Petition for Writ of Certiorari — Federal Power Commission v. Consumer Federation of America

Supreme Court brief1975

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CITATIONS

Cases:

Federal Power Commission v. Texaco,

Inc., 417 U.S. 380 7,11

Permian Basin Area Rate Cases, 390 U. Ss.

Statutes and regulation:

Natural Gas Act, 52 Stat. 821, et seq., as

amended, 15 U.S.C. 717, et seg. _.____..3, 110a

Section 4, 15 U.S.C. 717¢ 2, 11, 12,

110a-113a

REAM TOAST TREN TL NOLEN NLS ED EOE TEN

TIE POE IOI IE ISLE LE E LICIGT LED

Statutes and regulation—Continued Page

Section 5, 15 U.S.C. 717d __-......... 2, 11, 12,

118a-1l4a

Section 7, 15 U.S.C. 717f 2, 3, 114a-118a

Section 7(c), 15 U.S.C. 717f£(¢c) 2, 3, 7,

8, 9, 115a-116a

Section 16, 15 U.S.C. 7170... 2,119a

18 C.F.R. 154.38(d) (4) (iv)... 12

Miscellaneous:

14 Fed. Reg. 682 (1949)

21 Fed. Reg. 9166 (1956) =

21 Fed. Reg. 9167 (1956) =

29 Fed. Reg. 4879 (1964)... CT

34 Fed. Reg. 17331 (1969)...

35 Fed. Reg. 19174 (1970). 2

Hearings on Natural Gas Amendments

before the House Committee on Inter-

state and Foreign Commerce, 77th

Cong., Ist Sess. (1941) 10

H.R. Rep. No. 1290, 77th tenia Ist Sess.

i | eas : 10

ooo oO SO

In the Supreme Court of the United States

OCTOBER TERM, 1975

No.

FEDERAL POWER COMMISSION, PETITIONER

Vv.

CONSUMER FEDERATION OF AMERICA, ET AL.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE DISTRICT OF COLUMBIA CIRCUIT

The Solicitor General, on behalf of the Federal

Power Commission, petitions for a writ of certiorari

to review the judgment of the United States Court of

Appeals for the District of Columbia Circuit in this

case,

OPINIONS BELOW

The opinion of the court of appeals (App. A, infra,

pp. la-30a) is reported at 515 F. 2d 347. The initial

order (No. 491) of the Federal Power Commission

(App. C, infra, pp. 38a-41a), its order (No. 491-A)

modifying procedures on reconsideration (App. D,

infra, pp. 42a-75a), its order (No. 491-B) on recon-

sideration ‘App. E, infra, pp. 76a-104a), and its

(1)

PDI EEL EOE LL ONG IO LE LIES TIT IT IE OE I OT LE: RE ORD pele

Badman

Bi REARS READE TUNES UE EDN IW Pie Nes

order (No. 491-C) denying rehearing (App. F, in-

fra, pp. 105a-109a) are reported at 50 FPC 742,

848, 1463, and 1634, respectively.

JURISDICTION

The judgment of the court of appeals was entered

on March 13, 1975 (App. B, infra, pp. 3la-32a). On

June 4, 1975, the Chief Justice extended the Com-

mission’s time for filing a petition for writ of certio-

rari to and including July 11, 1975. On July 2, 1975,

Mr. Justice White further extended the Commission’s

time for filing a petition for a writ of certiorari to

and including August 10, 1975. The jurisdiction of

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

Section 19(b) of the Natural Gas Act, 15 U.S.C.

717r(b).

QUESTION PRESENTED

Whether the Federal Power Commission has au-

thority under the proviso of Section 7(c) of the

Natural Gas Act, 15 U.S.C. 717f(¢c), to exempt from

normal certification requirements emergency short-

term sales of natural gas to pipelines experiencing

a supply shortage, when the rates of such sales will

ultimately be reviewed by the Commission under the

standards of Sections 4 and 5 of the Act.

STATUTES INVOLVED

Sections 4, 5, 7, and 16 of the Natural Gas Act,

as amended, 15 U.S.C. 717c,°-717d, 717f, and 7170,

are set forth in Appendix G, infra, pp. 110a-119a.

STATEMENT

The court of appeals set aside orders of the Fed-

eral Power Commission amending certain of the |

Commission’s regulations under the Natural Gas Act,

52 Stat. 821, et seq., as amended, 15 U.S.C. 717, et ‘

seg. The amendments were designed to minimize the _

immediate impact on natural gas consumers of an

acute supply shortage during the 1973-1974 winter

heating season by permitting pipelines experiencing

system shortages during that season to make emer-

gency short-term purchases of natural gas without

Commission certification under Section 7(c) of the

Act, 15 U.S.C. 717f£(c).

1. In Order No. 491 (App. C, infra, pp. 33a-41a) é

—issued on September 14, 1973, without prior no-

tice or hearing because of the need for immediate —

action (id. at 34a)—the Commission invoked its au-

thority under the proviso of Section 7(c) to “exempt

from the requirements of this section temporary acts

or operations for which the issuance of a certificate

will not be required in the public interest.” It

amended its regulations under the Act to extend from

60 days to 180 days the period within which a pipe-

line experiencing a system shortage may make emer-

gency purchases of natural gas without Commission

certification under Section 7.1 The order provided

that these amendments would be effective only until

? Sixty-day authority had been in effect for the prior three

years (44 FPC 1574).

ea eee ee a ne te |

ALMA DIRT IME LONE RI PNET AEP EI ALES ERT I

March 15, 1974, the end of the winter heating sea-

son (id. at 40a).

The Commission acted on the basis of a staff re-

port that had forecasted intensified shortages during

the 1973-1974 winter heating season, leading to severe

pipeline curtailments in several regions of the coun-

try. The order stated (id. at 37a):

Such curtailments will result, as they did last

year, in severe economic and environmental con-

sequences, resulting in the closing of schools and

factories, the denial of utility service to new

customers, the utilization by industry and elec-

tric utilities of alternate fuels which impact

upon ambient air quality standards, and the

transfer of unfulfilled demand to other fuels

in short supply with the resultant upward price

pressures.

2. On September 25, 1973, after the filing of ap-

plications for rehearing, the Commission issued Order

No. 491-A (App. D, infra, pp. 42a-75a), in which it

reaffirmed and further documented its judgment that

the gas shortage would result in severe economic in-

jury during the impending winter season (id. at 44a-

50a). “he order explained that it was necessary to

extend the emergency purchase period from 60 days

to 180 days in order to assure sellers “a more definite

market” for their gas and thereby to make interstate

sales more attractive to them (id. at 52a). The Com-

mission stated that it would “closely monitor and re-

view the results of these emergency procedures * * *

and will determine whether any modification is neces-

sary to serve the public interest” (id. at 54a).

