drawer 1126

Shreveport, Louisiana 71165

Telephone (318) 221-6858

REUBEN GOLDBERG

GLENN W. LETHAM

GOLDBERG, FrieLpMAN & LeTtHam, P.C,

1100 Fifteenth Street, N.W.

Washington, D.C. 20005

Telephone (202) 463-8300

Attorneys for Petitioner

PRESS OF BYRON S. ADAMS PRINTING, INC... WASHINGTON, D.C,

QUESTIONS PRESENTED

1. Whether the court below exceeded its review authority

by (a) ordering the Federal Energy Regulatory Commission to

grant the application of the natural gas producer respondents,

Frank J. Hall, et al., for waiver of the notice and filing require-

ments of Section 4(d) of the Natural Gas Act instead of remand-

ing the case to the Commission for further consideration, and

(b) substituting the court's judgment for that of the Commis-

sion on matters within the Commission's expertise.

2. Whether the decision of the court below is in conflict

with, and the claim of respondents Hall, et al., is barred by, the

decision of this Court in Arkansas Louisiana Gas Company v.

Hall, 453 U.S. 571 (1981).

3. Whether waiver of the requirements of Section 4(d) of

the Natural Gas Act is available for collection of a retroactive

rate increase notwithstanding the prohibition of that Act

against retroactive rate increases and reparations.

4. Whether it was error for the court below to fail to

provide a remedy to permit consideration of Petitioner’s and

the Commission's suggestions for rehearing en banc or to refer

the matter to this Court for an appropriate remedy in the

exercise of this Court’s supervisory powers, when, because of

the recusal of nine of the thirteen members of the court below,

the opportunity for en banc rehearing as provided in the Judi-

cial Code (28 U.S.C. § 46(c)) and the rules of the court below

was denied as the result of an absence of quorum even for

consideration of the suggestions for rehearing en bane.

TABLE OF CONTENTS

Page

Se i ]

STATUTES AND REGULATIONS INVOLVED ............... z

OM ee cc, 3

Bren aeee OF FE CAM is kee 3

A. Origin Of The Claim For A Retroactive Rate In-

i ei vb oo ec wencn cc. 3

&. Proceedings In The State Courts ............... 5

i. err Proceedines In This Court ............... 6

D. The Commission's Order Denying Hall’s Application

For Waiver Of The Notice And Filing Requirements

im pero i) Or ee a Cj... 7

BE. Proceedings In The Court Below ............... 10

REASONS FOR GRANTING THE WRIT ................... ll

ee 28

APPENDIX:

oe vik cae la

Me ee 37a

a oe ch, 50a

fae A ee eee ae 9a

me Ll0a

iil

TABLE OF AUTHORITIES

CASEs: Page

Ame mn Tel phone & Telegraph Co. v. United States,

og 17

Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 57]

coe? 6 ici. mo, ¢. 40, Ii, 32, 19, 2, SS Be we

Banks v. FAA, 687 F.2d 92 (5th Cir. 1982) .......... 14

City of Piqua v. FERC, 610 F.2d 950 (D.C. Cir.

ee ee Zi, 2

Continental Oil Co. v. FPC, 236 F.2d 839 (1956). cer-

tioran denied, 352 U.S. 966 (1957) ........ 12, 2, 2

Eastern Petroleum Co. v. Kerr-McGee Corp., 447 F.2d

es EA So) ng ie ene oe 4.5

FCC v. Pottsville Broadcasting Co., 309 U.S. 134 (1940) 14

FPC vy. Hope Natural Gas Co., 320 U.S. 591 (1944) .. 25

FPC v. Idaho Power Co., 344 U.S. 17 (1952) ........ l4

FPC v. Interstate Natural Gas Co., 3386 U.S. 597 (1949) 25

FPC v. Sierra Pacific Power Co.. 350 U.S. 348 (1956) 12

FPC v. Tennessee Gas Transmission Cv.. 371 U.S. 145

— crc ssi‘; li, 18

FPC v. Transcontinental Gas Pipe Line Corp., 4538 1) &

— l,l, sCsaCdsaCCC..... l4-lo

FPC v. United Gas Pipe Line Co., 393 U.S. 71 (1968) 15

Gillring v. FERC, 566 F.2d 1323 (Sth Cir.), cert. denied,

go vce noes kines, 21

Vv. Arkansas Louisiana Gas Company, 359 So.2d

Wee CE Be CAE, FT) ono ov vo even ccncens 5

Hall v. Arkansas Louisiana Gas Company, 368 So.2d

ite coe ccc er eee ae ara e 6

Hall v. Arkansas Louisiana Gas Company, 379 So.2d

Oe CE FO, FE i ook vows wo ceccs ccs, 6

Huber Corp. v. Denman, 367 F.2d 104 (5th Cir. 1966) 5

Indiana & Mich wan Electric Co. v. FPC, 502 F.2d 336

nce co cence 26

Mobil Oil Corp. v. FPC, 463 F.2d 256 (D.C. Cir. 1971),

certioran denied, sub. nom., Webi! Oil Corp. v. Mat-

cacti Paso be a ts 5

Hall

Table of Authorities Continued

Page

Montarna-Dakota Utilities Co. v. Northwestern PA .

Mee Cle, Oe ook.

Nilsen v. City of Moss Point, 701 F.2d 556 (5th Cir. 1983)

Permian Basin Area Rate Cases, 390 U.S. 747 (1968) . 17

Presbyterian Hospital of Dallas V. Harris, 638 F.2d 1381

(5th Cir. 1981), certiorari denied, 454 U.S. 940 (1981) 14

pee O. Be SOe ieee) og ook cick... 5

Shell Oil Co. v. FPC, 334 F.2d 1002 (1964) .... 12. 24. 25

l'nited Gas Pipe Line to Vv. Mobile Gas ( ‘Orp., 350 Uy S.

I ee ciecaakc.... 24, 25, 26

Vermont Yankee Nuclear Power Corp. v. Natural Re-

sources Defense Couneil, Ine., 4835 U.S. 519 (1978) 14

West Texas Gathe rene Co., SO PPC 610 (1962) ....... a

Western Pacific Railroad ( ‘orp. Vv. Wi stern Pacitie Rail-

eee Ca. Seo tS Ber IGS) jn. vce kk ee: 27

STATUTES:

Federal Power Act:

mecwon 2g) (1G U.S.C. § Beddid)! .... ... 12

Natural Gas Act:

OE RO 888 eS I ee :

section 4(d) [15 U.S.C. § 717e(d)] 2, 5, 6, 7, 8, 12, 24. 25

meeceems 1G) 110 (1 0, GTO) gk ok ccc ecu 22, 25

peeteons bm to Ue, St) ................. rae

Judicial Code (28 U.S.C.):

eee CCB... 27

Federal Energy Regulatory Commission Regulations (18

C.F .R.):

a A 2

ewe roeee..ttCtCs‘(<és:CON#¥.. em

wees ta odd...

Table of Authorities Continued

Pa ge

MISCELLANEOUS:

Martin. The Work of the Lowisiana Appellate Courts tor

~ - fs hl } _*

the 1978-1979 Term—Mineral R ghts, 40 LA. REV.

DSS (1980)

IN THE

Supreme Court of the United States

OCTOBER TERM, 1982

ARKLA, Inc. (formerly ARKANSAS LovuIstana GAs CoMPANY),

Petitioner.

Vv.

FRANK J. Hatt, W. E. Hai, Jr., Mrs. W. E. Hay. Sr.. THe

H. M. HARRELL TESTAMENTARY TRUsT, JAMES E. Hargre.i, JOHN

K. HARRELL, Sr., ASA BENTON ALLEN, Stoney G. Meyers. Jr..

W. O. CocHRAN, THOMAS r. Puityaw, Mrs. ELaIne ALLEN, JAMES

A. Noe, D. B. McConne.i, Mrs. Eva L. Weiss, So: Kaptan and

NATIONAL AMERICAN “ping New ORLEANS, Co-TESTAMENTARY

EXECUTORS OF THE SUCCESSION OF SEYMOUR WEISS

FEDERAL ENERGY REGULATORY COMMISSION,

Re spondents.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

TO THE HONORABLE THE CHIEF JUSTICE AND

ASSOCIATE JUSTICES OF THE SUPREME COURT OF

THE UNITED STATES:

ARKLA, INC. (formerly ARKANSAS LOUISIANA GAS

COMPANY, herein “Arkla”) petitions for a writ of certiorari

to review the judgment of the United States Court of Appeais

for the Fifth Circuit in this case entered November 26, 1982.

OPINIONS BELOW

The opinion of the court of appeals, of which reversal is here

sought, and Chief Judge Clark’s dissent (App. A, infra, pp. la

to 29a) are reported at 691 F.2d 1184. The order of the Federal

Energy Regulatory Commission (“Commission” or “FERC”)!

denying the application of Frank J. Hall, et al. (“Hall”) for

waiver of the notice requirements of Section 4(d) of the Natural

Gas Act, 15 U.S.C. § 717¢(d) (“NGA”), to permit Hall to collect

a retroactive rate increase from Arkla, which order was re-

versed by the court of appeals (App. B, infra, pp. 37a to 49a), is

reported at 13 FERC © 61,000 (1980). The per curiam opinion

of the court of appeals denying Arkla’s petition for rehearing

and the suggestions for rehearing en banc of the Commission

and of Arkla and Chief Judge Clark's dissent therefrom are

part of Appendix A, infra, pp. 30a-33a, as is the court of

appeals’ order denying Arkla’s motion for relief from the order

denying en banc rehearing, infra, p. 34a.

Hall's initial attempt to secure the retroactive increase in

rates through a state court action for damages for breach of

contract, which was also the subject of the application for

waiver of the NGA’s requirements, was before this Court in

Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571 (1981)

(“Arkla v. Hall”). In that case, this Court reversed the state

court judgment awarding damages for breach of contract to

Hall on the ground that the damage award was a retroactive

rate increase barred by the filed rate doctrine and the prohibi-

tion of the NGA against retroactive rate increases. This

Court's opinion in Arkla v. Hall is Appendix C to this petition,

infra, pp. 50a to 89a.

STATUTES AND REGULATIONS INVOLVED

This case involves Sections 4 and 19(b) of the NGA. 52 Stat.

822 and 831, 15 U.S.C. §§ 717¢ and r(b). The Commission’s

regulations involved in the case are 18 CFR 8§ 154.91-154.95

and 154.98. The statute and regulations are Appendix D to this

petition, infra, pp. 90a to 109a.

‘On October 1, 1977, the relevant responsibilities of the Federal

Power Commission (“FPC”) were transferred to FERC. 10 CFR

§ 1000.1(d) (1980). The term “Commission” in this petition refers to

the FPC when referring to action taken prior to October 1. 1977 and

to FERC when referring to action taken after that date.

JURISDICTION

The judgment of the court of appeals was entered on Novem-

ber 26, 1982 (App. A, infra, p. la). A timely petition for

rehearing and for rehearing en banc were denied? on March 14,

1983 (App. A, infra, p. 30a). Arkla’s motion for relief from the

order denying en banc rehearing was denied on April 27, 1983

(App. A, infra, p. 34a). The jurisdiction of this Court is invoked

under 28 U.S.C. 1254(1) and Section 19(b) of the NGA. 15

U.S.C. § 717r(b).

STATEMENT OF THE CASE

This case involves Hall’s second effort to secure the same

retroactive rate increase that this Court ruled in Ark/a v. Hal!

was barred by the filed rate doctrine and the NGA’s prohibi-

tion against retroactive rates. Arkla v. Hall, 453 U.S. at 579.

n. 8. This second effort is based on the same purchase and sale

contract and favored nation clause, on the identical facts. and

on the same award of damages by the Louisiana courts which

were before this Court in Arkla v. Hall.

A. Origin Of The Claim For A Retroactive Rate Increase

Hall's claim for a retroactive rate increase arises out of a

contract between Hall and Arkla for the sale of natural gas

produced from Hall's wells in the Sligo Gas Field, Bossier

Parish, Louisiana, which is on file with the Commission as

Hall's FPC (now FERC) Gas Rate Schedule No. 4. The con-

tract set forth a schedule of fixed prices, including specified

increases to be effective at five year intervals up to an agreed

maximum. Additionally, the contract contained a “favored na-

tion clause” which, in pertinent part, provided that if Arkla

“The suggestions for rehearing en bane filed by the Commission

and Arkla were not “denied” in the sense that the suggestions were

considered on their merits and found wanting. Because of judge

disqualification, a quorum of Fifth Circuit judges was not available to

consider the suggestions. See Chief Judge Clark’s dissent to the

denial of panel rehearing, App. A, infra, p. 30a.

“should purchase from another party Seller gas produced from

wells located in the Sligo Gas Field at a higher price than is

provided to be paid under this agreement” Hall would be

entitled to such higher price for its gas.

In 1961, Arkla acquired from the United States an interest in

a lease on lands in the Sligo Field.’ As was its right, the United

States demanded royalty payments from Arkla based on mar-

ket value which exceeded the prices in the Hall contract.

Arkla’s only options were either to relinquish its interest in the

lease or accede to the United States’ demands.

Before deciding on its course of action, Arkla sought legal

advice on the question of whether the royalty payments would

trigger the favored nation provision. Arkla received legal

advice that the royalty payments would not trigger the favored

nation provision because the royalty payments under both

Louisiana law and federal law did not constitute a price paid for

the purchase of gas.’

About 10 years later, a federa! appeals court held in Eastern

Petroleum Co. v. Kerr-McGee Corp., 447 F.2d 569 (7th Cir.

1971), that the payment of royalties to the State of Arizona for

helium gas was a price paid another seller within the meaning

of a contract provision which the court construed as relating to

‘Arkla’s acquisition of that lease interest was a matter of public

record, the assignment of the lease having been recorded in the

public records of Bossier Parish.

*The Commission's order of November 5. 1980, denying Hall's

application for waiver of the notice and filing requirements of the

NGA found that in 1961 “the Commission might well have concluded

that the favored nations clause was not triggered” (App. B, infra, p.

48a) and that the present Commission's “own view of the record. . .

leads us to conclude that Arkla could have reasonably assumed that

the government royalty payment did not trigger the indefinite price

escalator in the contract with the Hall group.” (App. B, infra, p.

48a-49a). See also Martin, The Work of the Louisiana Appellate

Courts for the 1978-1979 Term—Mineral Rights, 40 La.L. Rev. 588,

601 (1980) (App. E, infra, p. 110a).

both lease and purchase transactions. In 1974. Hall. relying

heavily on the Eastern Petroleum decision, instituted a suit for

breach of contract claiming that Arkla’s royalty payments to

the United States had triggered Hall’s right to higher prices

under the favored nation clause. Instead of filing for a change in

rates as required by Section 4(d) of the NGA and for waiver of

the 30-day notice period therein provided, if the change in

rates was to be effective on less than 30 days’ notice, Hall, in

1974, brought its action in a Louisiana state court. seeking

damages for the period September 1961 to December 1975.°

B. Proceedings In The State Courts

The trial court held that Arkla’s royalty payments had trig-

gered the favored nation provision, but denied recovery for the

period from September 1961 through September 1972 because

Hall had not made the rate filing required by the NGA. Recov-

ery was allowed from October 1972 to December 1975.’

The Louisiana Court of Appeal affirmed the trial court. Hall

v. Arkansas Louisiana Gas Company, 359 So.2d 255 (La.

App. 2d Cir. 1978). On review by the Louisiana Supreme

>It is not unlikely that Hall’s deliberate decision to ignore the

requirements of the NGA and to seek a retroactive rate increase

through the state courts in the guise of damages for an alleged breach

of contract was influenced by the prospect of an adverse interpreta-

tion by the Commission of the favored nation provision since Com-

mission precedents then in existence clearly established that royalty

payments do not constitute a purchase and sale transaction. Morris

Mizel, et al., 30 FPC 1103, 1104 (1963); Shell Oil Co., 29 FPC 498

(1963); West Teras Gathering Co., 29 FPC 510 (1962): Huber ‘orp. Vv.

Denman, 367 F.2d 104 (5th Cir. 1966): Mobil Oi! Corp. v. FPC, 463

F.2d 256 (D.C. Cir. 1971), cert. denied. sub nom., Mohil Oi] ¢ ‘orp. v.

Matzen, 406 U.S. 976 (1972).

” By October 1972, Hall had obtained the status of a small producer

which under the Commission's regulations (18 CFR § 157.40) ex-

empted Hall from the filing requirements of Section 4(d) of the NGA.

provided the increased rates are within the just and reasonable area

rates established by the Commission.

Court,’ it was held that Hall was excused from compliance with

the filing requirements of the NGA and, therefore. entitled to

recovery for the period between 1961 and 1972 because Arkla

failed to inform Hall of the royalty payments and thereby

prevented Hall from complying with the NGA. The Louisiana

Supreme Court ruled that had Hall filed a rate increase with

the Commission, it would have been approved, and remanded

the case to the trial court for the calculation of damages for that

period. Hall v. Arkansas Louisiana Gas Company, 368 So.2d

984 (La. 1979). On remand the trial court entered judgment in

accordance with the Louisiana Supreme Court's decree which

was affirmed by the Louisiana Court of Appeal. Hall vy. Arkan-

sas Louisiana Gas Company, 379 So.2d 1142 (La. App. 2d Cir.

1980).

C. Prior Proceedings In This Court

Arkla filed petitions for writs of certiorari in Case No. 78-

1789 challenging the judgment of the Louisiana Supreme

Court and in Case No. 79-1896 challenging the Louisiana Court

of Appeal’s affirmance of the trial court's money judgment on

remand from the Louisiana Supreme Court.