The Commission also indicated that it would de-

termine whether the rates of emergency pipeline pur-

chases are just and reasonable by reviewing the pipe-

. lines’ purchased gas costs in pipeline rate proceed-

ings. “[T]he rates at which any emergency pur-

chases are made pursuant to this order will be sub-

ject to our full regulatory review subject to Sections

4 and 5 of the Natural Gas Act” (id. at 56a).*

3. On November 2, 1973, after the submission of

comments by interested parties, the Commission is-

sued Order No. 491-B (App. E, infra, pp. 76a-104a)

modifying Order No. 491 in part but reaffirming the

extension of the emergency purchase period to 180

days. The order stated that “a six month sale is —

FLIER OT IWS YF PNM ye Cotter

often necessary in order to justify the financial in- ©

vestment necessary to secure a sizable package of ©

gas for the interstate market” (%d. at 83a). More- —

over, “sales over a six-month period will assure that —

the supplies thereby elicited will be available through- :

out the winter heating season and not for just a part ©

thereof” (id. at 84a). The order referred to sta- —

tistics showing that Order No. 491 had already elic- —

ited a substantial amount of gas that would not other- —

wise have been available for the interstate market, ©

2 The order also provided that, while the effectiveness of ©

Order No. 491 would not be deferred, interested persons could

promptly file written comments concerning the emergency —

measures, and the Commission would issue a further order ©

in light of those comments (App. D, infra, p. 54a). On October —

8, 1973, the court of appeals stayed Order No. 491 pending ©

final action by the Commission after receipt of the public com- |

ments invited by Order No. 491-A.

LS ETT NT NTT IE EL LIE ETN SR SIT NT

pene, PRET

SE RO SR) LOC ERR VOSS

and that the order had resulted in no increase in the

average cost of the gas (id. at 85a-86a).

Order No. 491-B also discussed in detail the Com-

mission’s authority to extend the emergency purchase

period to 180 days and answered the contentions of

some parties that the Commission’s action amounted

to impermissible deregulation (id. at 87a-95a). It

emphasized that consumers would be fully protected

against unreasonable price increases, because the

Commission “will scrutinize the rates of all emer-

gency purchases in the review of purchased gas costs

in pipeline rate proceedings” and “will permit the

pipeline to pass on to the consumer the rates of

emergency purchases only when such rates can be

shown to have been required by the public interest”

(id. at 91a; emphasis in original).*

In addition, the Commission stated that it would

closely monitor volumes and prices of all emergency

sales and would be free “to initiate such action as

may be required with respect to specific sales which

appear to be inconsistent with the public interest”

(ibid.). Finally, the order expressed the Commis-

sion’s judgment that any price increase that might

result from the extension to 180 days would be mini-

mal and, in view of the severe economic impact of

the shortages that would otherwise occur, justified in

the public interest (id. at 93a-95a).

3’ Thus, while the producers would not be required to refund

collected rates that were later determined to be too high (App.

E, imfra, p. 92a), the consumer would not bear the cost burden

of a pipeline’s unreasonable purchases.

aad ATOR ITER YS LER RT A ee et Ne REL TR NE TREE PRES PBT EE PM RAN TESS ith

4. On November 6, 1973, several parties who had

previously filed petitions for review of Order No. 491

applied to the court of appeals for a stay pending

review. The court of appeals granted a stay on De-

cember 10, 1973, but this Court vacated it on De-

cember 20, 1973 (414 U.S. 1117).

5. The court of appeals thereafter set aside the

Commission’s orders (App. A, infra, pp. la-30a). It

held that the exemption authority conferred on the

Commission by the Section 7(c) proviso is appli-

cable only to innocuous temporary purchases “ior

which a hearing would be superfluous” (id. at 15a);

it may not properly be used “to excise [from the

certification requirement] large-volume, long-dura-

tion, widespread deliveries of gas” like those contem-

plated by the Commission’s orders (id. at 17a).

The court also held that the Commission’s indirect

method of determining the reasonableness of the rates

charged by producers for emergency pipeline pur-

chases was inadequate under the principles of this

Court’s decision in Federal Power Commission v.

Texaco, Inc., 417 U.S. 380, because the orders fail

“to insure that the rates paid to producers [are] just

and reasonable” (App. A, infra, p. 23a), fail to “set

forth [the] standard of indirect regulation with

‘requisite clarity’ to provide assurance that the rates

‘ultimately borne by the consumer are just and rea-

sonable’” (id. at 25a), and fail “to provide pipelines

with standards to guide them in latitude contem-

plated in contracting for emergency purchases” (id.

at 26a).

ER WDES ME eh yh PTA REPS AGAR aT ett ae Peete oe es Dt Braker or) ons LEIP IS eR 2-H = |

REASONS FOR GRANTING THE WRIT

This case presents an important issue concerning

the Federal Power Commission’s authority under the

Natural Gas Act to adopt effective measures to per-

mit natural gas pipelines to make emergency, short-

term purchases of gas during periods of high demand

when they experience a system shortage. The court

of appeals construed the proviso to Section 7(c) ef

the Act in a way that effectively negates the exemp-

tive authority conferred upon the Commission.

Although the administrative orders at issue here

expired in March 1974, the statutory question has

continuing urgent importance in the administration

of the Act. Prompt resolution of that question by

this Court is needed to permit the Commission effec-

tively to fulfill its statutory responsibilities in the

face of a chronic shortage of natural gas that be-

comes particularly acute during winter heating pe-

riods.

1. The proviso to Section 7(c) of the Act gives the

Commission authority to depart from the normal

certification procedures in two situations. First, the

Commission “may issue a temporary certificate in

cases of emergency, to assure maintenance of ade-

quate service or to serve particular customers, with-

out notice or hearing, pending the determination of

an application for a certificate * * *.” Second, the

Commission “may by regulation exempt from the

requirements of this section temporary acts or oper-

ations for which the issuance of a certificate will

not be required in the public interest.”

AA NOTA CITI DIY Gh IE A CPOE IER TOI PRON IN Foc ORE HT ROMNEY WRN He

Whereas the temporary certificate clause applies to

emergency operations that are intended to be perma-

nent, the exemption clause applies to operations that

are intended to meet transitory needs. The Commis-

sion’s orders in the present case are bottomed upon

its exemptive authority rather than its temporary

certificate authority.

The Commission has always construed the exemp-

tion clause to apply to large-scale, temporary pur-

chases necessary to meet emergency needs.‘ Nothing

in the language or history of the Act precludes that

interpretation.’

All that the meager legislative history reveals is

that the Section 7(c) proviso was designed to permit

the Commission to respond effectively to emergencies

that threaten the maintenance of adequate service.*

*See Order No. 148, 14 Fed. Reg. 682 (1949); Order No.

192, 21 Fed. Reg. 9166 (1956); Order No. 193, 21 Fed. Reg.

9167 (1956); Order No. 280, 29 Fed. Reg. 4879 (1964); Order

No. 391, 34 Fed. Reg. 17331 (1969); Order No. 418, 35 Fed.

Reg. 19174 (1970).

* Even if the court of appeals correctly inferred that the

temporary certificate authority was meant to apply only to

small-scale operations (App. A, infra, pp. 13a-14a), there is

no support for its further inference (id. at 14a-15a) that the

exemption authority must be applicable only to even smaller-

scale operations. An assumed purpose to limit the Commis-

sion’s authority with respect to transactions of extended dura-

tion, which may induce long-term consumer reliance, does not

necessarily or even probably imply a purpose to impose the

same limitation with respect to transactions of relatively brief

duration.

*See letter from Leland Olds, Chairman, Federal Power

Commission, to Clarence F. Lea, Chairman, House Committee

The proviso should be read, in accordance with that

purpose, to permit an effective response to the chronic

seasonal emergencies that we are now experiencing,

even though such chronic emergencies may not have

been foreseen by Congress when it enacted the leg-

islation.

As this Court stated in Permian Basin Area Rate

Cases, 390 U.S. 747, 776, “the width of administra-

tive authority must be measured in part by the pur-

poses for which it was conferred,” and “the Com-

mission’s broad responsibilities therefore demand a

generous construction of its statutory authority.”

The court of appeals’ “narrow construction” (App.

A, infra, p. 19a) of the Commission’s exemptive au-

thority would leave the Commission largely power-

less to take the extraordinary steps that may be nec-

essary to fulfill its broad responsibility to ensure the

maintenance of adequate service during periods of

acute shortage and heavy demand.

2. That result is not required by “the overall pur-

pose of §7 to provide a scrutiny [of rates] needed

in the public interest” (ibid.). Although the certifi-

cation process ordinarily serves the important func-

tion, pending subsequent full-scale rate review, of

ensuring that a producer’s initial price is consistent

with the public interest, the regulatory scheme es-

on Interstate and Foreign Commerce, dated August 2, 1941,

reproduced in Hearings on Natural Gas Amendments before

the House Committee on Interstate and Foreign Commerce,

77th Cong., Ist Sess. 81 (1941); see also H.R. Rep. No. 1290,

77th Cong., 1st Sess. 3, 5 (1941).

tablished by the Commission’s orders in this case

reduces the need for that initial rate scrutiny.

In ordinary circumstances, an unreasonably high

initial rate could substantially burden the consum-

ing public for many years before the Commission’s

plenary rate review procedures could be concluded;

scrutiny at the certification stage is for that reason

essential. But the emergency purchase procedure in-

volved here provides for full rate review by the Com-

mission at the pipeline level under the rate standards

of Sections 4 and 5. Since the Commission will not

allow any unreasonably high producer rate to be

passed on to the consumer by the pipeline, the con-

sumer is assured of full protection notwithstanding

the absence of an initial price scrutiny at the cer-

tification stage.

3. The scheme of indirect rate regulation estab-

lished by the Commission’s orders is valid under the

principles of Federal Power Commission v. Texaco,

Inc., 417 U.S. 380. The Court there held that “the

Commission is free to engage in indirect regulation

of small producers by reviewing pipeline costs of

purchased gas, providing that it insures that the

rates paid by pipelines, and ultimately borne by the

consumer, are just and reasonable” (id. at 401).

The Court set aside the Commission’s order in that

case, however, because the order did not provide with

“requisite clarity” (id. at 397) that the “just and

reasonable” standard of Sections 4 and 5 would gov-

ern the Commission’s producer rate review at the

pipeline level.

te f

= ONESIES OTL IOS DEAS

;

There is no such deficiency in the present orders.

They unambiguously provide that “the rates at which

any emergency purchases are made pursuant to this

order will be subject to our full regulatory review

subject to Sections 4 and 5 of the Natural Gas Act”

(App. D, infra, p. 56a). The Commission has accord-

ingly suspended numerous proposed rate increases

filed by pipelines seeking to flow through the cost of

gas purchased under the orders involved in the present

case,’ and its suspension orders clearly reflect that

the just and reasonable standard of Sections 4 and

5 is to be controlling.*

Although Order No. 491 does not separately enum-

erate the considerations that the Commission will

take into account in determining whether an emer-

gency purchase rate is just and reasonable, the statu-

tory standard has been given content over the years,

and no person knowledgeable in the industry would

*The court of appeals erroneously stated that “[u]nder

[purchased gas adjustment] clauses pipelines may be able to

pass on their increased gas expenses from Order 491 purchases

without filing a rate increase under § 4” (App. A, infra, pp.

25a-26a, n. 72). The fact is that every proposed rate change

by a pipeline, even under an approved purchase gas adjust-

ment clause, must be filed with the Commission under Section

4 of the Act and is subject to suspension, investigation, and

review by the Commission. See 18 C.F.R. 154.38 (d) (4) (iv);

Order No. 452-A, 47 FPC 1510, 1510-1511.

® See, e.g., El Paso Natural Gas Co., Dkt. Nos. RP72-155,

et al. (order issued March 29, 1974), in which the Commission

suspended a proposed pipeline rate increase because “[o]ur

review of the proposed rate increase indicates that all of the

purchased gas costs comprising such rate have not been shown

to be just and reasonable and may be unjust, unreasonable,

unduly discriminatory ¢ or eaerwine honcscseoall (pp. (1-2).

Boats See eR Toh ret Et i ie eh ce ea eee —— r

likely be mystified by its application here. Moreover,

recent orders setting hearing dates in pipeline rate

increase proceedings give clear guidance concerning

the relevant considerations.’

4. Although the 180-day emergency purchase pro-

cedures established by the orders in this case were

terminated in March 1974, the question presented by

this petition is of substantial continuing importance

to the administration of the Act.” The emergency

procedures, while they were in effect, attracted sig-

nificant increased supplies to the interstate market."

There is no dispute that supply shortages in forth-

coming winter heating seasons will be at least as

*For example, in Northern Natural Gas Co., Dkt. Nos.

RP71-107, et al. (order issued July 7, 1975), the Commission

directed the respondent producers to submit cost evidence re-

lating to their emergency sales, and directed the respondent

pipeline to “submit evidence as to (1) its need for the gas, (2)

the availability of other gas supplies, (3) the amount of gas

purchased from the producer involved under the emergency

provisions of Order No. 491, as amended, (4) the rates of

other producer sales under Order No. 491 approved for flow

through, and (5) the prevailing prices in the area for both

interstate and intrastate sales of gas” (p. 3).

*° The case is not moot. As the court of appeals’ opinion

indicates, the Commission will be required on remand, if the

court’s judgment is sustained, to consider whether producers

that sold gas under the orders should be required to refund to

purchasing pipelines any portion of the price that was in

excess of the just and reasonable rate.

™ The Commission’s data show that the 180-day procedure

elicited approximately 196 million Mcf of gas in the period

September 1973 to September 1974. By comparison, the 60-

day emergency purchase procedure had elicited only 89 million

Mcf in a comparable period a year earlier.

PED 6s

severe as they have been in the past. In order effec-

tively to minimize the deficiencies, and thereby to

ameliorate the resulting economic and social disrup-

tions, the Commission needs to know what tools it

may legitimately employ to attract otherwise unavail-

able supplies to the interstate market during the crit-

ical high demand periods. Under the decision of the

court of appeals, the Commission would be deprived

of one such important tool which has proved to be

effective. The statutory issue presented here warrants

review by this Court.

CONCLUSION

The petition for a writ of certiorari shoulc be

granted.

Respectfully submitted.

ROBERT H. BORK,

Solicitor General.

MARK L. EVANS,

Assistant to the Solicitor General.

DREXEL D. JOURNEY,

General Counsel,

ROBERT W. PERDUE,

Deputy General Counsel,

ALLAN ABBOT TUTTLE,

Solicitor,

JOHN R. STAFFIER,

WILLIAM J. GREALIS,

Attorneys,

Federal Power Commission.

AuGustT 1975.