After the Louisiana Supreme Court's award of damages but

prior to this Court's grant of Arkla’s petition for certiorar in

No. 78-1789, Hall, on May 24, 1979, filed with the Commission

an application for waiver of the notice and filing requirements

of Section 4(d) of the NGA to permit Hall to collect retroactive

rate increases relating back to 1961 - some 18 years before Hall

made its filing with the Commission. In response to this

Court’s invitation, in Case No. 78-1789, the United States in

February 1980 filed its brief as amici curiae. in which the

‘The Louisiana Supreme Court granted Hall's and denied Arkla’s

petition for review of the intermediate appellate court’s decision.

Arkla sought certiorari in this Court on the question of whether the

interpretation of the favored nation clause should have been referred

to the Commission. This Court denied the petition. 444 U.S. 878

(1978).

government advised the Court of the pending application for

waiver and suggested that the Court “may wish to hold the

petition to await the Commission's action” since grant of the

waiver might moot the case. Arkla’s petition in No. 78-1789

remained pending and on November 5, 1980, the Commission

denied the waiver application, 13 FERC © 61,000 (1980) (App.

B, infra, pp. 37a to 49a). Thereafter, the United States filed its

supplemental memorandum in which it advised the Court of

the denial of the application for waiver and recommended “that

the Court grant the petition for a writ of certiorari and reverse

the judgment of the Supreme Court of Louisiana.”

This Court subsequently granted Arkla’s petition in Case

No. 78-1789 (449 U.S. 1109(1981)), and on July 2, 1981 in Arkla

v. Hall, supra, reversed the Louisiana Supreme Court, ruling

that the Louisiana court's award of damages amounted to an

“award of a retroactive rate increase based on speculation

about what the Commission might have done had it been faced

with the facts of this case” which was barred by the filed rate

doctrine and the prohibition of the NGA against retroactive

rates. Arkla v. Hall, 453 U.S. at 578-579, 580. In a separate

order also issued July 2, 1981 (453 U.S. 917), the Court granted

Arkla’s petition in Case No. 79-1896, reversed the Louisiana

Court of Appeal’s monetary judgment against Arkla and re-

manded the case for further consideration in light of the

Court’s decision in Arkla v. Hall, supra.

D. The Commission's Order Denying Hall's Application For

Waiver Of The Notice And Filing Requirements Of Sec-

tion 4(d) Of The NGA

Hall's application for waiver of the notice requirements of

Section 4(d) of the NGA* was conditional. Hall contended that a

* Hall's application did not comply with Section 4(d) which requires

that notice of the change in rates shall be given by filing and posting a

new rate schedule plainly stating the changes. No new rate schedule

was filed by Hall with the application and none has ever been filed by

Hall.

waiver of the filing requirements was not necessary because

Section 4(d) has no applicability to a judicial award of damages

for breach of contract and requested a ruling from the Commis-

sion to that effect (App. B, infra, p. 39a). Alternatively, Hall

alleged as good cause for granting the waiver that timely

compliance with the requirements of Section 4(d) “was im-

possible” because Arkla “had concealed the facts that would

have made timely notice possible” and that Hall was “now for

the first time, able to file the appropriate information with the

Commission.’”

In its order of November 5, 1980, denying Hall’s application

for waiver, the Commission first rejected Hall’s contention

that Section 4(d) was inapplicable, ruling that the filed rate

doctrine applied to the award of damages for the 1961-1972

period since the damage award constituted a retroactive rate

increase without the Commission having determined that the

new rate is just and reasonable to the detriment of the Federal

statutory scheme (App. B, infra, pp. 40a-46a).

The Commission then ruled that good cause had not been

shown and denied the waiver on a number of grounds (App. B,

infra, pp. 46a-49a). The Commission noted that there is a

strong “statutory bias” against retroactive rate increases

under the NGA. The Commission found that the retroactive

rate increase in this case would be “particularly unacceptable”

because of the “uncommonly severe nature of the retroactivity

imposed” since consumers would be exposed to liability for

higher rates beginning in 1961 and continuing for some 11

years thereafter—a result the Commission found it “simply

cannot sanction” (App. B, infra, p. 46a).

* May 24, 1979, was not, of course, the first time Hall was “able to

file the appropriate information with the Commission.” Hall was

obviously possessed of all the information necessary to comply with

Section 4(d) in 1974 when Hall made a conscious and deliberate

decision to by-pass the Commission and initiate an action for damages

in the state courts to secure the retroactive rate Increase

The Commission found further that the waiver should be

denied because of the “possible unsettling effect that a waiver

in this case might have on other gas purchase transactions”

since the grant to Hall of a higher rate for its gas effective in

1961 posed “a strong likelihood that claims would arise assert-

ing that this increase triggered the operation of indefinite price

escalator provisions in other contracts in the Sligo Field geo-

graphical area,” involving pipeline companies other than

Arkla, and opening “the door to additional rate increase re-

quests and to requests for waiver for the same period” (App. B,

infra, pp. 46a-47a)."” |

The Commission found, as a matter of policy, that it is not “in

the public interest to take actions in the name of equity that

have the potential for reopening transactions which took place

almost 20 years ago.” (App. B, infra, p. 47a).

The Commission held that it could not assume that if Hall had

made a timely filing in 1961 that the Commission would have

approved the increase, noting that the Commission might well

have concluded that the royalty payments did not trigger the

favored nation clause and that even if they did trigger the

clause, in light of the Commission outlawing indefinite pricing

provisions in 1961 in new contracts, the Commission might

have determined that the public interest would not permit the

grant of rate increases based on indefinite price escalation

provisions in existing contracts (App. B, infra, p. 48a; see also,

n. 5, supra, p. 45).

Finally, the Commission rejected Hall's only claim of good

cause, pointing out (1) that the Louisiana courts did not find

fraud or deceit in Arkla’s failure to disclose information and (2)

Hall represents only 48 percent of the total interests committed

to Arkla in the Sligo Field. If the waiver sought by Hall were

granted, the other 57 percent interests would be entitled to the same

retroactive rate increase sought by Hall. Non-litigants in the Sligo

Field have made such claims upon Arkla. Additionally, royalty own-

ers, at the instigation of Hall, have made claims upon Arkla for

“compensatory damages.”

that the Commission's “own review of the record before us

leads us to conclude that Arkla could have reasonably assumed

that the government royalty payment did not trigger the in-

definite price escalator in the contract with the Hall group”

(App, B, infra, pp. 48a-49a)."’

E. Proceedings In The Court Below

After the Commission denied rehearing on January 2, 1981,

of its order denying the application for waiver, 14 FERC

sion’s order in the court of appeals. Hall’s petition for review

was pending when this Court granted Arkla’s petition for

certiorari in case No. 78-1789, and was still undecided when

this Court’s July 2, 1981 opinion was rendered. Arkla v. Hall,

453 U.S. at 576, n. 6."

In a2 to 1 opinion rendered November 26, 1982, Chief Judge

Clark dissenting, the court below reversed the Commission’s

order denying the waiver, and remanded the case to the Com-

mission with specific instructions to grant the waiver and the

'! This Court in Arkla v. Hall took a similar view of Hall's appeal to

equitable considerations to escape the filed rate doctrine arising out

of Hall’s claimed misconduct of Arkla in failing to inform Hail of the

royalty payments. This Court said (453 U.S. at 583, n.13): "We do not

find this argument compelling. The court below did not’find that

Arkla intentionally failed to inform respondents of its lease payments

to the United States in an effort to defraud them. Consequently, we

are not faced with affirmative misconduct, and we need not consider

the application of the filed rate doctrine in such a case,” agreeing with

the Commission’s finding that Arkla “could have reasonably assumed

that the government royalty payment did not trigger the [favored

nation clause. |”

2 On July 21, 1981, this Court denied Hall's motion for a stay of the

mandate and extension of time for filing a petition for rehearing in

Case Nos. 78-1789 and 79-1896. Hall’s request was made principally

on the ground that the Fifth Circuit review proceeding was pending

and that this Court should withhold the mandate until that proceed-

ing was complete.

retroactive rate increase, leaving to the Commission only the

determination of the level of the retroactive rate increase. The

court held that the waiver should be granted because this case

does not involve a retroactive rate increase but rather delayed

implementation of a contractually authorized rate increase.

The court also held that the waiver provision of Section 4(d) of

the NGA is available to permit a rate increase for a past period

even though retroactive rate increases are barred by the

NGA."

In an order issued March 14, 1983, the court “denied” both

Arkla’s and the Commission’s suggestions for rehearing en

banc, and Arkla’s petition for rehearing (App. A, infra, p.

30a). Chief Judge Clark dissented from the denial of panel

rehearing, stating that due to the fact that nine of thirteen

regular active service judges had disqualified themselves from

the case, the denial of the suggestion for rehearing en banc

gave an “erroneous impression” that the suggestions were

considered on their merits by the thirteen judges, when, in

reality, because of disqualifications the suggestions for rehear-

ing en banc of the panel’s decision could not even be considered

due to the absence of a quorum of the court (App. A, infra, p.

33a). Arkla’s motion for relief from the court’s order denying

en banc rehearing was denied on April 27, 1983 (App. A, infra,

p. 34a).

REASONS FOR GRANTING THE WRIT

The decision of the court of appeals presents multiple ques-

tions of substantial importance with respect to the proper role

‘ Arkla’s motion to dismiss the review proceedings on the grounds

of res judicata and collateral estoppel was preliminarily denied by the

Court (App. A, infra, p. 36a) but carried along with the case on the

merits. The Court's November 26, 1982 opinion denied the motion,

principally on the ground that Hall had an “administrative action” for

“rates” as distinguished from the claim for “damages” rejected by the

Supreme Court in Ark/a v. Hall, although the Supreme Court had

ruled that the claim for damages was, in fact, a claim for a retroactive

rate increase. 453 U.S. at 578-579, 580.

of the courts in reviewing the Commission’s orders under the

NGA. Moreover, since the relevant review provisions of the

Federal Power Act (“FPA”) “are in all material respects sub-

stantially identical” to the NGA, the decision will affect review

of the Commission’s orders under the FPA. The decision. if

allowed to stand, will substantially undermine the Commis-

sion’s administraton of both statutes. FPC v. Sierra Pacific

Power Co., 350 U.S. 348, 353 (1956).

The decision of the court of appeals also presents important

questions of law as to whether it is in conflict (1) with the

decision of this Court in Arkla v. Hall, supra, (2) with the

decision of another panel of the Fifth Circuit in Continental Oil

Co. v. FPC, 236 F.2d 839, 843 (1956), cert. denied, 352 U.S. 966

(1957), and (3) with the decision of the Third Circuit in Shell Oil

Company v. F PC, 334 F.2d 1002 (1964). These conflicts in-

volve fundamental errors committed by the court below in

having reversed the Commission's order denying Hall's appli-

cation for waiver and in awarding to Hall the same retroactive

rate increase it was denied by this Court’s decision in Arkla v.

Hall.

Additionally, the decision of the court of appeals presents an

important question involving the meaning and scope of Section

4(d) of the NGA, the outcome of which will significantly affect

the Commission's administration of the NGA as well as the

FPA. See Section 205(d) of the FPA. The question is one which

this Court noted but did not find necessary to address in Arkla

v. Hall, namely, whether waiver of the notice requirements of

Section 4(d) “is available for retroactive collection of a higher

rate than the one on file” with and approved by the Commission

(453 U.S. at 578, n.8).

The decision of the court of appeals denying the suggestions

for rehearing en banc of the Commission and Arkla because of

the unusual circumstance of the recusal of 9 of the 13 members

of the court of appeals presents the important question of

whether a remedy is available to enable litigants seeking re-

view of orders issued under the NGA to have the full opportun-

ity for en banc review as provided by the Judicial Code and the

rules of the court below.

These important questions reach beyond this immediate

case and its litigants. With respect to the proper role of the

courts vis-a-vis administrative agencies, the questions pre-

sented may arise in any review of Commission orders under

the statutes it administers and, indeed, may arise in any re-

view of the orders of any of the federal administrative agen-

cies. As for the availability of waiver of the notice provisions of

the statutes administered by the Commission, the question

presented can arise in any ratemaking proceeding involving

natural gas pipeline companies and producers and in ratemak-

ing proceedings involving electric companies. The court-

ordered waiver of the Commission’s regulations could under-

mine the statutory scheme as well as the regulations developed

by the Commission to implement its responsibilities under the

statute.

1. The court below usurped the Commission's statutory

authority in reversing the Commission's order denying Hall's

application for waiver and failed to accord proper deference to

the Commision’s findings and expertise.

The court ruled that the Commission’s reasons for denving

the waiver were based on an erroneous premise that the

retroactive rate increase violated the NGA; the court also

ruled that the Commission's policy against retroactive rate-

making was not involved. The court further found that the

Commission’s reasons for denying the waiver were not rational

(App. A, infra, pp. 12a-22a). Instead of reversing and remand-

ing the order to the Commission for further consideration

consistent with the court’s opinion, the court below made the

finding that Hall had shown good cause for the waiver and

directed the Commission to grant the waiver and the increase,

leaving to the Commission only the determination of the level

of the increase based on restrictions from the court on that

matter (App. A, infra, pp. 22a-26a).

a. Even assuming, arguendo, that the court was right in

overturning the Commission’s order as an abuse of discretion,

the court nonetheless exceeded its authority by substituting

itself for the Commission in determining that “good cause”

existed to grant the waiver and prohibiting Commission

reconsideration of the matter on remand. Rather than permitt-

ing the Commission to supply record support where the major-

ity found the present record inadequate or to reconsider

whether other reasons might militate against the waiver, the

court completely foreclosed that result oy deciding, on its own,

that good cause existed for the waiver and directed grant of the

waiver and rate increase.

The function of a court of appeals on review of an administra-

tive agency’s order is to lay bare and correct an error of law.

When the appellate court has done that. it has exhausted the

only power which Congress gave it. The court's review func-

tion is at an end and the agency's order is to be remanded to the

administrative agency for reconsideration in light of the court’s

opinion.

As this Court said in FPC v. Idaho Power Co., 344 U.S. Lt,

21 (1952), the “power ‘to affirm, modify or set aside’ the order

of the Commission in whole or in part’ is “not power to exercise

an essentially administrative function.” As another panel of

the Fifth Circuit said in Banks v. FAA, 687 F.2d 92, 96-97 (5th

Cir. 1982), citing Vermont Yankee Nuclear Power Corp. v.

Natural Resources Defense Council, Inc., 435 U.S. 919, 524-

025 (1978):

“We are ill-equipped to decide whether new hearings

could be productive in this proceeding, or whether the

appellants must be made whole without further hearings.

We leave this to the administrative agency.”

Seealso FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 145

(1940); Presbyterian Hospital of Dallas v. Harris, 638 F.2d

1381, 1389 (5th Cir. 1981), cert. denied, 454 U.S. 940 (1981),

The court below overstepped the bounds of its review author-

ity in issuing its order in this case and improperly propelled

itself into the domain reserved to the Commission. Pry ¥.

Transcontinental Gas Pipe Line Corp., 423 U.S. 326 (1976):

FPC v. United Gas Pipe Line Co., 393 U.S. 71 (1968).

The Court’s error in this case is manifested in the rationale

that it used to justify the grant of the waiver, arationale which

is at war with the basic scheme of rate regulation under the

NGA. The court in determining that the waiver and retroac-

tive rate increase should be granted sought to avoid the

adverse impact that the increase would have on consumers by

Suggesting to the Commission that it could protect the con-

sumers if Arkla were denied the right to recover the increase

from its customers and suggested that Arkla’s failure to inform

Hall of the royalty payments warranted denial of such recov-

ery. The court’s reasoning would stand NGA rate regulation on

its head. Judge Clark’s dissent (691 F.2d at 1199) set the

matter straight:

“The majority assumes that the Commission, in its discre-

tion, may and should deny Arkla the rate increase it will

surely seek as a result of today’s decision. I respectfully

disagree, Under the due process clause no public utility

may be compelled to absorb its own costs. The most basic

of such costs are expenditures for gas purchases, whether

incurred routinely or, as here, as thee final product of

protracted litigation. Because Arkla’s ratepayers rather

than Arkla received the benefit of its noncompliance with

the ‘most favored nation’ clause in the 1960s, it follows

inevitably, in my view, that the ratepayers must bear the

burden of Arkla’s belated compliance now.”

The effort of the court below to convince the Commission

that it could at one and the same time grant a retroactive rate

increase to Hall and deny Arkla recovery of that increase from

its customers is not only groundless but emphasizes the error

of the court in overstepping its bounds and improperly project-

ing itself into the Commission's domain. In its suggestion for

rehearing en banc, which was not considered for lack of a

quorum, infra, pp. 26-28a, the Commission advised the court

below that it could not legally deny Arkla recovery of the

increase in costs flowing from the waiver because Arkla had

acted properly under the NGA. The Commission stated (Com-

mission suggestion for rehearing en banc, pp. 8-9):

“To be sure, the Commission may disallow ‘imprudent’

expenditures from being "mean on to ratepayers. See,

e.g., Missouri ex rel. Southwestern Bell Telephone Co. v.