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

5 ges

No. 73-2009

CONSUMER FEDERATION OF AMERICA

AMERICAN PuBLIC GAS ASSOCIATION

AMERICAN PUBLIC POWER ASSOCIATION

NATIONAL LEAGUE OF CITIES—UNITED STATES

CONFERENCE OF MAYORS, PETITIONERS

SM EI TED he RTE RANE ETE 25 ORY GF

Vv.

Oe Sr wy

FEDERAL POWER COMMISSION, RESPONDENT

THE PUBLIC SERVICE COMMISSION FOR THE

STATE OF NEW YORK

ASSOCIATED GAS DISTRIBUTORS

TEXAS GAS TRANSMISSION CORPORATION &

TRANSCONTINENTAL GAS PIPELINE CORPORATION, :

INTERVENORS e

Petition for Review of an Order of the

Federal Power Commission

Decided March 18, 1975

* * * * £

Before: DANAHER, Senior Circuit Judge, LEVEN-

THAL and WILKEY, Circuit Judges

thinonomanmennemeumeneen TENE MANETTE EE GBT ORE RT RRM ER AER IR TRC: AAI —

Opinion for the Court filed by Circuit Judge

LEVENTHAL.

LEVENTHAL, Circuit Judge: Petitioners seek re-

view of 1973 Federal Power Commission orders, Or-

der 491 and its supplements, which were based on

projected gas shortages during the 1973-74 winter

heating season. The challenged orders, for conven-

ience referred to collectively as Order 491, exempted

from the certification requirement of section 7 of the

Natural Gas Act sales of 180 days duration made to

pipelines experiencing or facing threatened curtail-

ment of service. Under the 180 day exemption, pro-

ducers were permitted to enter into contracts with

eligible pipelines at any price and without risk of

subsequent refund orders." The FPC proposed to

protect the consumer by allowing pipelines to pass on

only those purchased gas costs “shown to have been

required by the public interest.” *

Petitioners contend that the 180 day exemption

constitutes an impermissible deregulation of producer

sales in violation of the “just and reasonable” rate

requirement of §§4 and 5 of the Act and the re-

quirement of §7 that new sales and service are

permitted only under a certificate that they further

the public convenience and necessity. The Commis-

sion responds that its order are a proper exercise

of its power under §7(c) to exempt “temporary

1 See Order No. 491-B, November 2, 1973, at 14.

2 Id. at 13.

3 See Brief for Petitioners at 28.

[es vel Bux. Beet RSP THO A et Rh AT ht RSD Me NICS Sau t Fim lt cesta IAL Sindee ad QIK MN PLS Dg Sie Sa Ale ll *

acts or operations” from the § 7 certification require-

ment.‘ We conclude that the Commission has

stretched unduly its narrow § 7 exemption authority

and has failed to establish a valid scheme of in-

direct regulation. Accordingly, we set aside the chal-

lenged orders. For the reasons set forth in part

IV of the opinion, we remit petitioners’ refund re-

quest for FPC consideration in the first instance.

I. BACKGROUND

An FPC staff survey revealed in 1970 that ade

quate gas supplies might not be available for the —

1970-71 winter heating season.’ In response to the

anticipated shortfall, the Commission adopted Order

402, May 6, 1970, authorizing intrastate distribution

companies to make 60 day resales of gas to jurisdic-

tional pipelines without FPC approval or risk of

becoming a “natural gas company” subject to Com-

mission regulation.* Subsequently, the Commission

issued Order 418 which modified regulations to per-

mit 60 day purchases from independent producers

“where an emergency exists on the pipeline’s sys-

| tem.” * The FPC noted in April, 1971, that despite

LEPC TATED POPU

eats Calas

WR Re Or 99,

* See Brief for Respondent at 23.

> See Order 431, 45 FPC 570, 571 (1971).

° 43 FPC 707 (1970) (Adding new section 2.68 to the FPC’s

Statement of General Policy and Interpretations under the

Natural Gas Act).

*44 FPC 1574 (1970) (amending 18 C.F.R. §§ 157.22 and

157.29).

LAPT L IE IT LIE OER NE MC EIS ISLA Rf BP gh SF Hed

ery ee a te ett et i ee ae) 9 tN amtIEN PIA. De AIP IW by

“these emergency measures” a number of pipelines

were unable to meet their firm demands.‘ In order

to forestall emergencies during the next winter the

Commission in Order 431 extended the 60 day ex-

emption and decided to “consider limited-term cer-

tificates with pre-grant abandonment, if the pipeline

demonstrates emergency need.”’* None of these early

measures were challenged in the courts.”

Another staff study of gas supplies, released July

16, 1978, projected “net curtailments of firm re-

quirement customers of the major interstate pipe-

lines” of 1.2 trillion cubic feet (tef) during the

April, 1978, to March, 1974, period with a .5 tef

shortfall during the 1973-74 winter." The study

found “reliable and adequate gas service even more

jeopardized than at the juncture when [the Com-

mission] initiated emergency measures” in 1970.”

Concluding that further steps were necessary to

prevent “severe economic and environmental conse-

quences,” the Commission, without notice or oppor-

tunity for comment, issued Order 491 on September

14, 1973."" The order exempted from § 7’s certifica-

tion requirement emergency sales, if deliveries com-

menced before March 15, 1974, even though they ran

* See Order 431, 45 FPC 570, 571 (1971).

* Id. at 572.

1° See Order 491-A, 50 FPC 848, 853 (1973).

1 See Order 491, 50 FPC 742, 743 (1973).

2 Td.

18 See id. at 742-743.

ah SEES OT Te aI FP UY LINE LEE FAR ETN AMO BUA RR MB SAC TMM RE

for a period as long as 180 days. Order 491 also

suspended the limited-term certificate procedure of

Order 431 “pending further study and order of the

Commission.” *

On September 20, petitioners—Consumer Federa-

tion of America, American Public Gas Association

and National League of Cities-United States Con-

ference of Mayors *—sought leave to intervene and

moved for rehearing and a stay of Order 491. Next

day they filed a motion for stay in this court, claim-

ing that the Commission’s order had been adopted

in violation of the Administrative Procedure Act

and the Natural Gas Act." The FPC denied pe-

titioners’ stay application in Order 491-A, Septem-

* See id, at 744-45.

‘* Briefs in this case have also been filed by Intervenors

Texas Gas Transmission Corp, and Transcontinental Gas Pipe

Line Corp. (Pipeline Intervenors), Intervenor Associated

Gas Distributors, and a group of Senators and Representatives

acting as amicus curiae.

Amicus curiae, like petitioners, urges us to set aside Order

491. The intervenors address only portions of the order under

review. The Pipeline Intervenors support the 180 exemption

but claim that the Commission lacks the authority to prevent

pipelines from passing on to consumers “purchased gas ex-

penses resulting from contracts entered into as “arm’s length’

and in good faith.” Brief for Pipeline Intervenors at 3.

Intervenor Associated Gas Distributors defends only the 180

day exemption of emergency sales, exchanges and deliveries

between distribution companies exempt from FPC regulation

and interstate pipelines or distribution companies in other

states. See note 86 infra.

2 See Motion for Stay at 1, Sept. 21, 1973; Brief for Peti-

tioner at 11.

BAL ALINE OANA ARNE RA IR NY WER. OO ad TS BEIT HHI RF a

ber 25, 1973." This order presented a more detailed

picture of the projected curtailments and explained

that the 180 day period was necessary “to obtain

sufficient commitments for this winter heating sea-

son.” ** In addition, the Commission announced that

it would allow interested parties to file comments.