PSC, supra, at 289 n. 1, (Brandeis and Holmes, JJ. con-

curring). But there was no imprudence in this case. As the

panel majority acknowledged, Arkla’s ‘delay’ resulted

from the fact that the pipeline acted on an opinion of

counsel that the royalty payment did not bring into the

play the ‘favored nation clause.’ Slip op. at 780. The ‘delay’

stemmed from the pipeline’s ‘non-fraudulent’ (id. at 787)

attempt to hold rates down.”

The Commission noting the anomolous result produced by the

court’s decision under the NGA, went on (id. at 9):

“To hold that such conduct is imprudent, is to em ty that

standard of any real meaning. * iaboonty it would lead to

anomolous results. Thus, under the approach suggested

by the majority in this case, pipelines would be dis-

couraged from resisting producer demands in acting on

behalf of customers to keep rates down in close cases. For,

as the majority concedes, had Arkla agreed at an early

stage that the royalty triggered a rate increase to Hall and

made timely payment, the pipeline could recoup its costs

from customers. However, by resolving doubts in favor of

customers and litigating the issue, Arkla’s conduct some-

how can be termed ‘imprudent,’ thus, barring any recov-

ery from its ratepayers when it is determined that it is

obliged to pay its seller. Such an incongruous result stands

in marked contrast to the Supreme Court's statement that

the Commission must counter the lack of incentives pipe

lines have ‘to bargain prices down.’ F PC vy. Te.raco, supra,

417 U.S. at 391.”

b. In addition to exceeding its review authority in direct-

ing the commission to grant the waiver and the rate increase,

supra, pp. 14 to 16, the court of appeals also exceeded its

review functions by failing to give proper deference to the

Commission's findings, expertise and experience and in sub-

stituting the court's judgment for that of the Commission. As

stated by this Court in Permian Basin Area Rate Case, 390

U.S. 747, 767 (1968):

“Congress has entrusted the regulation of the natural gas

industry to the informed judgment of the Commission,

and not to the preferences of reviewing courts.”

And see: American Telephone & Telegraph Co. v. United

States, 299 U.S. 232, 236-237 (1936): “This court is not at

liberty to substitute its own discretion for that of administra-

tive officers who have kept within the bounds of their adminis-

trative powers... What has been ordered must appear to be

“the expression of a whim rather than an exercise of judg-

ment.”

One example of the many instances of the court’s failure to

respect the Commission's informed and expert judgment, and

the substitution of its judgment for that of the Commission in

an area where the court has no expertise is the rejection of

what the court below described as the “most compelling

reason” for denial of the waiver, i.e., that consumers would be

exposed by the waiver to a potential liability for higher rates

for 11 past years (1961-1972), a retroactive effect of

“uncommonly severe nature.” The court below stated that the

Commission's concern was “that 1980 consumers might be

exposed to liability for rates attributable to 1961 consumers”;

that “a different group of consumers will pay for the gas than

the one which used it.” (691 F.2d at 1193). While conceding that

logic supports this concern, the majority opinion concluded

that the “Commission's reasoning lacks a firm basis of support”

because “the record is devoid of information in this regard.”

But no evidence is needed to support the concededly logical

proposition that the 1961 consumers are not identical with the

pay the increase. FPC v. Tennessee Gas Transmission Co.,

371 U.S. 145 (1962). In Tennessee, this Court, reversing the

Fifth Circuit which had held that the Commission abused its

discretion, affirmed a Commission order providing for prompt

refunds, noting that “the transient nature of our societs

often prevents refunds from reaching those to whom they are

due.” 371 U.S. at 154-55. There was no evidence to support this

statement and none was necessary. Logic is enough."

In addition to being wrong on this count, the court also

misstated the Commission’s concern which was the exposure of

consumers to liability for 11 years of higher charges whether

the consumers were the same or not the same as the dissenting

opinion of Chief Judge Clark correctly pointed out (691 F.2d at

1199). As the dissent demonstrated, the majority opinion

mistakenly focused on the equities between Arkla and Hall

when “the balance must be struck between the ratepayers and

Hall” for the primary purpose of the NGA is protection of the

consumers (691 F.2d at 1199). The Commission’s concern

regarding the severe impact on consumers was a reasonable

and rational exercise of the Commission's discretion and is

Strengthened, not weakened, by the fact that in a period of

more than 20 years there are bound to be changes in the

identity of the consumers as the dissent points out (691 F.2d at

1199). The Commission could legitimately take into account in

exercising its discretion to deny the waiver that if the waiver

Was granted the Commission would be forced to permit Arkla

to recover the increase from its ratepayers (691 F.2d at 1199).

2. The decision of the court below is in direct conflict with

the decision of this Court in Arkla vy. Hall. supra, on matters

'* The egregious nature of the court's substitution of its judgment

for the Commission's is shown by its reliance on an unsupported

assertion during oral argument by Hall's counsel that “to the best of

his information, the gas purchased from Hall was sold by Arkla to line

industries in Southwest Arkansas wherein the possibility that con-

sumers over the twenty-year period would be similar is more prob-

able.” 691 F.2d at 1193, n.15. The assertion is an absurdity. Arkla is

an integrated utility with multiple sources of gas which are comming-

led in its lines. In such circumstances the ability to trace particular

molecules of gas from a point of production in Louisiana to particular

customers in Arkansas is impossible.

that are critical to the court of appeals’ reversal of the Commis-

sion’s order denying Hall's application for waiver.

Acknowledging that in light of this Court’s decision in Arkla

v. Hall, “the only avenue available to Hall, ifany exists at all,

is the administrative one arguably provided by Section 4(d),”

the court of appeals ruled that such an “administrative compo-

nent to this case . . . remains alive” because “[{a]lthough Hall is

not entitled to contractual damages by virtue of the filed rate

doctrine, it is entitled to the rates which it contracted with

Arkla to receive over which the Commission has authority to

regulate” and because the rate increase sought by Hail is not a

retroactive rate increase (App. A, infra, p. 13a; 691 F.2d at

1191-1192; emphasis supplied).

The court of appeals’ effort to distinguish between “con-

tractual damages” and “rates” was made by Hall to this Court

in Arkla vy. Hall. Hall argued that the award of the Louisiana

courts was one for compensatory damages for breach of con-

tract to which the filed rate doctrine has no application. This

Court held that the compensatory damages, which repre-

sented the difference between the contract rates paid by Arkla

and the contract rates Hall contended Arkla should have paid

had the favored nation clause gone into effect, were an award of

a retroactive rate increase barred by the filed rate doctrine and

the NGA’s prohibition against retroactive rates. 453 U.S. at

974, 578-579, 580. Thus, the distinction attempted by the court

below between the compensatory damages (or contractual

damages) and rates is non-existent. They are one and the

same—a claim for a retroactive rate increase. The lower court

has engaged in a futile attempt to separate the inseparable, Cf.

Montana-Dakota Utilities Co. vy. Northwestern P.S.C.. 34]

U.S. 246, 251 (1951); and its decision is in a head-on collision

with the ruling of this Court in Arkla v. Hall.

The court's effort to avoid the bar created by this Court’s

decision on the ground that the parties are not the same and the

actions are not identical is also without merit. In each action

the parties are Hall and Arkla as the court below recognized

when it referred to the “present action,” i.e., the administra-

tive action, as “involving Hall and Arkla” (App. A, infra, p.

11a; 691 F.2d at 1194). The actions are also identical. Each is

based on and arises out of the same gas purchase contract, the

same favored nation clause, and the same facts. In each the

objective is the same, to secure nothing less than a retroactive

rate increase. The conflict between the decision of the court

below and of this Court in Arkla v. Hall results entirely from

the effort of Hall to relitigate the same issues." Hal] made his

selection freely, to seek damages in the state courts and not to

seek a waiver from the Commission. Hall is bound by that

election and is not entitled to two bites at the cherry because

the first bite was unsuccessful.

Hall's determination not to pursue any remedy through the

Commission is particularly illustrated by Hall's vigorous oppo-

sition to Arkla’s 1975 filing with the Commission, in FERC

Docket No. RI76-28, requesting issuance of a declaratory

order asserting the Commission’s primary jurisdiction over

the dispute. Hall successfully defeated Arkla’s efforts to have

the matter heard by the Commission, but did not make the

“conditional” filing for a waiver until 1979 and. ironically, made

it in the same declaratory order proceeding initiated by Arkla.

It is clear that in opposing Arkla’s 1975 filing, Hall was deter-

mined to pursue its remedy on/y in the state court. Hall has

done so and lost, and is not entitled to start over with an alleged

administrative remedy. The court below ordered the FERC to

raise the price during the period involved. This Court’s judg-

ment prohibits the award of damages during the period that

Hall was subject to Commission jurisdiction. The two decrees

are irreconcilable.

In a case decided en banc since its decision in the present case,

Nilsen v. City of Moss Point, 701 F.2d 556. 560 (oth Cir. 1983), the

Fifth Circuit stated that “. . . one who has a choice of more than one

remedy for a given wrong .. . may not assert them serially, in

successive actions, but must advance all at once on pain of bar.” In

Nilsen, the Court held a subsequent claim was barred when a job bias

claimant whose Title VII claim was dismissed for failure to make the

requisite EEOC filing, attempted to assert a new action arising out of

the same transaction and alleging the same discrimination.

Equally futile is the court of appeals’ effort to avoid a conflict

with this Court’s ruling by attempting to transform the

retroactive rate increase into a prospective rate increase, on

the authority of City of Piqua v. FERC, 610 F.2d 950 (D.C.

Cir. 1979)."° A retroactive rate increase is no more transformed

into a prospective rate increase by a waiver than the retroac-

tive rate increase was transformed into compensatory dam-

ages by resort to a court lawsuit. 453 U.S. at 579, n. 8. Piqua

does not support the court of appeals’ decision, assuming,

arguendo, Piqua was correctly decided.” In Piqua, as the

D.C. Circuit emphasized, an agreed upon rate and agreed upon

effective date were involved; there was no substitution

retroactively of a different rate (610 F.2d at 955). In this case.

in contrast, as the court below concedes (App. A, infra, p. 22a;

691 F.2d at 1196), there is no agreed upon rate." A rate will

have to be determined retroactively and substituted by the

Commission.

The court of appeals’ decision also collides with Arkla v. Hall

when it asserts (691 F.2d at 1189) that this Court recognized

the availability of the waiver provisions to permit an alteration

of rates without a timely filing (691 F.2d at 1189). This Court's

reference in a footnote to the waiver provision of section 4(d)

did not recognize the use of that power to grant a retroactive

rate increase (453 U.S. at 578, n. 8). Indeed, the Court in that

same footnote expressly disavowed any intention to suggest

'* The court of appeals criticized the Commission’s citation of Gill-

ring V. FERC, 566 F.2d 1323, 1325 (5th Cir.), cert. denied, 439 U.S.

823 (1978), as support for the reference in its order to its “long-

established ‘statutory bias’ against retroactive rate increases” ( App.

B, infra, p. 46a). The criticism is mistaken. As the court of appeals’

own analysis of Gillring confirms, the Commission’s citation of Gi//-

ring was on the mark (691 F.2d at 1191; App. A, infra, p. 13a).

'’ See infra, pp. 24-26.

'* The court below while conceding that the facts of Piqua “are not

totally analogous to this case” dismissed the distinctions as insignifi-

cant. (691 F.2d at 1191, n.13). The difference in facts between Piqua

and this case is the difference between day and night.

that the waiver power is available for a retroactive rate in-

crease, Saying, “[a]ssuming, arguendo, that waiver is available

for retroactive collection of a higher rate than the one on file

Even the court of appeals’ finding of good cause is in conflict

with this Court’s decision in Arkla vy. Hall. Although the court

below did not provide any reasons for its finding, it apparently

agreed with Hall that Arkla’s failure to inform Hall of the

higher royalty payments to the United States was the only

reason why Hall failed to make the administrative filing for

waiver with the Commission and to receive the higher rates

(691 F.2d at 1191, 1193. 1198-99), *°

Hall made the same appeal to equitable considerations in

Arkla v. Hall, contending that the filed rate doctrine should

not bar recovery when Arkla’s misconduct in failing to inform

Hall of the higher payments prevented filing of a higher rate

(453 U.S. at 583). This Court did not find “this argument

compelling,” pointing out that Arkla did not intentionally fail to

inform Hall in an effort to defraud Hall and agreeing with the

Commission, which had also rejected the same argument in

‘We show later that waiver is not available for retroactive rate

increases as the Supreme Court. the Third Circuit, and the Fifth

Circuit have held, infra, pp. 24-26.

” As already noted, n.9, Supra, p. &, Arkla cannot possibly be

blamed for Hall's failure to file for a Waiver between 1974 and 1979.

Additionally, contrary to the court’s assumption that Hall would

have received the higher rates if it had made a filing therefor, if Hall

had made a rate change filing in 1961 as required by Section 4(d) ofthe

NGA, the receipt of the higher rates was not a certainty. The filing

would have been subject to suspension and refund and Hall would

have had the burden of proof to show that the new higher rate was

authorized by the favored nation clause and Was just and reasonable.

15 U.S.C. § 717¢(e). The Commission, consistent with its precedents,

could well have held that the favored nation clause was not triggered

or, if triggered, that the higher rate exceeded the allowable ceiling

rate. See n.5, supra.

denying waiver, that Arkla “could have reasonably assumed

that the government royalty payment did not trigger the”

favored nation clause (453 U.S. 583 and n. 13).

Similarly, in assuming that this Court in Arkla v. Hall

merely noted the Commission's reasons for denying the waiver

but neither adopted nor relied on them, the decision of the

court below is again in conflict with Arkla v. Hall. With re-

spect to Hall’s contention that the filed rate doctrine was

inapplicable to the case because the state court only deter-

mined “damages” suffered as a result of breach of contract and

because no “federal interests ... are affected by the state

court’s action,” this Court rejected that contention on the

ground that the Commission in its order denying waiver (citing

the order) “found that permitting this damages award could

have an ‘unsettling effect . . . on other gas purchase transac-

tions’ and would have a ‘potential for disruption of natural gas

markets.’ ” 453 U.S. at 579. This Court did not thereby merely

note the Commission's reason. This Court relied on the Com-

mission’s finding to reject Hall’s contention.

With respect to the Commission's refusal to sanction the

waiver because it would expose consumers to a multi-million

dollar liability for higher rates beginning in 1961 and continu-

ing for some 11 years thereafter, this Court rejected Hall's

assertion that the damages awarded would be paid entirely

from Arkla’s corporate assets and would not be passed on tothe

consumers, saying (453 U.S. at 579, n. 10):

“the record does not support respondents’ assertion that

Arkla could not pass the damages award along to its cus-

tomers. In its order denying respondents’ request for a

waiver of the § 4(d) notice requirement, the Commission

conceded that Arkla would have the right to do so, even

though all the natural gas for which Arkla would be paying

was long since sold. 13 FERC, at 61, 213.”

Here, again, this Court relied on the Commission’s finding and

did not merely note the action taken by the Commission.

Thus, as has been demonstrated, the lower court's opinion is

in direct conflict with Ark/a v. Ha// in many respects crucial to

its decision, particularly the lower court’s finding that no

retroactive rate increase is involved and this Court's finding

that the damage award of the Louisiana courts was “nothing

less than a retroactive rate increase” forbidden by the NGA.

3. The effort of Hall to secure the retroactive rate increase

denied by Arkla vy. Hall presents the important question of

whether “waiver is available for retroactive collection of a

higher rate than the one on file” with the Commission. 453 U.S.

at 578, n. 8.

As this case demonstrates, the waiver provision of the notice

requirement of Section 4(d) of the NGA is not intended, and

should not be used, to authorize retroactive rate increases

because of the adverse impact that retroactive increases have

on consumers.”' The court of appeals’ decision, if allowed to

stand, will seriously undermine the consumer protection in-

tended to be provided by the prospective rate increase struc-

ture of the NGA.

The waiver provision of Section 4(d) of the NGA has received

the attention of this Court in United Gas Pipe Line Co. v.

Mobile Gas Corp., 350 U.S. 332 (1956): of the Fifth Circuit in

Continental Oil Co. v. FPC, 236 F.2d 839. 843 (1956), cert.

denied, 352 U.S. 966 (1957); and of the Third Circuit in Shell Oil

“The waiver provision of Section 4(d) of the NGA provides as

follows:

“The Commission, for good cause shown. may allow changes to

take effect without requiring the thirty days’ notice herein pro-

vided for by an order specifying the changes so to be made and

the time when they shall take effect and the manner in which

they shall be filed and published.”

The Commission's regulations (Is CFR § [55.4s implementing

Section 4(d) provide

“Upon application and for good cause shown. the (ommission

may by order provide that a rate schedule or a change in rate

schedule shall be effective on less than 20 days’ notice. The

(ommission Upon request and for wood Cause -nown May permit

a rate schedule for a change in rate schedule to be filed prior to 40

davs before the effective date

Co. v. FPC, 334 F.2d 1002 (1964). Each of these courts has

interpreted Section 4(d) of the NGA as meaning that the effec-

tive date of a change in rate cannot precede the date on which

the notice is filed.

The decision of the court below and the decision of the D.C.

Circuit in Pigua, as interpreted by the court below, are in

direct conflict with these decisions. In Wobile, this Court ex-

plained that the 30 days’ “advance notice of changes is essential

to afford the Commission a reasonable period in which to

determine whether to exercise its suspension powers under

Section 4(e)” (350 U.S. at 342; emphasis supplied). In Con-

tinental Oil, citing Mobile, the Fifth Circuit said: “since it thus

affirmatively appears that prior notice is required, it necessar-

ily follows that the effective date of a change in rate cannot

precede the date on which notice is filed” (236 F.2d at 843;

emphasis in original). Similarly, in She// Oil the Third Circuit

affirmed an order of the Commission holding that the NGA

prohibits any change in existing rates except in the manner

provided in Section 4(d) and specifically holding that changes in

filed rate schedules “must be prospective in operation” (334

F.2d at 1009). The Third Circuit went on to hold as follows (id. ):

“We find nothing in the Act which authorizes a natural gas

company to retroactively amend existing rates either by

contract or otherwise.”

The fundamental purpose of the NGA and the companion

FPA is to protect the ultimate consumers. F PC v. Hope Natu-

ral Gas Co., 320 U.S. 591, 610 (1944); FPC v. Interstate Natu-

ral Gas Co, 336 U.S. 597, 581 (1949). Retroactive ratemaking

and reparations are incompatible with that fundamental

statutory purpose and are, therefore, barred by the NGA and

FPA.

Waiver of the notice period to permit a rate increase to be

effective retroactively nullifies important aspects of consumer

protection incorporated into the NGA and FPA. Suspension of

the increased rate is an important element of consumer protec

tion for, unless the effective date of the rate change is sus

pended, the Commission is without power to order refunds

even if the Commission determines at the end of the investiga-

tion that the increased rates are unjust and unreasonable. The

notice requirement in advance of the effective date serves the

“essential” function of affording the consumers the opportun-

ity to advise the Commission of their views respecting suspen-

sion of the rate change (whether it should be suspended and for

what period) and “is essential to afford the Commission a

reasonable period in which to determine whether to exercise

its suspension powers under § 4(e).” Mobile, supra, 350 U.S.

at 342. The Commission has no statutory power to suspend a

rate change after the proposed effective date has passed. /n-

diana & Michigan Electric Co. v. FPC, 502 F.2d 336, 342-343

(D.C. Cir. 1974).

Congress intended that the just and reasonable rate stand-

ards of the NGA and the FPA should be prospective in effect.

To that end the Commission was armed with powers to provide

itself with the information needed to evalute the rate increase

before it becomes effective and thereby to protect consumers

through its suspension and refund powers. To misuse the waiv-

er provision, as the court below has done, so as to authorize

collection of a retroactive rate increase will frustrate the con-

sumer protection intended by Congress in the prospective rate

structure of the NGA.

4. Review by this Court is particularly necessary because

the Fifth Circuit was not able to complete the appellate process

in this case.

In dissenting from the denial of panel rehearing, Chief Judge

Clark called attention to the fact that, because of disqualifica-

tion of nine of the thirteen Fifth Circuit judges in regular active

service, the court could not pass on the suggestions for rehear-

ing en bane filed by Arkla and the Commission. The problem

deseribed by Chief Judge Clark is a serious one as it affects

every case before the Fifth Circuit in which the Commission is

a party. In order to avoid regular problems with recusals in

these cases, the Fifth Circuit established a “Gas Panel” to hear

all cases before the court in which the Commission is a party.

While the Fifth Circuit still has enough regular active service

judges to constitute a panel, the number of judges who con-

sider themselves capable of serving on these gas cases has

dwindled to four. Consequently, when read with the rules on

en banc rehearings, the clear result in every case is that the

parties are denied the opportunity even to have a suggestion

for rehearing en banc considered because the remaining four

judges do not constitute a quorum under 28 U.S.C. § 46(¢).

Thus, they can technically neither grant nor deny any such

suggestion.

Although Arkla recognizes that this Court has stated in

Western Pacific Railroad Corp. v. Western Pacific Railroad

Co., 345 U.S. 247 (1953), that the litigants do not have a “right”

to have their appeal reviewed by every one of the circuit judges

and that the device of rehearing en banc looks primarily to-

ward avoiding intracircuit conflicts, the Court also stated that

even though not a right, it is important that the rules should be

applied in such manner as to accomplish their objective (345

U.S. at 258-261).

In this case, when Hall appealed to the Fifth Circuit in

January 1981, for review of the Commission’s order, Arkla

promptly intervened and joined with the Commission in mov-

ing the court for an order, pursuant to 28 U.S.C. § 2112(a),

transferring the case to the United States Court of Appeals for

the District of Columbia Circuit where one branch of this same

case was pending and where another branch of the case had

already been decided. The Fifth Circuit, in an order issued

March 13, 1981, denied the transfer (App. A, infra, p. 35a).

Arkla’s motion to transfer was briefed and denied without

the litigants’ knowledge that a Commission case could not,

under the court’s rules and their application by the court,

obtain en banc consideration. Because of judge disqualifica-

tion, the Fifth Circuit was unable to complete the appellate

process in this case as provided by 28 U.S.C. § 46(c) and the

court’s rules or, as Judge Clark suggests (App. A, /fra, p.

33a), In any Gas Panel Case. These extraordinary circum-

stances have made consistent application of all the rules of

judicial procedure impossible. Judge Clark in his dissent (App.

A, infra, p. 33a) suggested that resort to this Court's

supervisory power may be the only recourse.

Arkla submits that the importance of the en banc rehearing

is sufficient to justify consideration of some alternative to

permit consideration and review of the intercircuit and intra-

circuit conflicts present in this case.

CONCLUSION

For the reasons stated, a writ of certioram should be granted

in this case to review the judgment rendered on November 26,

1982 by the United States Court of Appeals for the Fifth

Circuit; and that judgment should be reversed.

Respectfully submitted,

ROBERT Roserts, JR. (counsel of record)

W. MICHAEL ADAMS

Kay COWDEN MEDLIN

BLANCHARD, WALKER, O'QUIN & ROBERTS

First National Bank Tower

Post Office Drawer 1126

Shreveport, Louisiana 71163

Telephone (318) 221-6858

REUBEN GOLDBERG

GLENN W. LETHAM

GOLDBERG, FIELDMAN & LETHAM. P.C.

1100 Fifteenth Street, N.W.

Washington, D.C. 20005

Telephone (202) 463-8300

Attorne ys for Petitioner

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS,

FIFTH CIRCUIT.

November 26, 1982

No. 81-4011.

Frank J. HALL, et al., Petitioners.

Vv.

FEDERAL ENERuY REGULATORY COMMISSION,

Respondent.

Natural gas producers petitioned for review of an order of

the Federal Energy Regulatory Commission denying their

application for a waiver of the filing requirements of the Natu-

ral Gas Act. The Court of Appeals, Garza, Circuit Judge, held

that Federal Energy Regulatory Commission abused its dis-

cretion in denying natural gas producers’ application for a

waiver and corresponding rate adjustment.

Reversed and remanded with instruction.

Clark, Chief Judge, filed dissenting opinion.

Petition for Review of an Order of the Federal Energy

Regulatory Commission

Before CLARK, Chief Judge, GARZA and JOHNSON, Cir-

cuit Judges.

GARZA, Circuit Judge:

This case presents for review an order of the Federal Ener-

gy Regulatory Commission’ (FERC) denying the application

' The Federal Energy Regulatory Commission assumed most of

the duties of the Federal Power Commission on October 1, 1977. In

this opinion, the term “Commission” refers to either FERC or its

predecessor agency, whichever was active during the time period

referenced.

owt

of appellants, the Hall group (Hall), for a waiver of the notice

requirements contained in § 4(d) of the Natural Gas Act? so as

to permit the Hall group to collect from intervenor, Arkansas

Louisiana Gas Company (Arkla), the difference between the

purchased gas rate which the Hall group charged Arkla from

September, 1961, to October, 1972, and the rate which Arkla

paid the United States in royalties for gas obtained on leases

during the same period. The instant action is but apart of a

complex series of actions’ in which Hall has attempted to

enforce its contractual rights against Arkla as set forth in a

1952 contact. After eight years of contractual litigation in the

Commission, the Louisiana state courts and the Supreme

Court of the United States, it appears that Hail’s only avenue

for relief with respect to the time period between 1961 and 1972

is through the administrative provisions of the Natural Gas

Act. Such relief was denied by the Commission and those

orders are now presented to us for review. Because of the

complexity of this case and its unusual posture before us, we

set forth the facts and procedural background in detail.

* NGA § 4(d), 15 U.S.C. § 71 7e(d), provides:

Unless the Commission otherwise orders. no change shall be

made by any natural gas company in any such rate, charge,

classification or service, or in any rule, regulation or contract

relating thereto, except after thirty days’ notice to the Commis-

sion and to the public . . . . The Commission for good cause

Shown, may allow changes to take effect without requiring the

thirty days’ notice herein provided for by an order specifying the

changes so to be made and the time when they shall take effect

and the manner in which they shall be filed and published.

‘ By this Court's count, the present action represents the six

“1 on an

teenth time a court or agency has either affirmatively rule

issue in this case or has declined to review thereby affirming the

lower court. See Appendix A, jnfra

Background’

Appellants, the Hall group, are producers of natural gas;

Arkla is a customer who purchases their gas. In 1952, Hall and

Arkla entered into a contract under which Hall agreed to sell

Arkla natural gas from the Sligo Gas Field in Louisiana. The

contract contained a fixed price schedule and a “favored na-

tions clause.” The favored nations clause provided that if Arkla

purchased Sligo Field natural gas from another party at a rate

higher than the one they were paying Hall, then Hall would be

entitled to a higher price for their sales to Arkla.’ In 1954, Hall

obtained a certificate from the Commission to sell the gas

under this contract. Pursuant to the relevant provisions of the

NGA, Hali filed the contract containing the scheduled in-

creases and the favored nations clause as its rate schedule with

the Commission. In September, 1961, Arkla purchased certain

leases in the Sligo Field from the United States and began

producing gas on its leasehold. Arkla’s payments to the United

States for gas and liquids produced from that leasehold were

higher than Arkla’s payment to Hall under the 1952 contract.

Prior to entering into this agreement, Arkla sought a legal

opinion from its attorneys as to whether a favored nations

clause would be triggered by its contract with the United

‘ The facts at issue in this litigation have been largely decided in

the contractual action between Hall and Arkla in the Louisiana state

courts and in Arkansas Louisiana Gas Co. vy. Hall, 453 U.S. 571, 101

S.Ct. 2925, 69 L.Ed.2d 856 (1981). Our restatement reflects these

findings.

> The favored nations clause provided:

If at any time during the term of this agreement buyer should

purchase from another party seller gas produced from the sub-

ject wells or any other well or wells located in the Sligo Gas Field

at a higher price than is provided to be paid for gas delivered

under this agreement, then in such event the price to be paid for

gas thereafter delivered hereunder shall be increased by an

amount equal to the difference between the price provisions

hereof and the concurrently effective higher price provisions of

such subsequent contract.

States. Content that such escalation clauses were not trig-

gered, Arkla made no effort to inform Hall about its payments

to the United States.

The Hall-Arkla Contractual Litigation

In 1974, Hall discovered the higher payments which the

United States was receiving from Arkla as royalties for the gas

produced from the Sligo Field contract. Hal] instituted suit in

the Louisiana state courts seeking damages for Arkla’s

asserted breach of contract amounting to the difference be-

tween the prices which Arkla paid the United States and those

which it paid Hall. The state trial court found that Arkla’s

payment had triggered the favored nations clause. but held

that the filed rate doctrine’ precluded an award of contractual

damages for the period prior to 1972. The court entered an

award of damages for the post-1972 period during which appel-

lants were “small producers” and. therefore, not bound by the

filing requirement of the NGA. The Louisiana Court of

Appeals affirmed the trial court with modifications, Hall y.

Arkansas Louisiana Gas Co.. 359 S0.2d 255

(La.Ct.App.1978), and both parties appealed. The Louisiana

Supreme Court denied Arkla’s petition for review, Hall y.

Arkansas Louisiana Gas Co., 362 So.2d 1120 (La. 1978), and

certiorari was denied by the United States Supreme Court on

the question of whether the interpretation of the favored na-

tions clause should have been referred to the Commission.

Arkansas Louisiana Gas Co. v. Hall, 444 U.S. S78, 100 S.Ct.

166, 62 L.Ed.2d 108 (1980) (Docket No. 78-796).

The Louisiana Supreme Court, however. did agree to re-

view the lower court's findings with respect to the contractual

damages sought by Hall for the 1961-72 penod. The court

" The filed rate doctrine “forbids a regulated entity from charging

rates for its services other than those properly filed with the appro-

priate federal regulatory agency.” Arkansas Louisiana Gas Cu. \

Hali, 453 U.S. 571. 577. 101 S.Ct. 2925, 2930, 69 L.Ed 2d 84561148]

reversed the Louisiana lower court's holding that the filed rate

doctrine barred Hall’s contractual right to relief for Arkla’s

breach.’ Hall v. Arkansas Louisiana Gas Co., 368 So.2d 984

(La.1979). The United States Supreme Court granted Arkla’s

petition for a writ of certiorari and reversed the Louisiana

Supreme Court. The Court held that Hall's action seeking

contractual damages was barred by the filed rate doctrine.

Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 101 S.Ct.

2925, 69 L.Ed.2d 856 (1981) (hereinafter, Arkla v. Hall).

The Primary Jurisdiction Action Before The Commission

After Hall initially filed suit in the Louisiana state court,

Arkla petitioned the Commission for a declaratory order

requesting them to take exclusive jurisdiction and declare that

Arkla’s royalty payments to the United States did not trigger

the favored nations clause of the 1952 contract with Hall. The

Commission declined, however, to exercise primary jurisdic-

tion stating in three successive and “clarifying” opinions” that

it would adhere to its policy against assuming jurisdiction over

matters pending before a court. Arkla sought review of the

Commission's orders in the United States Court of Appeals for

the District of Columbia who, upon request of the Commission,

remanded the administrative record to the agency for further

* In aecordance with its opinion, the Louisiana Supreme Court

remanded the measure of damages question to the state district court

to enter judgment. The state court entered such judgment, and

Arkla appealed its determination through the state system and

ultimately to the United States Supreme Court in Docket No. 79-

18%. After the Supreme Court reversed the Louisiana Supreme

Court in Arkla vy. Ha/l, Docket No. 78-1789, it remanded No. 79-1896

for action consistent with its opinion. Arkansas Lowisiana Gas Co. \

Hall, 453 U.S. 917, 101 S.Ct. 3152, 69 L.Ed.2d 999 (1981)

i Nee Arkansas Lowisiana (7S Co. ¥ Hall, Docket No R] 76-28,

Order Denying Petition (March &, 1976); Order Denying Application

for Rehearing (June 4, 1976); Order Clarifving Commission Order

Denving Rehearing (November 11, 1976

consideration on May 25, 1978. FERC subsequently declined

to exercise primary jurisdiction in an order issued May 18,

1979. The agency ultimately decided that the interpretation of

the favored nations clause presented no issue upon which the

Commission had particular expertise. Arkansas Louisiana

Gas Co. v. Hall, Docket No. RI 76-28. Order Declining

Jurisdiction (May 18, 1979) at 6-7. Arkla again petitioned the

D.C. Circuit for review during which time the United States

Supreme Court decided the contractual action against Hall in

Docket No. 78-1789. On motion of [intervenor] Hall, the D.C.

Circuit dismissed Arkla’s appeal on the issue of primary

jurisdiction without opinion.’

Hall's Application For A Waiver

The present action arose as a corollary to the contract action.

Following the Louisiana Supreme Court's decision that Hall

Was entitled to contractual damages, notwithstanding the filed

rate doctrine, for the period between September, 1961 and

October, 1972, the Commission informed Hall that in order to

collect such damages, they would have to apply for a formal

Waiver of the notice filing requirements of NGA § 4(d). Hall

filed its application conditionally asserting that a waiver of

notice requirements was not necessary since § 4(d) did not

apply to a judicial award of damages. Alternatively, they

argued that “good cause” existed justifying the grant of the

waiver.

The Commission denied Hall’s request asserting four bases

for its decision. Arkansas Louisiana Gas Co. v. Hail, Docket

No. RI 76-28, Order Denying Application for Waiver (Novem-

ber 5, 1980). First, the Commission contended that a grant of

* The court declined to dismiss a corollary issue which Arkla had

continuously raised in the administrative proceedings concerning the

“small producer” status of the Hall group. That case has now been

affirmed in an unpublished memorandum opinion issued May 28,

1982. See also Arkansas Louisiana Gas Co. v. FERC, 679 F.2d 260

(D.C. Cir. 1982) (affirmance reported without opinion).

waiver would violate its “long-established ‘statutory bias’

against retroactive rate increases.” Jd. at 10. Second. the

Commission believed that the granting of Hall's request would

expose present consumers to a potential liability for higher

rates which should have been collected beginning in 1961, /d.

Third, the Commission uttered its concern about “the possible

unsettling effect that a waiver... might have on other gas

purchase transactions.” Jd. Finally, FERC was “troubled by

the prospect of speculating as to what the Commission would

or would not have done in 1961 had it been confronted at that

time with a rate increase filing by the Hall group.” /d. at 11.

Although the Commission recognized that the “equities [were]

favorable to the Hall group,” it concluded that in the context of

its “broader regulatory responsibilities,” the waiver should be

denied.

Hall now appeals from that order contending that it is

arbitrary and capricious, unsupported by substantial evidence

in the record, contrary to precedent and the Commission's

long-standing policy of protecting contractually authorized

prices, and based upon speculation and conjecture on the part

of the Commission. Intervenor Arkla contends that further

action in this administrative proceeding is precluded by the

Supreme Court’s subsequent decision in Ark/a v. Hall, supra.