This court heard oral argument on petitioners’ mo-

tion and, on October 3, 1973, stayed Order 491 pend-

ing Commission reconsideration after receipt of com-

ments.”

The FPC’s Order on Reconsideration, Order 491-

B, November 2, 1973, reaffirmed its decision to ex-

pand the emergency sales exemption to 180 days

and reinstituted the limited-term certificate proce-

dure. Petitioners applied to the FPC for a rehearing

and stay of Order 491-B and moved in this court for

an extension of the October 3 stay pending resolu-

tion of their petition for review. The Commission

denied the rehearing and stay requests in Order 491-

C, November 21, 1973. We then granted a stay of

Order 491-B pending judicial review. Ten days later,

on December 20, 1978, the Supreme Court granted

the Solicitor General’s application to vacate our stay.

Live Controversy

Although all sales under Order 491 have been com-

pleted, the present controversy remains alive. Fol-

750 FPC 848 (1973).

18 See id. at 852.

1° Brief for Petitioners at 12.

SRT LMT SORA rte LLG BRINE OE UNREST he PPT Te

| Sos

lowing the Supreme Court’s action, the Order 491

procedures were available for sales to pipelines fac-

ing curtailment until terminated by Order 491-D

on March 15, 1974. Between September 1973 and

September 1974 over 500 sales, involving more than

172 billion cubic feet (172,000,000 mcf) of natural

gas were exempted under the challenged orders.”

Petitioners not only request that we set aside the ex-

pired orders but also seek refunds of rates paid

producers in excess of the just and reasonable rate.”

The limited duration of the orders combined with

the continuing gas shortage make this controversy

one “capable of repetition, yet evading review.” ”

Indeed, while this case was pending the Commission

advised that it was considering reinstating the 180

day exemption for the 1974-75 season.”

II. SCOPE OF THE SECTION 7(c) PROVISO

Section 7 of the Natural Gas Act “ requires that a

natural gas company obtain a certificate of public

*” See Order Directing Solicitor to seek an Expedited De-

cision in the Appeal of Orders No. 491, et seq., at 6, Jan. 16,

1975.

* Brief for Petitioners at 13.

22 See Roe v. Wade, 410 U.S. 118, 125 (1973), quoting

Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515

(1911).

28 See Motion for Expedited Decision at 3-4, Jan. 17, 1975.

24 Section 7 of the Natural Gas Act, 15 U.S.C. § 717f (1970),

provides in pertinent part:

natural-gas company upon completion of any proposed

SEL APEIEE LEE DIOR MEL EO SPRITE TOES INTERES IE ATOLL I WS PION Gea Sg ET ol AIR NE RA TEMS Se weg

BASES tee PE <e

construction or extension shall engage in the transporta-

tion or sale of natural gas, subject to the jurisdiction of

the Commission, or undertake the construction or ex-

tension of any facilities therefor, or acquire or operate

any such facilities or extensions thereof, unless there is

in force with respect to such natural-gas company a

certificate of public convenience and necessity issued by

the Commission authorizing such acts or operations:

Provided, however, That if any such natural-gas com-

pany or predecessor in interest was bona fide engaged

in transportation or sale of natural gas, subject to the

jurisdiction of the Commission, on February 7, 1942,

over the route or routes or within the area for which ap-

plication is made and has so operated since that time,

the Commission shall issue such certificate without re-

quiring further proof that public convenience and neces-

sity will be served by such operation, and without further

proceedings, if application for such certificate is made to

the Commission within ninety days after February 7,

1942. Pending the determination of any such application,

the continuance of such operation shall be lawful.

In all other cases the Commission shall set the matter

for hearing and shall give such reasonable notice of the

hearing thereon to all interested persons as in its judg-

ment may be necessary under rules and regulations to be

prescribed by the Commission; and the application shall

be decided in accordance with the procedure provided in

subsection (e) of this section and such certificate shall be

issued or denied accordingly: Provided, however, That

the Commission may issue a temporary certificate in cases

of emergency, to assure maintenance of adequate service

or to serve particular customers, without notice or hear-

ing, pending the determination of an application for a

certificate, and may by regulation exempt from the re

quirements of this section temporary acts or operations

for which the issuance of a certificate will not be required

in the public interest.

(d) Application for certificates shall be made in writ-

ing to the Commission, be verified under oath, and shall

be in such form, contain such information, and notice

convenience and necessity prior to engaging in the

transportation or sale of natural gas in interstate

commerce. Application for a certificate “shall be

denied” unless the Commission after notice and hear-

ing finds that the proposed sale or service “is or will

be required by the present or future public con-

venience and necessity.” * The FPC premised its

decision “to exempt emergency purchases from reg-

ulation for 180 days” on a proviso in §7(c) con-

taining an exception to the general certification re-

quirement.” The proviso states:

thereof shall be served upon such interested parties and

in such manner as the Commission shall, by regulation,

require.

(e) Except in the cases governed by the provisos con-

tained in subsection (c) of this section, a certificate shall

be issued to any qualified applicant therefor, authorizing

the whole or any part of the operation, sale, service, con-

struction, extension, or acquisition covered by the applica-

tion, if it is found that the applicant is able and willing

properly to do the acts and to perform the service pro-

posed and to conform to the provisions of this chapter and

the requirements, rules, and regulation of the Commission

thereunder, and that the proposed service sale, opera-

tion, construction, extention, or acquisition, to the extent

authorized by the certificate, is or will be required by

the present or future public convenience and necessity;

otherwise such application shal] be denied. The Commis-

sion shall have the power to attach to the issuance of the

certificate and te the exercise of the rights granted

thereunder such reasonable terms and conditions as the

public convenience and necessity may require.

*® Section 7(e) of the Natural Gas Act, 15 U.S.C. § 717f(e)

(1970).

2 See Order 491-B, supra note 1, at 10.

10a

Provided, however, That the Commission may

issue a temporary certificate in cases of emer-

gency, to assure maintenance of adequate serv-

ice or to serve particular customers, without

notice or hearing, pending the determination of

an application for a certificate, and may by reg-

ulation exempt from the requirements of this

section temporary acts or operations for which

the issuance of a certificate will not be re-

quired in the public interest.

The Commission puts it that “there is nothing in

the legislative history . . . which is helpful to the

interpretation of the Commission’s exemption au-

thority,” and that “the clear language of Section 7

reliance on the proviso.” Our analysis of the legis-

lative history and statutory framework leads to a

contrary conclusion.

A. Legislative History

In our view, the legislative history lends consider-

able insight into the intended scope of the proviso.

It was designed as a narrow exception to enable the

companies and the Commission to grapple with tem-

porary emergencies and minor acts or operations,

like emergency interconnections to cope with break-

downs or sporatic excess demand for gas.

The proviso was adopted as part of an amend-

ment to §7 passed in 1942.% An amendment was

27 Brief for Respondent at 16-17.

28 56 Stat. 83 (1942).