Arkla contends that the issues presented here were deter-

mined in the contractual litigation and are precluded from

further consideraticn by the doctrines of res judicata and col-

lateral estoppel." It is also asserted that the present con-

troversy is moot. The Commission contends that its decision is

a proper exercise of its discretion and should, therefore, be

affirmed. In the context of our opinion below, we dispose of

each of these contentions.

Arkla moved to dismiss this action on September 21, 1981. After

the parties briefed the issue, this court denied Arkla's motion by

order entered November 16, 1981, but agreed to carry the motion

with the case.

The Vitality Of The § 4 Proceeding

We turn first to Arkla’s motion to dismiss this review

proceeding. Arkla asserts that the Hall group's attempt to

obtain a waiver of the NGA filing requirements and a corre-

sponding rate adjustment from the Commission is an attempt

to relitigate their action for contractual damages which the

Supreme Court held was barred under the filed rate doctrine.

Arkla, however, misreads and construes too broadly the Su-

preme Court’s decision in Arkla vy. Hall, supra. In Arkla vy.

Hall, the Supreme Court did not hold, as Arkla contends. that

the filed rate doctrine barred a grant to Hall of a waiver of the

$4 notice filing requirements and subsequent collection of

rates; rather, the Court found that the filed rate doctrine

barred Hall’s claim for contractual damages (amounting to a

retroactive rate increase). The Court stated that Hall could not

obtain in a civil action for breach of contract what the Commis-

sion could not “impose” itself. Arkla v. Hall, 453 U.S. at 578 &

n. 8, 101 S.Ct. at 2953 (emphasis in original). In the same

statement, however, the Court clearly recognized the waiver

provisions of § 4(d) and the power of the Commission to “waive

the usual requirement of timely filing of an alteration ina rate.”

Id. Additionally, the Court expressly recognized that review

of the Commission’s November 5 Order denying waiver was

pending before the United States Court of Appeals [for the

Fifth Circuit]. 7d., n. 6. If indeed, Arkla v. Hall precluded

further consideration of the waiver application, then there

would have been no need for the Court to acknowledge the

current proceedings. It would have been appropriate instead

to recognize the mootness of the proceedings.

The Supreme Court’s opinion is further instructive with

respect to this question. We note that the Court specifically

acknowledged the preemptive authority which FERC holds in

' The Court’s opinion mistakenly cites to the order as pending

before the District of Columbia Circuit. The Commission, however,

subsequently notified the Court of the pendency of those proceedings

in this Circuit.

rate cases. /d. at 577-78, 101 S.Ct. at 2930-31. Furthermore,

citing to § 4(d) ofthe NGA, the Court went on to state, “E.rcept

when the Commission permits a waiver, no regulated seller of

natural gas may collect a rate other than the one filed with the

Commission.” /d. (emphasis added). This statement clearly

evidences the Supreme Court's recognition of the vitality of

the proceeding before us. Arkla v. Hall does not, as intervenor

asserts, expressly foreclose the current administrative action.

Arkla also asserts that the issue before us—whether the

Commission erred in denying Hall’s request for waiver under

§ 4(d)—is moot since each of the reasons cited by the Commis-

sion for denying the waiver were expressly approved by the

Supreme Court in its opinion. Again, Arkla overreads the high

Court’s decision. While the Supreme Court acknowledged the

reasons set forth by the Commission in its November 5, 1980

Order denying Hall’s waiver, it did not address the merits of

the Commission’s reasoning in the context of Hall’s application

for a waiver nor was that issue before the Supreme Court or

determinative of the issue before it. Indeed, most of the

Court’s discussion of FERC’s November 5, 1980 Order was

merely in reference to what actions the Commissien had taken,

not whether such actions supported denial of Hall's applica-

tion."* The thrust of Arkla’s motion to dismiss is based upon its

*. For example, the Court expressly disapproved of the Louisiana

Supreme Court’s assumption that the higher rates sought by Hall

would have been found reasonable by the Commission. In so doing,

the Court stated, “{F Jar from approving the rate here in issue, the

Commission has expressly declined to speculate on what its prede-

cessor might have done.” 453 U.S. at 581, 101 S.Ct. at 2932. Clearly,

this statement does not evidence the Court's belief that the above

reason supported the denial of Hall's waiver application; rather, it is

acknowledged to support the Court's finding that the Louisiana

Supreme Court improperly attempted {by assumption) to perform a

duty expressly reserved to the Commission—the determination of

the reasonableness of rates.

In another instance, the Court stated:

In asserting that the filed rate doctrine has no application here,

{the Hall Group] contend[{s] first that the state court has done no

l0a

erroneous and overbroad reading of the Supreme Court’s deci-

sion in Arkla v. Hall, and accordingly, it is without merit.

There are still other reasons to deny Arkla’s motion. Princi-

ples of res judicata bar relitigation of the same cause of action

between identical parties in which a valid final judgment has

been rendered on the merits. See Judgments and Orders,

Federal Procedure, L.Ed. § 51:189 (Interim Binder 1982).

more than determine the damages they have suffered as a result

of Arkla’s breach of the contract. No federal interests. they

maintain, are affected by the state court's action. But the Com-

mission itself has found that permitting this damages award

could have an ‘unsettling effect ... on other gas purchase

transactions’ and would have a ‘potential for disruption of natu-

ral gas markets.’

453 U.S. at 579, 101 S.Ct. at 2931. Again, the Court's statement only

recognizes, without express approval or disapproval, the actions

previously taken by the Commission in a separate, but related.

administrative proceeding.

On still another occasion, the Court made the following statement ina

footnote which bears upon the Commission's concern that current

ratepayers might potentially bear the burden of rates attributable to

prior customers:

a in an effort to challenge this determination, re-

spondents assert that the damages would be paid entirely from

Arkla’s corporate assets and would not be passed on to con-

sumers. We see no reason why this fact, even if true, would alter

our analysis. In any case, the record does not support respon-

dents’ assertion that Arkla could not pass the damages award

along to its customers. In its order denying respondents’ request

for a waiver of the § 4(d) notice requirement, the Commission

conceded that Arkla would have the right to do so, even though

all the natural gas for which Arkla would be paying was long

since sold.

453 U.S. at 579 n. 10, 101 S.Ct. at 2931. No one, however, challenges

Arkla’s right to seek a rate increase to account for any additional rate

payments it might have to make to Hall. The Court's statement does

not suggest whether the Commission would have to grant sucha rate

increase, nor does it intimate what weight this factor should carry in

consideration of Hall's application for waiver.

lla

Similarly, collateral estoppel precludes relitigation of identical

issues previously decided in an action. /d. § 51:214. The state

court action involved a dispute on a contractual claim between

Hall and Arkla. The present action involves an administrative

claim under the Natural Gas Act between Hall and the Com-

mission. The waiver issue was not and could not have been

litigated in the state court action. Accordingly, these princi-

ples do not support Arkla’s assertion that the present action is

barred.

We do, however, note the unusual posture in which this case

is presented to this court. When Hall originally filed its applica-

tion for a waiver, the Commission believed that the waiver was

“technically” necessary so that Hall’s recovery of contractual

damages (which at the time had been authorized by the

Louisiana Supreme Court) would not contravene the notice

filing requirements of the NGA. See, Arkansas Louisiana Gas

Co. v. Hall, Docket No. RI 76-28 (May 18, 1979 Order). After

the Supreme Court’s decision in Ark/a v. Hall, supra, this

proceeding took on a very different outlook. What was previ-

ously considered a technical requirement suddenly became the

an administrative one—for Hall to recover its

only method

contractually authorized rates.

This case was in some respects mooted by the Supreme

Court’s prior opinion. Since it was originally filed so that Hall

could comply with what FERC believed to be the technical

requirements of the NGA before petitioners could recover

contractual damages in the state court action, the Supreme

Court's decision that Hall could not recover contractua! dam-

ages negated the need for this court to rule on the propriety of

the Commission's denial of the “technical” waiver. If Hall could

not recover contractually, it did not need to technically comply

with the NGA.

There is, however, an administrative component to this case

which we believe remains alive. Although Hall is not entitled to

contractual damages by virtue of the filed rate doctrine, it is

entitled to the rates which it contracted with Arkla to receive

12a

over which the Commission has authority to regulate. The only

reason Hall has not received these rates is that it failed to

administratively file for them with the Commission because

Arkla did not inform them of the higher payments it was

making to the United States. Section 4(d) permits the Commis-

sion, for good cause shown, to waive the notice of filing require-

ment. Since the Supreme Court has foreclosed the civil action

remedy, it thus appears that the only avenue of relief available

to Hall, if any exists at all, is the administrative one arguably

provided by § 4(d).

The Propriety Of The Commission's Orders

We turn, therefore, to the orders presented for review to

determine if the Commission erred in denying the application

of Hall for a waiver of the notice requirements contained in

NGA § 4(d). In reviewing Commission orders granting or

denying waivers of rules or regulations, we have deferred to

the Commission when its decision did not represent an abuse of

discretion. See. e.g., Columbia Gas Transmission Co. v.

Allied Chemical Corp., 652 F.2d 503, 520 n. 16 (5th Cir. 1981);

Columbia Gas Deve lopment Co. v. FERC, 651 F.2d 1146. 1160

n. 18 (5th Cir.1981). A Commission order denying a waiver of

statutory re ements is similarly entitled to affirmance if

there exists « ational basis for the Commission's decision. and

it is supported by “substantial evidence.” /d.: see City of Pi-

qua, Ohio v. FERC, 610 F.2d 950, 955 (D.C. Cir.1979). It is

necessary then to examine the record and applicable law to

determine if the four reasons set forth by the Commission in its

order support its denial of Hall's application for a waiver. We

find that the record does not support the Commission’s order.

(1) Retroactive Ratemaking

The first reasons set forth by the Commission justifying its

denial of Hall's application for a § 4(d) waiver was its “long-

established ‘statutory bias’ against retroactive rate increases.”

As support for its position, the Commission cited to this court’s

decision in Gillring v. FERC, 566 F.2d 1323. 1325 (5th Cir),

l3a

cert. denied, 439 U.S. 823, 99 S.Ct. 91, 58 L.Ed.2d 115 (1978).

However, neither Gillring nor the Commission's policy against

retroactive ratemaking are applicable to the facts of this case.

In Gillring, the petitioner sought a retroactive increase in

the rates it had on file with the Commission during one time

period so that it could offset the amount obtained in that

increase against amounts the Commission had ordered Gillring

to refund for a different period in which the company’s rates

had exceeded area rate ceilings. Gillring sought to obtaina rate

increase up to the Commission’s ceiling to be applicable to a

time period in which Gillring had filed and collected a lower

rate in accordance with the gas purchase contract it had filed as

a rate schedule. There was no question in Gil/ring that when it

filed its schedule, it intended and had contracted to obtain a

designated rate. Subsequently, the company sought a rate

higher than that ever filed with the Commission or con-

templated by the rate schedule/contract. A purer example of

an action for a retroactive rate increase would be difficult to

imagine; a waiver of § 4(d) notice filing requirements was

neither involved nor applicable in Gillring.

The question in the present case—whether the grant of a

waiver to permit parties to effectuate their contractual agree-

ment violates a policy against retroactive ratemaking—was

squarely presented to the United States Court of Appeals for

the District of Columbia Circuit in City of Pigua, Ohio v.

FERC, 610 F.2d 950 (D.C. Cir. 1979).

‘3 While the facts of Piqua are not totally analogous to this case, we

do not find the distinctions significant for purposes of our analysis

here. Piqua involved application of the waiver provisions of the

Federal Power Act, 16 U.S.C. § 824d(d) (1976). It is well settled,

however, that the relevant provisions of the Federal Power Act and

Natural Gas Act “are in all material respects substantially identical.”

FPC v. Sierra Pacific Power Co., 350 U.S. 348, 353, 76S.Ct. 368, 100

L.Ed. 388 (1956); Accord, Arkla v. Hall, 453 U.S. at 577 n. 7. 101

S.Ct. at 2930. In Piqua, the waiver granted was for a time period less

than one year as opposed to the twenty-year period presented in this

l4a

In Piqua, the D.C. Circuit was presented with a case in

which FERC had granted a waiver of the analogous statutory

notice filing requirements of the Federal Power Act. The city

challenged FERC’s grant of the waiver and assignment of a

retroactive date to the rate increases on the grounds that the

grant was: (1) unauthorized by statute; (2) prohibited by the

policy against retroactive ratemaking; and (3) unsupported by

substantial evidence. The court affirmed on all three grounds.

Having found that the Commission was Statutorily authorized

to allow rates to take effect without requiring advance notice,

the court reasoned that it would not constitute retroactive

ratemaking, when good cause was shown. for the Commission

to give effect to the intent of the parties whose contractually

authorized rate schedules called for a rate increase to be effec-

tive at a designated time. The court stated:

In this case, two parties agreed on new rate schedules and

on the effective f ar for the new contract. The negotiated

rate change was not retroactive: it was prospective from

the date of the contract. Filing under section 205(d) al-

lowed the Commission to review the agreement to ensure

its reasonableness. Such review does not. when good

cause is shown, however, preclude enforcing the contract

provision as of the date specified therein. Moreover. the

Commission, in finding the Agreement reasonable, did

not retroactively substitute a rate: it merely approved the

rate change and effective date agreed upon by the parties.

case. We discuss the relevancy of the twenty-year delay sub-

sequently; however, we note that the interval for which a waiver is

sought does not affect the question of whether the grant of such

waiver violates a policy against retroactive rate increases. Finally,

we find no significance in the fact that the parties in Piqua had agreed

on new rate schedules and a new effective date for the new contract

and the present situation where the parties provided in the original

contract for new rates to take effect upon a date triggered by a

specified transaction (i.e., the payment by Arkla of higher prices for

gas to another party). In both cases, the intentions of the parties

were the same: the effectuation of new rates to be charged

prospectively from a date ascertainable in the contract.

loa

610 F.2d at 954-55 (emphasis added). A similar position was

espoused by FERC in the administrative proceeding in which

it had granted the waiver. See, Dayton Power & Light Co.,

Docket No. ER77-546, Order Granting Rehearing and

Correcting Prior Order (January 18, 1978); Order Denying

Rehearing (April 3, 1978).

The facts of this case have been established by prior litiga-

tion in this dispute. Those facts establish that the 1952 contract

between Hall and Arkla contained an escalation clause provid-

ing for the effectuation of an increase in rates should Arkla pay

an amount higher than those rates it submitted to Hall. It is

now also established that the parties intended the favored

nations clause in their contract to cover the present situation

thereby permitting the Hall group (had they filed) to recover

from Arkla the equivalent” of the rates it paid the United

States beginning in September, 1961. We agree with the D.C.

Circuit Court that the policy against retroactive ratemaking

which precludes Commission “substitution of an unreasonably

high or low rate with a just and reasonable rate” is “immediate-

ly distinguishable” from the present situation where the Com-

mission’s waiver gives prospective application to the rates

contractually authorized by the parties at the effective date

contemplated by the contract. The Commission erred in not

giving effect to this policy which it had previously distin-

guished and espoused.

(2) Exposure Of Present Consumers To Liability

The second and perhaps most compelling reason set forth by

the Commission justifying its denial of the $ 4(d) waiver was its

concern that 1980 consumers might be exposed to liability for

rates attributable to 1961 consumers. The clear import of this

reasoning is that a different group of consumers will pay for the

4 We use the term “equivalent” assuming for present purposes

that the rate sought by Hall would be just and reasonable. We discuss

this issue in more detail; infra.

l6a

gas than the one which used it. While the proposition is a logical

one, we note that there is little evidence in the record to

Suggest that Arkla’s 1961-72 customers are in fact different

from its 1980 customers.” To the extent that the record is

devoid of information in this regard, the Commission's reason-

ing lacks a firm basis of support.

It is also to be noted, however. that the Commission’s

reasoning admits that its concern is merely one of potential

liability to the consumer. It is far from clear that Arkla would

be entitled to pass along to its customers an amount represent-

ing its delayed payment for purchased gas when the delay,

particularly the length of the delay, was the result of Arkla’s

own, albeit non-fraudulent, actions. Before any rate paid by

Arkla to Hall could be passed on to the consumer, Arkla would

have to file with the Commission a schedule and notice of rate

change and bear the burden of establishing the just and

reasonableness of its request. FPC v. Tennessee Gas Trans-

mission Co., 371 U.S. 145, 83 S.Ct. 211, 9 L.Ed.2d 199, (1962):

Natural Gas Act § 4(e), 15 U.S.C. § 717e(e). It is well settled

that the Commission’s duty under the NGA statutory scheme

when considering the reasonableness of rates is “to afford

consumers a complete, permanent and effective bond of

protection from excessive rates and charges.” Atlantic Refin-

ing Co. v. Public Service Commission (CATCO), 360 U.S. 378,

388, 79S.Ct. 1246, 1253, 3 L.Ed.2d 1312. 1319(1959). The clear

import of Supreme Court decisions. as evidenced by CATCO,

is that the underlying purpose of the NGA is protection of the

consumer “even though this may result in some injustice to the

producers.” See Summers, Oil and Gas § 926 (1966) (emphasis

added). Although it is undisputed that the cost of purchased

> At oral argument, for example, Hall's counsel asserted that to

the best of his information, the gas purchased from Hall was sold by

Arkla to line industries in Southwest Arkansas wherein the possibil-

ity that consumers over the twenty-year period would be similar is

more probable.

17a

gas is a basic component of a regulated entity’s rate structure,

the Commission’s duty under the Act to protect consumers

together with the unusual delay attributable to Arkla’s own

actions present a scenario in which it is far from clear whether

Arkla could justify its requested rate increase. CATCO

teaches that as between Arkla and its customers, the Commis-

sion has a duty to protect the consumer even if such results in

some “injustice” to, in this case, Arkla."”

We do not make these observations to foreclose FERC’s

consideration of a potential rate increase application by Arkla,

but only to emphasize that the reason proffered by the Com-

mission as to the “potential” liability of present consumers is

very much a speculative proposition at this point in time. This

reason, by itself, does not support the Commission’s denial! of

'* There are other considerations which weigh against the con-

clusion that Arkla would be entitled to pass on to its consumers a rate

increase resulting from increased payments to Hall. As between Hall

and Arkla, the Commission has admitted that the equities favor the

Hall group. The NGA was drafted to encourage and protect the right

of parties to establish rates by individual contract. The Act “evinces

no purpose to abrogate private rate contracts as such.” United Gas

Pipe Line Co. v. Mobile Gas Corp., 350 U.S. 332, 338, 76 S.Ct. 373,

378, 100 L.Ed. 373 (1956). In granting Hall’s waiver, the Commission

could promote the purposes of the Act and preclude Arkla from

breaching its contract by delaying Hall's notice filing and using the

length of delay to defeat Hall’s application. On the other hand, if the

Commission took this course but felt compelled to grant a rate in-

crease to Arkla, it would neglect in some respects its duty to protect

consumers. The dilemma is one which suggests that the Commission

deny any subsequent application for rate increase by Arkla arising

from these proceedings. In so doing, the Commission would effectu-

ate dual purposes of the Act. Clearly, the Commission could consider

these factors in ruling on whether a rate could pass on. We do not

intimate that this is the course which the Commission should take: we

only use this as an illustration of the uncertainty of the Commission's

reliance on potential liability to the consumer as a reason for denying

Hali’s application.

l&a

Hall’s waiver.'’ We, therefore, examine the remaining reasons

proffered by the Commission in determining whether it has

abused its discretion.

(3) Unsettling Effect On Other Contract Purchases

The third reason cited by the Commission for denying Hall's

application was “the possible unsettling effect that a waiver in

this case might have on other gas purchase transactions.” The

Commission found that if Hall were granted a higher rate for

its gas, a strong likelihood existed that other claims would

arise asserting that this increase triggered the operation of

indefinite price escalator provisions in other contracts in the

Sligo Field geographical area. Hall contends that this assertion

is speculation and conjecture on the part of the Commission

about unidentified pipeline companies and that there is no

substantial evidence to support this reasoning in the record of

the subject proceeding.

It is true that most of the arguments in brief to this court

with respect to this issue were drawn from information outside

the administrative record. It is conceded that the Commission

may draw from its own knowledge and expertise, as well as its

own records, information upon which to support this con-

clusion. Our review of such information does not, however,

support the Commission's concern that numerous transactions

would be affected.

'’ The authority of the Commission to deny any request by Arkla

for a rate increase was expressly recognized by Justice Stevens in his

dissent in Arkla v. Hall, supra,

The short answer to the first concern [that the burden of the

award might be passed on to consumers] is that there is no more

reason to assume that this award will justify an increase in utility

rates than any other damages judgment that a public utility may

be required to pay; if the regulatory concern is valid, the agency

having jurisdiction over Arkla’s sales has ample authority to

require its stockholders rather than its customers to bear this

edition! cost.

453 U.S. at 607, 101 S.Ct. at 2945-46.

19a

The Commission's reasoning is additionally flawed by the

unique posture of this case. In this action, the Louisiana courts

determined the effect of the royalty payments on the most

favored nations provision with the approval of Hall and the

sanction of the Commission. On two occasions, the Commission

declined to exercise primary jurisdiction” and decide the issue

for itself. The determination of the Louisiana courts, however,

is clearly precedential only in the present action involving Hall

and Arkla. Several factors compel this conclusion.

First, the Supreme Court has ruled that the only avenue

available to Hall to obtain the rates for which it contracted is

for the Commission to grant a waiver to permit the rate sched-

ule to take effect. This procedure. therefore, is the only

method available to other parties who might be entitled to

similar relief. Unlike the present action, however, other par-

ties would not be entitied to rely upon the Louisiana courts’

interpretation of the 1952 contract rate schedule at issue

presently. Those decisions simply have no res judicata or col-

lateral estoppel effect in a different administrative proceeding

between different parties.

If an issue similar to the present one were ever addressed to

the Commission again, the agency would have to decide it

rather than defer to a state court as occurred in this case. The

Commission has previously considered many factors which

effectuate the “triggering” of a most favored nations clause,

see Shell Oil Co.. Opinion No. 382, 29 F.P.C. 498, 499 (affirmed

Shell Oil Co. v. FPC, 334 F.2d 1002 (3d Cir. 1963)), and as the

Commission notes in brief, such factors do not suggest that, if

the Commission was deciding, a royalty payment such as the

present one would necessarily trigger operation of a most

favored nations clause. The Commission, in fact, has expressly

recognized that varying interpretations to favored nations

clauses result in differing outcomes. In its May 18, 1979 Order

~ See Appendix A, Chronology of Agency Court Action on Pri-

mary Jurisdiction Issue, infra.

20a

declining to exercise primary jurisdiction in this very action,

FERC argued:

Since the meaning of a favored nation clause depends upon

the intentions of the parties to the contract. we see noneed

for uniform interpretation of all favored nation clauses.

Indeed, uniform interpretation would seem to be

impossible."

There is little support then in the record for the Commission's

conclusion that the granting of Hall’s waiver would have an

“unsettling effect” on other gas purchase contracts. Indeed,

the applicable law leads to a conclusion quite the contrary.

Finally, we acknowledge the reasoning of Justice Stevens in

dissent in Arkla v. Hall who addressed the merits of the very

concern set forth by the Commission:

The second concern [that other claims might arise] seems

exaggerated because it applies only to contracts executed

before 1961, . . . and it seems unlikely that many large

purchasers of natural gas could successfully have con-

cealed violations of escalation clauses from their suppliers.

To the extent that this case does have counterparts in such

contracts, however, it seems to me that those cases should

be decided in the same Way.

453 U.S. 607-08, 161 S.Ct. at 2946. In summary, we find no

record support, legal support, or for that matter, practical

support for the Commission's conclusion that other gas pur-

chase transactions would be affected.

” Arkansas Louisiana Gas Co. \ Hall, Docket No. RI 76-28,

Order Declining Jurisdiction (May 18, 1979) at 8.

Citing to the above administrative case. this court similarly recog

nized the less-than-absolute meaning and effect that an interpreta-

tion of a favored nations clause in one case would have on others in

general. In Pennzoil ¢ ‘company NV. FERC, 645 F.2d 360, 386 (5th ¢ ‘Ir,

1981), cert. denied. ___ lo... S.Ct. 1000, 71 L.Ed.2d 293

(1982), we stated:

Since the escalation clause’s meaning depends on the contracting

parties’ intentions, which in turn depends on the circumstances

of its execution, identical language in different contracts could

be interpreted to have different meanings ....

Zla

(4) Speculation About 1961 Commission

The final reason set forth by the Commission to justify its

decision was its reluctance to speculate as to what the Commis-

sion would have done if confronted in 1961 with a Hall request

for enforcement of its most favored nations clause. The fact is

that FERC wholly ignores or refuses to recognize exactly what

the 1961 Commission decided when faced with an identical

question. In The Pure Oil Company, 25 F.P.C. 383 (1961), the

Commission concluded that although favored nations clauses

would be prohibited in the future, it would not eliminate such

provisions from previously executed contracts. Jd. at 388-89;

Order No. 232, 25 F.P.C. 379 (1961). Speculation as to what the

1961 Commission would have done, therefore, was wholly un-

necessary. FERC’s attempts at distinguishing The Pure Oil

Company are futile and without merit. Indeed, the Commis-

sion today concedes the legality of the 1952 contract when it

acknowledges Hall’s right to contractual damages following

1972. See, Hall v. Arkla, 453 U.S. at 606-07, 101 S.Ct. at 2945

(Stevens, J. dissenting).

We note that, even if some ambiguity as to what the 1961

Commission would have done existed, FERC has previously

speculated over long time periods about what a prior Commis-

sion would have done. See, €.¢@.., Plaquemines Oil and Gas

Company, Opinion No. 572-A (April 29, 1970) (1970 Commis-

sion found that 1961 Commission likely would have found rates

acceptable).

Finally, FERC’s argument that the 1961 Commission very

likely would have looked with disfavor on a Hall filing and

found no triggering of the escalation clause is not compelling.

Twice, FERC was asked to decide the issue and declined

thereby permitting the state court to consider it. It seems

particularly arbitrary that the Commission could (1) decline to

exercise primary jurisdiction over an issue, deferring to a state

court's power to interpret the contractual provision, (2) take

issue with the state court's determination contrary to what the

= ~

(Commission “may have found, and then (3) use the excuse

DO.

fee none

that they are unable to determine what a prior Commission

would have done to deny Hall’s waiver in the related adminis-

trative proceeding.

In conclusion, we find that the only reason set forth by the

Commission which even arguably suppports the denial of

Hall’s application for a § 4(d) waiver is the concern that present

consumers might potentially be subjected to lability for prior

rates if Arkla were permitted to pass on such rates. As previ-

ously noted, this concern is highly speculative at this time and

an impressive argument exists supporting the conclusion that

Arkla would not be permitted such a rate increase. Potential

liability to consumers, by itself, simply does not support the

Commission’s decision to deny Hall’s waiver request, particu-

larly when the equities of this action weigh more in favor of

Hall than Arkla. We find that the Commission abused its

discretion in denying Hall's application for a waiver.

Relief

Our decision that the Commission erred in failing to grant

Hall’s requested waiver does not end the proceeding before us.

On brief, Hall requests only that the Commission's orders be

reversed. As part of its rather convoluted argument, however,

Hall contends that the rates which it seeks to obtain (which it

asserts are equivalent in amount to the contractual damages

sought in the state court action) have been found by the Com-

mission to be below just and reasonable area rates in effect for

the time period involved, Accordingly, the question arises as to

whether this court can remand this case to the agency topermit

Hall to collect the rates which it seeks without allowing further

action by the Commission. We believe there are several

reasons to decline from so acting, and accordingly, we remand

this proceeding to the Commission to determine the just and

reasonableness of the rates sought by Hall.

First, it is to be noted that in the latter part of the state court

action, the Commission reversed itself and declined to specu-

late on the reasonableness of the rate schedule submitted by

23a

Hall. Hall asserts, however, that the Commission is bound by

earlier admissions in this action.

On several occasions, the Commission has stated that the

contractually authorized prices sought by Hall were within the

applicable just and reasonable area rates. Its first statement to

this effect came in its May 18, 1979 Order declining to exercise

primary jurisdiction over the contractual action. In its order,

the Commission discussed the impact of the contractual dam-

age action on its regulatory responsibilities. In finding such

impact to be minimal, the Commission stated, “on the facts of

this case, the damages do not exceed the applicable area rate

ceilings” and “the rates requested are within what the Com-

Sh A)

mission had determined to be the zone of reasonableness. ’™

The Commission again acknowledged the reasonableness of

the rates sought by Hall in its brief as Amici Curiae to the

United States Supreme Court in Docket No. 78-986. In that

action Arkla sought review of the question of whether the

interpretation of the most favored nations clause in the 1952

contract should have been referred to the Commission. In its

brief, FERC contended that Hall sought only to recover from

Arkla damages which did not exceed Commission applicable

area rate ceilings.

Finally, the Commission again recognized the reasonable-

ness of the rates seught by Hall in its original order before us on

review. In footnote 4 of its November 5 Order, the Commission

stated,

The rates (11.7432 cents per Mef to 14.0508 cents per Mcf)

would, however, be within the Commission ceilings in

effect during that time.

The following day, FERC issued an “Errata Notice” deleting

the text of footnote 4 from its opinion. In its Order Denying

Rehearing issued January 2, 1981, the Commission explaind

” Arkansas Louisiana Gas Co. v. Hall. Docket No RI 76-28,

Order Declining Jurisdiction (May 18, 1979) at 10.

24a

that “the deleted footnote was not a necessary part of the

Commission's decision” and that its inclusion “was an in-

advertent printing error.” While the latter explanation is ques-

tionable, we note that the deleted footnote is clearly not bind-

ing on the Commission.

The Commission now asserts that it has reconsidered its

prior determinations which were based on erroneous in-

terpretations of the 1952 contract and has concluded that the

Hall rates are not so clearly within the maximum, lawful area

rates. The Commission first indicated its reconsideration of

this question in its brief filed in November, 1980, as Amici

Curiae to the Supreme Court in Docket No. 79-1896. That case

Was the appeal from the Louisiana state court system award-

ing contractual damages to Hall consistent with the Lousiana

Supreme Court decision in Hal/ v. Arkansas Louisiana Gas

Co., 368 So.2d 984 (La.1979) (reversed subsequently in Arkla

Vv. Hall, supra, Docket No. 78-1789). Arkla sought review of

the Louisiana Court of Appeals’ ruling that the contractual!

damages awarded (for both the pre- and post-1972 periods) to

Hall exceeded Commission ceilings. In its brief the Commis-

sion explained the reasons for its reversal:

The decision of the Louisiana Court of Appeal rejecting

Arkla's contention is based in part on the Commission’s

conclusion, in its order refusing to exercise primary

jurisdiction, that “the damages do not exceed applicable

area ceiling rates.” Upon careful reexamination of the

information available to it, the Commission has deter-

mined that its earlier conclusion was based on an incorrect

understanding of the contract between Arkla and respon-

dents that is involved in this case. At the present time the

Commission is unable to determine conclusively whether

its ceiling rates have been exceeded as a result of the

damages awarded to respondents.

The Commission's previous conclusion that “the dam-

ages does not exceed applicable area ceiling rates,” was

premised upon the erroneous belief that Arkla’s contract

Zoe

with respondents was based on sales at the plant, and not

at the wellhead. *' As a result of this incorrect interpreta-

tion, the Commission eliminated from its calculations

those damages that apparently represented payment for

removable liquids, and found that the damages awarded

for the actual gas (/.e., residue gas) were within the area

ceiling rates. That premise is now undermined by the

ruling of the Louisiana courts ... that Arkla’s contract

with respondents provided for sales of the entire gas

stream at the wellhead, including removable liquids.

On the same day that the United States Supreme Court re-

versed the Louisiana Supreme Court in Arkla v. Hall, supra

(Docket No. 78-1789), it granted certiorari in Docket No. 79-

1896, vacated the damage computation awarded by the

Louisiana Court of Appeals, and remanded the case in light of

its decision in Docket No. 78-1789. Ark/a v. Hall, 453 U.S. 917,

101 S.Ct. 3152, 69 L.Ed.2d 999 (1981). With respect to Hall's

contention that the FERC is bound by its prior statements

acknowledging the reasonableness of Hall's requested rates,

the Court’s decision in Docket No. 79-1896 undermines and

defeats whatever weight such reasoning possessed.

Even more fundamental, however, to this court’s decision to

remand this case to the Commission on the question of the

reasonableness of rates, is the statutory scheme of the Natural

(;as Act itself. The regulation of rates for the sale of natural gas

*! All natural gas produced at the wellhead contains varying

amounts of liquefiable hydrocarbons (LHC's) in a gaseous state.

Natural gas including these LHC’s is known as wet gas. At the plant,

LHC’s can be extracted from the wet gas and after processing can be

sold as a separate product. Natural gas from which LHC’s have been

removed is known as dry gas. Under the contract Hall sold Arkla wet

gas. The Commission's rate regulations prescribe the same max-

imum rate for the sale of dry and wet gas. Arkla contends that the

contractual damage award granted Hall the market value of the

LHC’s in addition to the price of gas as though the sale only involved a

plant sale of dry gas. As a result, it is asserted that the rate previous-

ly acknowledged as reasonable exceeds by almost two times the

maximum rate for wet gas to which Hall is entitled.

26a

for resale in interstate commerce by producers of natural gas

was vested by Congress exclusively in the Commission under

the Natural Gas Act. Federal Power Commission v. Hope

Natural Gas Co., 320 U.S. 591. 6] 1-12, 64S.Ct. 281, 291-92. 38

L.Ed. 333 (1944): Colorado Interstate Gas Co. vy. FPC, 324

U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206 (1945): Phillips Pet-

roleum Co. v. Wisconsin, 347 U.S. 672, 748.Ct. 794, 98 L.Ed.

1035 (1954). In the context of this administrative action, our

finding that the Commission should have granted Hall's appli-

cation for waiver of the notice provisions of § 4(d) does not end

the Commission's duty to determine the just and reasonable-

ness of those rates. It is, therefore. necessary that we remand

this action to permit the Commission to grant Hall's waiver and

to provide Hall with the opportunity to file its rates for Com-

mission review on their reasonableness.

In so doing, we make the following observations. First. the

Commission's determination of the reasonableness of Hall's

rates should not be inconsistent with the computation of Hall's

damage recovery for the post-1972 period, at least to the

extent that these computations are analogous. Second, should

the Commission find the rates requested by Hall to exceed the

applicable area rate ceilings, it would appear that the Hall

group would at least be entitled to the ceiling rate.