AO AEE IPSS ROX EA:

lla

sought to remedy deficiencies in § 7(c) as enacted in

1938.° The 1938 law required certificates of public

convenience and necessity only when natural gas com-

panies proposed to enter “a market in which natural

gas is already being served by another natural-gas

company.” *” That provision, the FPC concluded, “has

proved unsatisfactory and ineffective to protect the

public interest.” The House Report proposing to

drop the original limitation noted that it would fill

** See H.R. REP. No. 1290, 77th Cong., Ist Sess. 1-2 (1941).

The Supreme Court has noted that the 1942 amendment

“broadened” the protection provided consumers by adding

the §7 certificate requirement to its “rate-making regula-

tory tools.” See FPC y. Hunt, 376 U.S. 515, 525-26 (1964);

FPC v. Hope Natural Gas Co., 320 U.S. 591, 611-12 (1944).

*° See 52 Stat. 825 (1988). This limiting language reflected

Congress’s concentration on the prevention of economic waste

involved in duplication of service. See Letter, note 31 infra,

at 81.

* Letter from Leland Olds, Chairman, Federal Power

Commission, to Clarence F. Lea, Chairman, Committee on

Interstate and Foreign Commerce, Aug. 2, 1941, reprinted

in Hearings on Natural Gas Act Amendments Before the

House Comm. on Interstate and Foreign Commerce, 77th

Cong., 1st Sess., at 81 (1941),

The deficiencies were twofold—(1) The FPC had to

shoulder “long and tedious proceedings to determine” the

relevant market, and whether there was existing service,

“before the merits of the case [could be) considered.” Hear-

ings, supra, at 3 (statement of FPC Commissioner Basil

Manly). See H.R. Rep. No. 1290, supra note 29, at 2;

Letter, supra, at 81. (2) for areas not previously §serv-

iced by a natural gas company, the provision allowed “un-

regulated competition in extensions and even economic waste

in construction of new interstate gas pipe lines.” H.R. Rep.

No. 1290, supra note 29, at 2. Letter, supra, at 8128.

POO GSH en enrneesrarmaet i.

ORES ND TAR I RE ETI SED UD FTN MIS Ne ner

12a

the regulatory gap by “giving the Commission an

oportunity to scrutinize the financial set-up, the ade-

quacy of the gas reserves, the feasibility and ade-

quacy of the proposed services, and the characteristics

of the rate structure in connection with the proposed

construction or extension at a time when such vital

matters can readily be modified as the public in-

terest may demand.” *

The proviso now relied upon by the FPC was not

in the initial draft of the 1942 proposal (H.R.

4819),** but surfaced later as one of the two modi-

fications prompted by gas company suggestions. In

the House hearings, FPC Commissioner Manly re-

ferred to these modifications as “two slight amend-

ments.” * The only other reference to the proviso,

in a letter of FPC Chairman Olds responding to a

Committee request for an analysis of the bill, stated

that the “language . . . was put in the bill primarily

to provide for emergency interconnections of pipe

lines, which are sometimes necessary to make it pos-

sible to maintain adequate service in cases of ex-

traordinary peak demands, break-downs, and so

forth.” *

"2 See H.R. REP. No. 1290, supra note 29, at 2-3.

%3The only exception in H.R. 4819 was a grandfather

clause granting a certificate upon application to all natural

gas companies engaged in transportation or sale on the date

of the amendment. See § 7(c), 15 U.S.C. § 717f(c) (1970).

% See Hearings, supra note 31, at 18.

35 See Letter, supra note 31, at 82.

Ee SE aN Ee NIL LT IIE OTP T TERER tte en

13a

Other discussion focused on the temporary cer-

tificate clause of the one-sentence proviso. That clause

initially read: “[T]he Commission may issue a tem-

porary certificate in cases of emergency, without no-

tice and hearing, pending the determination of an

application for a certificate.” °° During consideration

of the bill, the clause was amended by adding after

“emergency”, “to assure maintenance of adequate

service or to serve particular customers.” * Both the

FPC Chairman and the final House Report explained

that the change was made “to limit the authority for

granting a temporary certificate to emergency situa-

tions involving only a comparatively minor extension

of the facilities of an existing system.” * Relying on

this history, we have held that the temporary cer-

tificate provision was intended to reach only “a nar-

row class of situations” involving interconnection or

expansion of facilities to respond to “breakdowns in

the service of operating natural gas companies, or

sudden unanticipated demands.” *

The FPC urges that we must disregard the legisla-

tive history and judicial interpretations of the tem-

porary certificate clause because the Commission en-

6 See H.R. 5249, reprinted in Hearings, supra note 31, at 1.

57 See H.R. REP. NO. 1290, supra note 29, at 1, 5.

588 See id. at 5; Letter, supra note 31, at 83-84.

*° Pennsylvania Gas and Water Co. v. FPC, 138 U.S.App.

D.C. 298, 304, 427 F.2d 568, 574 (1970). Compare Algonquin

Gas Transmission Co. v. FPC, 201 F.2d 334, 339-41 (1st Cir.

1953).

Bae CATO REI MLTR ETE OLE ANI LETTER RO GAEL BENE TA RENE Cab ate IE SS

l4a

acted Order 491 under the exemption clause.*’ This

we cannot do, for logic and history make it clear that

the two clauses are intertwined. They have been

joined since birth in a one-sentence proviso, both part

of a single “slight amendment” to a bill that was

overall an extension of the certification requirement

to ‘‘all cases as a condition precedent to engaging in

transportation or sale of natural gas subject to the

jurisdiction of the Commission.” “'

We see no sound basis for concluding that the

FPC has distinctly greater scope or authority to with-

draw from the certificate requirement by invoking

the exemption clause rather than the temporary cer-

tificate clause of this one-sentence proviso.” If any-

thing, the purpose, text and history of the proviso

run the other way. The primary purpose of Con-

gress was to emphasize the public interest in per-

manent certification hearings as a condition for new

gas operations. With the temporary certificate clause

#© Brief for Respondent at 16-17.

1 See H.R. REP. No. 1290, supra note 29, at 2.

42 That the exemption clause should not be broadened beyond

the temporary certificate clause is underscored by the con-

sideration that with an exemption clause the FPC removes the

possibility, available in the case of a temporary certificate, of

inserting a salvaging condition in the permanent certificate

“as the public convenience and necessity may require.” Section

7(e) of the Act; 15 U.S.C. § 717f(e) (1970). Even where an

unconditional temporary certificate has been granted, the FPC

may protect the public by ordering producers to refund

amounts collected in excess of the permanent certificate rate

approved after notice and hearing. See FPC v. Sunray DX

Oil Co., 391 U.S. 9, 45 (1968).

SN a ae SR ee a ae ea eee ee

15a

the Commission merely provides interim operating

authority pending the completion of the hearings.

That temporary authority is not without significance,

for it provides a “momentum which tends to per-

petuate the temporary into the permanent.” Still,

it does not scrap the hearings. In contrast, the ex-

emption clause, when used, dispenses with certifica-

tion hearings entirely. It was inserted for minor

“temporary acts and operations” for which a hear-

ing would be superfluous.** The exemption clause is

not a broad blade to cut a wide swath out of the

basic landscape of certification after due hearings.

What it permits is a more modest kind of pruning,

like the temporary certificate available for emer-

gency trimming pending hearings.“

*8 See Pennsylvania Gas and Water Co. v. FPC, 138 U.S.