Final Considerations

Two final considerations merit attention with respect to our

decision. First, unlike the situation presented in Hall y. Arkla.

supra, in which the “filed rate” doctrine precluded the award of

contractual damages amounting to a retroactive rate increase,

the grant of a waiver by the Commission does no violence to the

filed rate doctrine. The D.C. Circuit addressed this contention

in City of Piqua v. FERC, supra, and we adopt their reason-

ing:

“[T )he filed rate doctrine provides that a utility] can claim

no rate as a legal right that is other than the filed rate :

This court, in discussing the doctrine, stated: “The con-

siderations underlying the [filed rate] doctrine ... are

27a

preservation of the agency’s primary jurisdiction over

reasonableness of rates and the need to insure that reg-

ulated companies charge only those rates of which the

agency has been made cognizant.” City of Cleveland v.

FPC, 174 U.S.App.D.C. 1, 10, 525 F.2d 845, 854 (1976).

This purpose is unaffected by the Commission's waiver of

the notice requirement rg good cause, thus allowing

rate changes, found by the Commission to be just and

reasonable, to become effective on the date agreed by the

parties.

610 F.2d at 955.

Second, our decision today promotes each of the policies

underlying the Natural Gas Act, particularly } 4. Congress in

drafting these provisions sought to preserve the integrity of

private contractual arrangements. At the same time, Con-

gress required companies to comply with its requirements of

notice for a rate change so as to provide the Commission with

the opportunity to review rates. In so doing, Congress ex-

pressed both “its conviction that the public interest require:

the protection of consumers from excessive prices” and its

“(manifest] concern for the legitimate interests of natural gas

companies.” United Gas Pipe Line Co. v. Me mphis Light, Gas

& Water Division, 358 U.S. 103, 113, 79 S.Ct. 194, 200, 3

L.Ed.2d 153 (1958). The granting of a waiver by the Commis-

sion gives effect and preserves the integrity of the private

contractual arrangement entered into by Hall and Arkla. The

granting of a waiver, but only for good cause shown, gives

credence to the § 4 notice filing requirements drafted by Con-

gress. In remanding to the Commission, we acknowledge the

authority of the agency to review rates so as to protect con-

sumers from unauthorized, excessive prices. Finally, our deci-

sion recognizes the legitimate interests of the Hall group

whose showing of good cause entitles them to the waiver o

notice filing requirements.

REVERSED and REMANDED WITH INSTRUCTIONS

28a

Appendix “A”

A. Chronology of decisions on the contractual issues:

(2)

October 14, 1977—Louisiana state court renders ori-

ginal opinion.

May 1, 1978—Louisiana Court of Appeals affirms

with modifications.

September 22, 1978—Louisiana Supreme Court de-

nies Arkla’s petition on the interpretation of the fa-

vored nations clause.

March 5, 1979—Louisiana Supreme Court reverses

lower courts on damages for the 1961-72 contractual

period and remands.

May 17, 1979—-On remand, Louisiana state district

court enters award of damages for Hall.

October 1, 1979—United States Supreme Court de-

nies Arkla’s petition for certiorari on interpretation

of favored nations clause.

January 22, 1980—Louisiana Court of Appeals

affirms state district court entry of damages.

May 2, 1980—Louisiana Supreme Court declines to

review damages question.

(9)

(10)

July 2, 198i1—United States Supreme Court re-

verses Louisiana Supreme Court's ruling in (4)

above.

July 2, 1981—United States Supreme Court re-

mands damages question in (7) above.

B. Chronology of agency court action on primary jurisdiction

Issue:

(11)

March 8 Jie oe November %, 1976—The ( ‘ommis-

sion declines to grant Arkla’s motion fora declarato-

ry order

May 25, 19785—United States ( ourt of Appeals for

the District of Columbia Circuit remands ( ommis

s10n s orders at their request

May 18, 1979-—FERC declines to exercise primar’

jurisdiction

29a

(14) October 19, 1981—The D.C. Circuit grants motion

to dismiss appez].

C. Chronology of present action on waiver issue:

(15) November 5, 1980—The Commission denies Hall’s

request for a walver.

(16) Hall appeals in present action to United States

Court of Appeals for the Fifth Circuit.

CLARK, Chief Judge, dissenting.

The majority assumes that the Commission, in its discretion.

may and should deny Arkla the rate increase it will surely seek

as a result of today’s decision. I respectfully disagree. Under

the due process clause no public utility may be compelled to

absorb its own costs. The most basic of such costs are ex-

penditures for gas purchases, whether incurred routinely or,

as here, as the final product or protracted litigation. Because

Arkla’s ratepayers rather than Arkla received the benefit of its

noncompliance with the “most favored nation” clause in the

1960s, it follows inevitably, in my view, that the ratepayers

must bear the burden of Arkla’s belated compliance now.

This conclusion alters the analysis of this dispute for me.

Rather than weighing the equities between Arkla and Hall. the

balance must be struck between Arkla’s ratepayers and Hall.

When the Commission made this inquiry, it decided that

imposing the costs of compliance on today’s ratepayers would

be inequitable. I cannot disagree. If these ratepayers are not

the same as those who should have borne the cost twenty years

ago, the inequity is obvious. Even if the identity of the rate-

payers has remained constant, however, the effects of a

retroactive increase on the jong-completed business affairs of

innocent ratepayers would be equally unjust. In either case.

there is sufficient evidence to support the Commission's con

‘ Fi — a ;

clusion Therefore without reaching the other grounds dis

cussed by the majority. | respectfully dissent

30a

UNITED STATES COURT OF APPEALS.

FIFTH CIRCUIT.

March 14, 1983.

No. 81-4011.

Frank J. HALL. et al. P. titioners.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

Petition for Review of an Order of the Federal Energy

Regulatory Commission.

ON PETITION FOR REHEARING AND SUGGESTIONS FOR

REHEARING EN BANC

(Opinion November 26, 5 Cir., 1982, 691 F.2d 1184)

Before CLARK, Chief Judge, GARZA and JOHNSON, Cir-

cuit Judges.

PER CURIAM:

The Petition for Rehearing is DENIED. and no member of

this panel nor judge in regular active service on the court

having requested that the court be polled on rehearing en bane

(Rule 35, Federal Rules of Appellate Procedure: Local Fifth

Circuit Rule 16), the Suggestions for Rehearing En Banc are

DENIED.

CLARK, Chief Judge, dissenting:

For the reasons stated in my dissent to the panel opinion, I

dissent from the denial of panel rehearing.

To avoid an improper implication of agreement from the

aliure of any member of the pane! or judge In regular active

sla

service on the court to request that the court be polled on

rehearing en banc, I must note that only four members of this

now thirteen active judge court could initiate or participate in

such a poll. Since no senior judge is a member of the panel, none

is eligible to participate in the en banc process. In any event,

they would not have a vote in the en bane polling process. 28

U.S.C. § 46(e).

Nine judges in regular active service have disqualified them-

selves in this case. There are sound reasons for this situation.

Rulings of regulatory agencies often have a pronounced ripple

effect. This causes 28 U.S.C. § 455(b)(4) and Canon 3(C)(1) of

the Code of Judicial Conduct for United States Judges to erect

very broad barriers to a judge’s participation in appeals from

the Federal Energy Regulatory Commission.! This is in-

tensified by the only opinion of the Advisory Committee on

'28U.S.C. § 455. Disqualification of Justice, Judge, Magistrate or

Referee in Bankruptcy.

(a) Any justice, judge, magistrate, or referee in bankruptcy of

the United States shall disqualify himself in any proceeding

in which his impartiality might reasonably be questioned.

(b) He shall also disqualify himself in the following cireum-

stances:

(4) He knows that he, individually or as a fiduciary, or his

spouse or minor child residing in his household, has a finan-

cial interest in the subject matter in controversy . . .:

(d) For the purposes of this section the following words or

phrases shall have the meaning indicated:

(4) “financial interest” means ownership of a legal or equi-

table interest, however small, . . .;

(e) No = judge, magistrate, or referee in bankruptcy

shall accept from the parties to the proceeding a waiver of

any ground for disqualification enumerated in subsection

(b).

32a

Codes of Conduct specifically relevant to appeals from this

agency.”

The inclusion of such appeals in the general mix of cases

assigned to randomly selected panels of this court created an

abnormal number of disqualifications and resulted in numerous

docketing problems. In response, the court administratively

created a special panel of judges whose property ownership

would not regularly cause disqualification in Federal Power

Commission and Federal] Energy Regulatory Commission

cases. *

This “Gas Panel” solution worked acceptably until the num-

ber of judges who were not disqualified dwindled to three. At

least one judge thinks the court’s consensus interpretation for

participation standards in this class of cases is uniquely too

narrow.’ Even though it has recently risen to four, that num-

* A paragraph of Advisory Opinion 62 reads:

A judge who was the beneficial owner ofa fractional interest in

land under mineral lease to two oil companies, raised the ques-

tion as to his serving on a special panel that would have cases

before it, the disposition ot Which could result in increasing

wae of oil or gas. There is presently no production from the

and in which the judge has an interest, but he does share in

annual lease payments. Since the outcome of the proceeding

could substantially affect his beneficial interest in the leases, the

Committee concluded he had a disqualifying financial interest in

the subject matter in controversy (Doc. 180).

‘ The Judge observes:

When we decide a matter of cor orate taxation, we potentially

affect almost any corporation. When, as in this case, the panel

decides—or strongly infers—that retroactive rate increases

can't be passed on to consumers. that may well have as much

potential economic effect on panel members (as consumers of

Gas) as it does on another judge whose spouse owns a little

production, or as it does on a Judge who owns shares in a mutual

fund owning stock in a corporate party to the case before the

judge, or as it does on a ft who owns a life insurance policy

and sits on a diversity case in his own state construing life

insurance policies.

33a

ber seems to me to constitute an entirely unacceptable judicial

base to permit this court to continue to review significant

challenges to the broad-ranging and financially impactive

affairs involved in many of these appeals. Litigants are entitled

to the full statutory right of review, including hearing or

rehearing en banc.

I hasten to acknowledge that to date no litigant has ventured

a challenge to this court's competence to handle these reviews.

However, this is a situation I attribute to discretion rather

than valor or any extraordinary confidence in those few who

have recently manned the “Gas Panel” of this court.

I feel compelled to write as I do, because the denial of

rehearing could give an erroneous impression, appearing as it

does to come from the measured consideration of thirteen

judges when, in reality, it results from the fact that no “Gas

Panel” case can ever go en bane due to disqualifications. It is

also written with the hope that emphasizing the situation may

assist rectification by changing the views of presently dis-

qualifying judges or the appointing authority, or, failing in

that. through the Supreme Court's supervisory power.

sda

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 81-4011

FRANK J. HALL. ef al..

Petitioners,

FEI DERAL ENE ERGY REGULATORY COMMISSION,

Re sponde yt.

Petition For Review Of An Order Of The Federal Energy

Regulatory Commission (Louisiana Case)

3efore CLARK, Chief Judge, GARZA and JOHNSON. (

cult Judges.

BY THE COURT:

IT IS ORDERED that the Motion of Intervenor for Relief

from Order Denying En Bane Rehearing is DENIED.

U.S. COURT OF APPEALS

FILED

APR 27 1983

GILBERT F. GANUCHEAU

CLERK

joa

IN THE UNITED STATES COURT OF APPEALS,

FOR THE FIFTH CIRCUIT

UNIT A

No. 81-4011

FRANK J. HALL, ef al.,

Ps fitioners,

‘,

FEDERAL ENERGY REGULATORY COMMISSION,

Re sponde yt

Petition For Review Of An Order Of The Federal Energy

Regulatory Commission (Louisiana Case)

Before HENDERSON, ANDERSON and SAM D. JOHN-

SON, Circuit Judges.

BY THE COURT:

IT ISORDERED that the joint motion of the Federal Ener-

gy Regulatory Commission and Arkansas Louisiana Gas Com-

pany to transfer this petition for review to the United States

Court of Appeals, District of Columbia Circuit, is denied.

U.S. COURT OF APPEALS

FILED

MAR 13°81

GILBERT F. GANUCHEAU

Sha

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 81-4011

Py fiticnne rs,

, : ‘ , o> dy y*s a : ° ' .

FEDERAL ENerGy REGULATORY CoMMISSION

> }

Ri SPorwde yt

Petition For Review Of An Order Of The Federal Energy

Regulatory Commission

sefore CHARLES CLARK. Chief Judge, GARZA and SAM.

D. JOHNSON, Circuit Judges

BY THE COURT:

IT IS ORDERED that the motion of Arkansas Louisiana

Gas Co npany, Inters enor, to dismiss the petition for review 1s

denied, but will be carried along with the case

U.S. COURT OF APPEALS

FILED

NOV 16 198]

‘T F. GANUCHEAU

37a

APPENDIX B

UNITED STATES OF AMERICA

rEDERAL ENERGY

REGULATORY COMMISSION

FILED RATE DOCTRINE

CONTRACT DAMAGES

Before Commissioners: Charles B. Curtis, Chairman;

Georgiana Sheldon, Matthew Holden, Jr., George

R. Hall and J. David Hughes.

Docket No. RI76-28

ARKANSAS LOUISIANA GAS COMPANY

Vv.

FRANK J. HALL, et al.

ORDER DENYING APPLICATION FOR

WAIVER OF FILING REQUIREMENTS

(Issued November 5, 1980)?

On May 24, 1979, Frank J. Hall, et al. (the

Hall group) filed an application pursuant to Section

154.98 of the Commission’s* Regulations requesting

a waiver of the notice requirements contained in

‘This order has been modified to reflect an errata notice

issued November 6, 1980, correcting an order posted on

November 5, 1980.

?The term “Commission,” when used in the context of

action taken prior to October 1, 1977, refers to the Federal

Power Commission (FPC); when used otherwise, the refer-

ence is to the Federal Energy Regulatory Commision.

Osa

2 . > den ronrls

ss fi? pti XS (ipl POCeCCE TI) “Ss

On September 11, 1975, Arkla filed in this docket

a petition for a declaratory order construing the

favored nations clause. The Commission declined to

resolve the contractual dispute, stating in its March

1976, order that “[i]t has been Commission policy

to defer action on contract questions presented to it

involving jurisdictional sales which are pending in

Oe liste pieocaeete this decision to the

D.C. Court of Ap; while the appeal was

pending, the Commission moved for an order remand-

ing the record for further consideration. The Com-

mission’s request was granted by the court on May 235,

1978

On remand, the Commission, in an order issued

May 18, 1979, adhered to its earlier determination

to decline to exercise jurisdiction. It did so, however,

for a reason different than that enunciated in the

March 8, 1976, order. The Commission Stated that

it “bel lieve[d] the FPC’s automatic policy of deferral

of contract questions pending in state courts to the

state courts Was erroneous. Rather, the Commis-

{

sion stated, the decision to defer should turn on

whether the Commission finds that the issue involves

a matter of “primary jurisdiction.” In making this

determination, the Commission stated, it would look

to the following three factors:

1961-1972 period. In Sup. Ct. No. 79-1896, Arkla has sought

certiorari of the judgment entered by the Louisiana district

court on the remand of the damages issue.

* Mimeo, at 3.

° Arkansas Louisiana Gas Company Vv. FERC, D.C. Cir.

No. 77-1146.

't Order issued May 18, 1979, mimeo, at 6.

39a

(1) whether the Commission possesses some special

expertiae which makes the case particularly

appropriate for Commision decision;

(2) whether there is a need for uniformity of in-

terpretation of the type of question raised by

the dispute; and

(3) whether the case is important in relation to the

revelatory responsibilities of the Commission.”

After reviewing these three factors in the context of

the instant case, the Commission concluded that the

assertion of jurisdiction was unnecessary. In its dis-

cussion, however, the Commission expressed the view

that the Louisiana Supreme Court’s award of dam-

ages for the 1961-1972 period violated the filed rate

doctrine.”

iscsi the Hall group filed its application for

a waiver of the notice requirements prescribed in

Section “4(d). Arkla submitted a response and pro-

test to the application on June 8, 1979. The Hall

group filed a reply to Arkla’s response on June 13,

1979.

POSITIONS OF PARTIES

The Hall group filed its request conditionally, con-

tending that a waiver of the filing requirements is

not necessary since Section 4(d) has no applicability

to a judicial award of damages for breach of con-

tract. The Hall group then contends that if a waiver

is required, princi ples of law and equity establish

that a waiver is justified. The Hall group argues that

the only reason that it failed to comply with the

notice provisions of Section 4(d) was because Arkla

2 Jd.

13 Jd. at 10, n. 18.

40a

wrongfully concealed from the Hall er up the royalty

payments which Arkla was making to the United

States.

Arkla asserts that the requirements of Sectior

4(d) apply to the court-awarded damages because

such damages are merely the additional prices to be

paid under the 1952 contract, as inte ‘preted by the

courts of Louisiana. Arkla further asserts that the

filed rate doctrine absolutely precludes the Hall group

from collecting any damages for the period prior to

October, 1972. Arkla also denies any allegations of

wrongdoing on its part, and argues that the Hal]

group is simply seeking a windfall at the expense of

the consumer.

DISCUSSION

The Commission has before it two issues: (1) does

Section 4(d) of the Natural Gas Act apply to the

matter of damages awarded to the Hall rroup for

the 1961-1972 period? and (2) if so, is there good

sause to grant waiver of Section 4(d) in this case

and, further, accept the rates filed by the Hall group.

Both of these questions invclve the se ype of and rea-

sons for the filed rate doctrine.