App.D.C. 298, 304, 427 F.2d 568, 574 (1970). The court went

on to note that, although there is “latitude for agencies to ex-

pedite hearings in the public interest,” “only a narrow class of

real ‘emergency’ cases justifies the taking of action such as

temporary certificates on an informal examination of the file

without opportunity for hearing.” Jd. at 306, 427 F.2d at 576.

** As the Supreme Court noted in FPC v. Hunt, 376 U.S.

515, 520 (1964), the provision for temporary certificates in

certain cases reflected Congress’ understanding of the time

consuming nature of permanent certification hearings. See

Pennsylvania Gas and Water Co. v. FPC, 138 U.S.App.D.C.

298, 304, 427 F.2d 568, 574 (1970).

** The limited role of a disposition without any hearing is

underscored by the fact that the requirement of a hearing is

not a requirement of futile or obstructive hearings. The

courts have made it plain that even when proceedings are of

such a type that hearings are required generally, they are not

required in particular cases or for particular issues where

Fe iad MS |

SPRY ALS SE em TN Lies

16a

In this case, we are reviewing an order expressly

intended to elicit large volume sales.“ The exemption

it provided extended to all producers, and authorized

sales of unlimited quantities of gas for a period that

is not merely half the calendar year but spans an

entire heating season. At a time when curtailment

and shortages are projected for the foreseeable fu-

ture, the Commission’s 1973-74 position is tanta-

mount to a claim of authority to continue this vast

180 day exemption indefinitely. It may be that an

exemption should be authorized by the legislature, or

that even without modification the Commission may

have authority to institute a program upon due de-

termination, after § 7 hearings of a need for certifi-

cation in the public interest. Those questions are not

there are no substantial issues of fact, and that even where

oral hearings are required they may be conducted with fore-

shortened procedure, especially situations that call for ex-

pedition, so as to focus on the main points that merit oral

ventilation. Weinberger v. Hynson, Westcott & Dunning, Inc.,

412 U.S. 609 (1973); Marine Space Enclosures, Inc. v. FMC,

137 U.S.App.D.C. 9, 420 F.2d 577 (1969); Citizens for Allegan

County, Inc. v. FPC, 134 U.S.AppD.C. 229, 414 F.2d 1125

(1969).

more than 172,000,000 mcf of gas were exempted from the

certification requirement. Data on sales during the first 12

working days under the 180 day exemption reveal that the

average price of 54.4¢ per mcf. SEE COMPTROLLER GENERAL

sold at as much as 60¢ per mcf. Reports spanning a larger

portion of the Order 491 sales showed an actual weighted

average price of 54.4¢ per mcf. SEE COMPTROLLER GENERAL

OF THE UNITED STATES, NEED FOR IMPROVING THE REGULATION

OF THE NATURAL GAS INDUSTRY AND MANAGEMENT OF IN-

TERNAL OPERATIONS 16-17 (1974).

17a

before us. What we can say, and do say, is that the

legislative history makes plain that it was never con-

templated that the modest emergency proviso in § 7

for orders without hearings would be employed to

excise large-volume, long-duration, widespread deliv-

eries of gas.

B. Purpose of the Section 7 Certificate Requirement

Our divergence from the FPC’s analysis pertains

not only to legislative history, which FPC finds bar-

ren and we find meaningful, but also to purpose. In

our view, the FPC’s interpretation is undercut, rath-

er than underscored, when consideration is given to

the purpose of §7 and its relationship to the over-

arching goals of the Act. The prior decisions discuss-

ing § 7 support our view.

The original Act expressly declared in § 7(c) that

it was “the intention of Congress that natural gas

shall be sold in interstate commerce for resale for

ultimate consumption for domestic, commercial, in-

dustrial, or any other use at the lowest possible rea-

sonable rate consistent with the maintenance of ade-

*" See, e.g., FPC v. Sunray DX Oil Co., 391 U.S. 9, 16-20,

36-37 (1968); FPC v. Hunt, 376 U.S. 515, 519-527 (1964);

Atlantic Refining Co. v. Public Service Comm’n, 360 U.S.

378, 388-92 (1959); Continental Oil Co. v. FPC, 378 F.2d 510,

517-18 (5th Cir. 1967), cert. denied, 391 U.S. 918 (1968);

Public Service Comm’n v. FPC, 117 U.S.App.D.C. 287, 290-

92, 294, 329 F.2d 242, 245-247, 249, cert. denied, 377 U.S.

963 (1964); See also FPC v. Texaco, Inc., 417 U.S. 380, 386-

87, 394 (1974).

+e tin |

—— basta tate MEN INE EE TINT AMR

SAAT OLS ERA HE SMES Wt Bate

18a

quate service in the public interest.”** The 1942

amendments to § 7 “were not intended to change this

declaration of purpose,” “ but to remove impediments

to its realization.

The Supreme Court’s 1959 opinion in Atlantic Re-

fining Co. v. Public Service Comm’n (CATCO)® con-

tains the most comprehensive explication of how the

statutory sections interrelate to protect purchasers

of natural gas from excessive rates.” It found that

“the initial certificating of a proposal under § 7(e)”

was “crucial” to the functioning of the Act, given

§ 5’s marginal value in redressing initial certified

rates stemming from its “interminable” delays and

only prospective impact.’ The Court concluded that

§ 7 imposed a duty upon the Commission to engage

48 52 Stat. 825 (1938), quoted in Atlantic Refining Co., supra

note 47, at 388.

*° Atlantic Refining Co., supra note 47, at 388 n.7.

5° 360 U.S. 378 (1959).

1 See id. at 388, 389-91. The Court found § 7’s certification

requirement in the front line of protection against excessive

initial rates. The Commission’s authority to institute hearings

under § 5, 15 U.S.C. § 717d (1970), to review all rates and

set the just and reasonable rate “to be thereafter observed”

functions as a limited check on excessive initial rates which

might survive testing in a §7 proceeding. See 360 U.S. at

889-90. Section 4 protects against unreasonable increases

in rates (by empowering the Commission to suspend a pro-

posed rate increase, for five months, and thereafter require

a refund of amounts collected in excess of the just and reason-

able rate) 15 U.S.C. 717c (1970), see 360 U.S. at 389, but it

provides no protection against excessive initial rates.

5? 360 U.S. at 389.

- ee fea yy way rah ie tee aad

AAAI LTTE Ig I I a TP IES

Sein tgs Seah aa

19a

in “a most careful scrutiny and responsible reaction

to initial price proposals of producers.” That scru-

tiny demands attentiveness to the evidence presented

by the producer with “price a consideration of prime

importance” in the application of the public con-

venience and necessity standard.”

It is the clear teaching of CATCO and its progeny

that preservation of the statutory scheme depends on

diligent enforcement of the § 7 certification require-

ment as a holding operation on initial rates. Any

interpretation of the § 7(c) proviso that would em-

power the FPC to exempt the sale of large quantities

of gas from the certification process would be anti-

thetical to this basic purpose of the statutory frame-

work.

The FPC’s brief argues that CATCO only requires

a close scrutiny of rates for sales that require a

certificate.“ What it fails to appreciate is that § 7

must be given a broad reading, and the exemption

a narrow construction, in light of the overall pur-

pose of § 7 to provide a scrutiny needed in the public

interest. As the FPC brief notes, (pp. 18-20), § 7’s

public convenience and necessity standard does not

require a finding that proposed rates are just and

reasonable as a precondition to certification.” How-

ever, the fact that § 7 does not give a complete “bond

of protection” against initial rates in excess of a

58 Jd. at 391.

‘4 Brief for Respondent at 17, 21.