Applicability of Section 4(d)

We address first the contention of the Hall group

that Section 4(d) is inapplicable here. Citing I'’est-

ern Natural Gas Co. v. Cities Service Gas Co., 507

P.2d 1236 (Okla. 1972). appeal dismissed and cert.

denied, 409 U.S. 1052 (1972) and Cities Service Gas

Company v. FPC, 535 F.2d 1278 (D.C. Cir. 1976).

the Hall group argues that a court award of damages

for breach of contract is an entirely “separate and

independent” issue from the question of rate obliga-

dla

tions imposed by Sections 4 and 5 of the Natural

Gas Act.

Section 4(d) of the Natural Gas Act provides that

a natural gas company shall not change its rates with-

out 30 days’ notice to the Commission, unless the

Commission shall, for good cause shown, waive this

requirement. There is no question that had Arkla

given the Hall group the notice of the government

royalty payments that the Louisiana courts held Arkla

was required by contract to give, the Hall group

would have been required to comply with Sections 4

and 5 of the Natural Gas Act in seeking to charge

the higher rate. The question, then, is whether con-

sideration of the matter in the context of a state

court contract action (involving rates for past sales)

takes the matter outside the purview of the Natural

Gas Act. The Louisiana Supreme Court held that

it does. We disagree.

State courts—and Federal courts as well—may

have a wide variety of actions between natural gas

companies and their customers brought before them.

Obviously, not all damage awards are barred by the

Federal preemption and the assignment of regula-

tory responsibility to this Commission, but some are.

To pick the two extremes, damages for an automo-

bile accident between an Arkla vehicle and a Hall

group vehicle are not barred, but an order in a state

court action on a contract purporting to set the rate

for prospective sales of natural gas in interstate

commerce is barred. We believe that this case is

merely the latter example presented in slichtly dif-

ferent form, and that the policy considerations under-

lying the statutory and common law establishment

of the filed rate doctrine dictate the conclusion that

the Natural Gas Act applics to Louisiana’s award of

damages to the Hall group for the 1961-1972 period.

The filed rate doctrine r

i aS eee : : hy +h * , * & ear e i. - r e

policy bases, both of which are pertinent here. The

: . > a Re on P y — . —_ 1. —— P ]

irst is the need IO} certainty as to the rates and

, ~ ‘ cai ais “ 1 ] oa " "7?

other terms governing a regulated transaction. The

;

isive jurisdiction in this agencv

ja |

Congress lodged exc

to regulate sales of natural gas in interstate com-

merce, and provided in Section 4(c) of the Natural

Gas Act that rates and charges for such sales be

kept on ue With _ Commission. Section 4(d)

provides that rates for such sales may not be changed

without idee days’ notice to the Commission. These

} }, ‘¥ ers , »

provisions have the effect of giving certainty to both

buyers and sellers of natural gas in tne

leg > . id ‘ oes - J ++) | ” 4 Tf,

market, since only the rate filed with the Commission

nay be eet

A second aspect to the filed rate doctrine is that it

ensures that the rates charged for natural gas in

interstate commerce are, in the words of Section

4(a) of the Natural Gas Act, “just and reasonal

As the courts have repeatedly held, the determin ation

of a just and reasonable rate is a mat er re

expert jt ae and the statute gives the Commis-

sion “exclusiv > powers ... to determine I

rates are to be.” Montana Dakota v. Northwestern

Public Services Co., 341 U.S. 246. 250 (1951).

In the case before us, the effect of the Louisiana

Supreme Court’s holding is to permit the collection

of a rate eg from and higher than the rate the

Hall group had on file v ee the

permit the collection of t

rT:

Commission. and to

her rate without the

1 a

Prec a that the different

Commission’s having «

and higher rate is just and reasonable.

The Louisiana Supreme Court appears to have

recognized in some respects that the award to the

Hall group has the effect of increasing the rate for

gas sold pl the 1961-1972 period above the rate

43a

on file during that period, but the Ccurt applied

Article 2040 of the Louisiana Civil Code to “consider

fulfilled” the Section 4(c) filing requirement. 368

So. 2d at 990. But state law cannot be a legitimate

basis for relieving a natural gas company of an

obligation under the Natural Gas Act. What is more,

the effect of the Louisiana decision is to undo the

certainty of the applicable rate discussed above.

The Louisiana Supreme Court did not directly con-

front the question of whether it was making a just

and reascnable rate determination and thus over-

stepping its authortiy. Rather, the Court reasoned

that it was only attempting to remedy a contract

breach, and that it was speculating about the Com-

mission’s likely response to a timely filing by the

Hall group only for the purpose of calculating the

damages that the Hall group probably suffered as a

consequence of Arkla’s breach. While we do not ques-

tion the adequacy of this reasoning under Louisiana

law, we believe the damage award constitutes a rate

increase without the Commission’s having deter-

mined that the new rate is just and reasonable, to

the detriment of the Federal statutory scheme. Sim-

ply put, if the mere fact that a state court may have

concurrent jurisdiction over a contract is sufficient

to take all disputes that might arise under the con-

tract, and all possible remedies that might be found

for breach of the contract, outside the scope of the

Natural Gas Act, then the certainty as to rates that

results from the filing requirements in Section 4(c)

and 4(d) of the Natural Gas Act is lost. and the

Commission’s exclusive jurisdiction to determine just

and reasonable rates for interstate gas is rendered

meaningless.

The case most closely on point is Montana-Dakota,

supra. Although the question at issue in Montana-

doa

Dalota wus somewhat different, since the case arose

wien plaintiff sought damages grounded in fraud in

a federal district court, there is much in JJontana-

Dakota to provide guidance here. In particular, the

court stated (541 U.S. at 251) that “[petitioner] can

claim no rate as a legal right that is other than the

filed rate, whether fixed or merely accepted by the

Commission, and not even a court can authorize

the commodity on other terms.” '* Thus,

commerce in

Louisiana courts were empowered to do

the most the

in this circumstance as to the 1961-1972 period was

to construe the contract (the Commission having dis-

claimed primary jurisdiction) and reach the conclu-

sion that under the contract the Hall group was en-

titled to file a rate increase application with the

Commission,

Cities Service is not to the contrary. There the

court found that Cities Service had breached its con-

tractual obligation to cooperate with Western in an

abandonment proceeding before the Commission. Ac-

cordingly, Cities Service was ordered to pay damages

'‘* Mr. Justice Jackson, speaking for the majority, stated

later in the opinion (341 U.S. at 252) that “if the petition-

er’s grievance arises from active fraud and deceit, it gains

nothing from the Federal Act."" As we have noted (fn. 5

supra), the Louisiana courts were unable, on the record be-

fore them, to find such active fraud or deceit. Thus we do not

believe that, in this instance, the Louisiana courts have the

authority to authorize a price other than the filed rate for

natural gas sold in interstate commerce. However, this

Commision, in determining whether good cause exists for

waiver of the notice requirements of Section 4(d), may

take into account and attribute appropriate weight to the

withholding from the Hall group of the information neces-

sary for the Hall group to determine that it was entitled

under the contract to file a rate increase application with the

Commission.

45a

to compensate Western for the money Western had

lost as a result of its inability to market its gas

elsewhere. Thus, in Cities Service, there was no dis-

pute between the parties regarding the proper inter-

pretation of the price terms of their contract. Unlike

the instant case, the damages awarded in Cities

Service did not constitute additional monies reflect-

ing a putative increase in the price at which gas

had been sold in past transactions.'* Accordingly, the

litigation in Cities Service had no impact upon the

Commission’s obligation to ensure that interstate sales

'S Put another way, the award of damages in Cities Service

did not consist of the difference between the Commission-

determined just and reasonable rate for Western’s sales to

Cities service and an alternative price for the same gas sold

and bought by the same parties, based upon an assumption

that the Commission somehow would have found the alterna-

tive price, rather than the filed rate, to be just and reason-

able. As the court stated in Cities Service (535 F.2d at

1287):

[T]he Oklahoma courts and the FPC were confronted

with separate and distinct issues—the former involving

Cities’ responsibility in a breach of contract suit for

damages caused to Western’s leasehold interests and the

latter involving Cities’ obligations under the natural gas

act to pay the just and reasonable rate for gas served

and delivered to it....

By contrast, in the instant case the Louisiana courts have, in

effect, determined a rate that, in their view, should have been

the just and reasonable rate—a determination that is within

this Commission’s exclusive jurisdiction. See Montana-

Dakota, supra. The Cities Service decision (535 F.2d at

1287) lists a number of other factors, in addition to the

price of the gas as sold to Western, that the Oklahoma court

took into account in determining damages. In the instant

case, there are no factors other than the difference between

the filed rate and the rate the Louisiana courts thought

appropriate under the contract.

dia

of gas are mace in aceordence with the rate and

dling requirements prescribed in Sections 4 and 3.

B. Merits of Hall’s Request for Waiver of Section

‘(d)

This holding does not, however, end the inquiry.

The Mail soup has asked in the alternative that we

Waive tne filing requirements of Section 4(d) for

good cause so as to give effect to the Louisiana

court’s findine on the contract as of 1961

in the circumstances of this case, we ave unable to

conclude that good cause exists to waive the Section

4(d) filing requirements. The basis for our view

that waiver would be inappropriate is the long-

established “statutory bias” sezinst retroactive rate

increases." What makes the rate increases in this

Case particularly unacceptable is the uncom monly

severe nature of the retroactivity proposed. Hall is

here attempting to expese consumers to a potential

liability for higher rates beginning in 1961 and con-

tinuing for scme 11 vears thereafter. This we simply

cannct sanction.

We are also very concerned about the possible un-

settling effect that a waiver in this case might have

on other gas purchase transactions. If the Hall group

is granted a higher rate for its gas effective in 1961.

there is a strong likelihood that claims would arise

asserting that this increase tricezered the operation

of indefinite price escalator provisions" in other

'* Gillring V. FERC, 566 F.2d 1323, 1325 (5th Cir., 1978)

describing the effect of the filed rate doctrine.

In 1961, the Commission outlawed most indefinite pric-

ing provisions in newly-executed contracts. Such provisions

in existing contracts, however, could continue to operate.

Order No. 232, 25 FPC 379 (1961); The Pure Oil Company,

25 FPC 383 (1961).

47a

contracts in the Sligo Field geographical area, quite

possibly involving pipelines other than Arkla."* This,

of course, would open the door to additional rate

increase requests and requests for waiver for the

same period. As a matter of pclicy, we do not be-

lieve it is in the public interest to take actions in

the name of equity that have the potential for reopen-

ing transactions which took place almost 20 vears

azo. The potential impact of such reopenings on our

regulatory responsibilities appears substantial.

Finally, we confess that we are at least troubled by

the prospect of speculating as to what the Commis-

sion would or would not have done in 1961 had it been

confronted at that time with a rate increase filing

by the Hall group. The filing would, of course, have

been based upon the Hall group's contention that a

royalty payment activated its favored nations clause.

Since a question of contractual authorization for the

rate increase would have arisen, the Commission, we

believe, would almost certainly have either suspended

or rejected the filing.” Whether the Commission in

'SOur records indicate that there may be a number of

contracts so affected. Some contracts signed by other Pipe-

lines contain clauses which are triggered upon the payment

of a higher price by any buyer in a geographical area.

We declined to assert our primary jurisdiction in the

May 18, 1979 order in large part because we perceived no

significant effect upon our regulatory responsibilities re-

sulting from an interpretation of the favored nations clause

favorable to the Hall group. Had we not believed that the

filed rate doctrine banned a rate increase (through dam-

ages) for the 1961-1972 period, we no doubt would have had

serious misgivings about declining jurisdiction over the ques-

tion of contract interpretation.

*°The Louisiana Supreme Court assumed that the Com-

mission would have accepted the filing, based upon the No-

vember 8, 1976, order of the FPC. 368 So.2d at 991. How-

1961 would have provided a forum for resolving the

contractual dispute is a question we cannct answer

definitively; under the grounds asserted by the FPC

in 1976 for disclaiming primary jurisdiction over

the contract interpretation question and under the

different grounds adopted by the Coninission in its

May 18, 1979, order, the Commission would have

taken jurisdiction over the contract interpretation in

1961. At that time, the Commission might well have

concluded that the favored nations clause was not

triggered. More importantly, even if the Commission

in 1961 had reached the same contractional interpre-

tation as the Louisiana court, the Commission might

have determined that the public interest would not

permit the grant of rate increases based upon the

triggering of favored nations clauses even in exist-

ing contracts.”

We recognize the determination of the Louisiana

courts that the Hall group did not file for a rate

increase in 1961 because Arkla withheld from the

Hall group information that the Louisiana courts

found Arkla was required to give the Hall group,

and we realize that as between the Hall group and

Arkla, the equities are favorable to the Hall group.

But the Louisiana courts did not find active fraud

or deceit in this withholding of information, and our

own review of the record before us leads us to con-

ever, neither the FPC in 1976 nor the Commission today

purports to declare what the FPC’s actions would have been

in 1961.

2! As we have already noted, the Commission acted in 1961

to outlaw indefinite pricing provisions and deny effect to

newly-executed contracts. If the Commission had extended

this policy to such clauses in existing contracts, it might

have done so only where government royalty payments were

involved; or it might have done so across-the-board.

49a

clude that Arkla could have reasonably assumed that

the government royalty payment did not trigger the

-indefinite price escalator in the contract with the

Hall group. More importantly, as is discussed at some

length above, we must place this particular case in

the context of our broader regulatory responsibilities.

And on balance, after considering the matter in this

broader context, we cannot accept the potential for

disruption of natural gas markets or the speculation

as to how our predecessors would have acted nineteen

years ago. Therefore, we deny waiver.

In summary, we find that good cause does not

exist to waive notice provisions of Section 4(d). Ac-

cordingly, the Hall group’s application will be denied.

The Commission orders:

The Hall group’s request for a waiver of the filing

requirements prescribed in Section 4(d) of the Nat-

ural Gas Act is denied.

By the Commission.

[SEAL]

/s/ Kenneth F. Plumb

KENNETH F. PLuMB

Secretary

50a

APPENDIX C

ARKANSAS LOUISIANA GAS CO. v. HALL ET AL.

CERTIORARI TO THE SUPREME COURT OF LOUISIANA

No. 78-1789. Argued April 20, 1981—Decided July 2, 1981

In 1952, respondent natural gas producers and petitioner

entered into a contract under which respondents agreed to sell

petitioner natural gas from a certain gas field in Louisiana. The

contract contained a fixed price schedule and a “favored na-

tions clause,” which provided that if petitioner purchased gas

from the gas field from another party at a higher rate than it

Was paying respondents, then respondents would be entitled

to a higher price for their sales to petitioner. In 1954, respon-

dents filed the contract and their rates with the Federal Power

Commission (now the Federal Energy Regulatory Commis-

sion) and obtained from it a certificate authorizing the sale of

gas at the specified contract rates. In 1961, petitioner pur-

chased certain leases in the same gas field from the United

States and began producing gas on its leasehold. In 1974,

respondents filed an action in a Louisiana state court, contend-

ing that petitioner's lease payments to the United States had

triggered the favored nations clause. Because petitioner had

not increased its payments to respondents as required by that

clause, respondents sought as damages an amount equal to the

difference between the price they actually were paid in the

intervening years and the price they would have been paid had

that clause gone into effect. Although finding that the clause

had been triggered, the trial court held that the “filed rate

doctrine,” which prohibits a federally regulated seller of natu-

ral gas from charging rates higher than those filed with the

Commission pursuant to the Natural Gas Act, precluded an

award of damages for the period prior to 1972 (the time during

which respondents were subject to the Commission’s jurisdic-

tion). The intermediate appellate court affirmed, but the

Louisiana Supreme Court reversed, holding that respondents

were entitled to damages for the period between 1961 and 1972

notwithstanding the filed rate doctrine. The court reasoned

5la

that petitioner's failure to inform respondents of the lease

payments to the United States had prevented respondents

from filing rate increases with the Commission, and that if they

had done so the increases would have been approved.

Held: The filed rate doctrine prohibits the award of damages

for petitioner's breach during the period that respondents

were subject to the Commission's jurisdiction. Pp. 576-585.

(a) The Natural Gas Act bars a regulated seller of natural

gas from collecting a rate other than the one filed with the

Commission and prevents the Commission itself from imposing

a rate increase for gas already sold. Here, the Louisiana Su-

preme Court's ruling amounts to nothing less than the award of

a retroactive rate increase based on speculation about what the

Commission might have done had it been faced with the facts of

this case. This is precisely what the filed rate doctrine forbids.

It would undermine the congressional scheme of uniform rate

regulation to allow a state court to award as damages a rate

never filed with the Commission and thus never found to be

reasonable within the meaning of the Act. Pp. 576-579.

(b) Congress has granted exclusive authority over rate

regulation to the Commission, and, in so doing, withheld the

authority to grant retroactive rate increases or to permit

collection of a rate other than the one on file. It would be

inconsistent with this purpose to permit a state court to do

through a breach-of-contract action what the Commission may

not do. Under the filed rate doctrine, the Commission alone is

empowered to approve the higher rate respondents might

have filed with it, and until it has done so, no rate other than the -

one on file may be charged. The court below thus has usurped a

function that Congress has assigned to a federal regulatory

body. Cf. Chicago & North Western Transp. Co. v. Kalo Brick

& Tile Co., 450 U.S. 311. This the Supremacy Clause will not

permit. Pp. 579-5x2.

between the filed rate and the contract rate, the filed rate

prevails. P. 5x2.

oza

(d) Permitting the state court to award what amounts to a

retroactive right to collect arate in excess of the filed rate “only

accentuates the danger of conflict,” and

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