55 See Atlantic Refining Co., supra note 47, at 390-91.

pa eae |

pee er ae

MARAE MOT He LE PE EN LOO Oe

20a

“just and reasonable” level, is no basis for stretching

the exemption proviso to sweep aside the critical safe-

guards that are embodied in its certification process.”

56 Although § 4(a) requires that “[a]ll rates and charges...

received by any natural-gas company .. . shall be just and

reasonable,” neither the Commission nor the courts have re-

quired that initial rates meet that standard as a condition to

certification under §7. The Supreme Court explained that

the delay inherent in determining just and reasonable rates

made such a requirement inappropriate for regulation of

initial rate under §7. See United Gas Improvement Co. v.

Callery Properties, Inc., 382 U.S. 223, 227-28 (1965). Nor have

refunds been required where permanent certificate rates have

been found to exceed the just and reasonable rate. Although

this result deviates from the “logic” of the Act’s “complete,

permanent and effective bond of protection,” it normally

serves “to speed refunds to consumers and to assure producers

of a firm price.” FPC v. Sunray DX Oil Co., 391 U.S. 9, 36-37

(1968).

The absence of complete symmetry in the interworking of

§§ 4, 5, and 7 does not minimize the importance of the pro-

tection afforded by the certification requirements. Following

CATCO, the FPC adopted a practice of certifying initial sales

at the price approved in “contemporaneous certificates no

longer subject to judicial review or in any way ‘suspect.’ ”

United Gas Improvement Co., supra, at 227; See Public

Service Comm’n v. FPC, supra note 47, at 290-92, 329 F.2d

at 245-47. This procedure provided considerable safeguards

pending completion of area proceedings to establish just and

reasonable rates. Consumer views as to the appropriate in-

line rates could be aired in certification proceedings and ju-

dicial review was available to set aside arbitrary in-line

prices. In addition, consumers could seek refunds of amounts

collected under temporary certificates in excess of the in-line

rate. See note 42 supra.

The Commission’s reliance on the distinction between the

§4 and §7 standards overlooks the significant protections

contained in each provision. The deviations from just and

reasonable rates that are tolerated to accommodate the need

2la

III]. ORDER 491 AS A MEANS OF

INDIRECT REGULATION

To avoid the charge that a § 7(c) exemption would

ignore impact of the exempted sales on price levels

and hence constitute impermissible deregulation,”

the FPC relies on the provision in Order 491-B pro-

hibiting pipelines from passing on to consumers pur-

chased gas costs from contracts “improvidently con-

summated at a rate which was more than necessary

to secure the gas for the interstate market.” “ The

court is not clear what this FPC analysis protends,

whether it is local color to induce an expansive read-

ing of the §7(c) exemption, or a larger contention

of inherent authority in the absence of impact on

the consumers, a claim, or rather a disclaimer, that

any error was not “prejudicial.” In any event, this

broadside justification for the exemption program

must fail, for the reasons stated recently by the

Supreme Court in F'PC v. Texaco.”

for prompt certification determinations may not be acceptable

when the Commission dispenses with certification of initial

sales. See FPC v. Texaco, Inc., 417 U.S. 380 (1974) (requiring

that all producer rates be just and reasonable under a scheme

or indirect regulation).

5t See Brief for Respondent at 27-28.

58 Order 491-B, supra note 1, at 14.

5° 417 U.S. 380 (1974). Texaco involved Order 428 which

granted a blanket certificate to all small producers exempting

their existing and future sales from direct rate regulation.

The Commission proposed to regulate small producer sales

indirectly by allowing large producers and pipelines to pass

;

a en

22a

Texaco found that “the rates of all gas producers”

must conform to the just and reasonable requirement

of §§ 4 and 5. It disposed of the FPC’s contention

that its exemption of small producers from direct

control was valid because it was part of an overall

program that was tantamount to “indirect regula-

tion” of such producers. The Court concluded that

indirect regulation would be valid, “providing that

it. [the Commission] insures that the rates paid by

pipelines, and ultimately borne by the consumer, are

just and reasonable.” “ In the present case, the Com-

mission made no attempt to evaluate the reasonable-

ness of the projected rates which would be “paid by

pipelines” to producers under the 180 day exemption.

Even if the producers charged the interstate pipe-

lines no more than they charged other bidders in the

unregulated intrastate market, Texaco took occasion

to “stress that in our view the prevailing price in

the marketplace cannot be the final measure of ‘just

on only costs that were not “unreasonably high considering

appropriate comparisons with highest contract prices for

sales by large producers or the prevailing market price for

intrastate sales in the same producing area.” Order 428, 45

FPC 454, 457 (1971). The Court found that “the Commission

is free to engage in indirect regulation of small producers by

reviewing pipeline costs of purchased gas, providing that it

insures that rates paid by pipelines, and ultimately borne by

the consumer, are just and reasonable.” 417 U.S. at 401. But

it concluded that Order 428 could not “stand in its present

form” because of its failure to state clearly that producers

would be allowed to receive and pipelines would be authorized

to collect only just and reasonable gas rates. Jd. at 395-97.

6° Td. at 387, 401.

. o ulsaeearemuarmerennrorauaantacin

PAYNE ERAT RELL RT ERLE ee |

23a

and reasonable’ rates mandated by the Act.” And

there is nothing in Order 491 which prohibits the

interstate pipeline from offering more, to coax the

producer to sell in the interstate market. Indeed,

the Commission expressly assured producers that

they could keep, without risk of refund, any price

they could obtain from the beleaguered pipelines.

Throughout the years in controversies such as

Phillips ® and CATCO, the FPC has sought to justify

inaction at the level of producer rates on the ground

that the pressures built up by producer rate in-

creases could somehow be contained at the pipeline

level by invoking a regulatory agency’s authority to

disallow “excessive” costs. And throughout the years,

the Court has found this professed substitute inade-

quate. Both Order 491-B and the Commission’s brief

speak only of its statutory duty to protect consumers

from exploitation by the natural gas companies.”

The Commission’s bypassing of its statutory duty

as to producer rates, to insure that the rates paid

to producers were just and reasonable, renders Order

491 vulnerable under Texaco.

6 417 US. at 397.

62 Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672 (1954).

63 See Order 491-B, supra note 1, at 13-14, Brief for Re-

spondent at 25.

** The Commission attempts to distinguish Texaco as in-

volving a permanent exemption of all small producer rates

from direct regulation. We do not find this factual difference

determinative. First, the comparatively small quantities of

gas involved do not excuse deviation from the just and

PY retains PATROL OME, RAVEN MEAN SS PEORIA NERNEY EH ONY ELI INS RITES PEI SRNR PRN OAR MOREE Pea ~ ea

OCR TES REIN SONY AE SL ARE

24a

Turning our focus to the rates “ultimately borne

by the consumer,” we note that Order 491 does “not

expressly mention the just-and-reasonable stand-

ard.” * Order 491-A merely stated that the “rate at

which these emergency volumes are committed to

interstate pipelines will be examined in our pipeline

regulatory review under §§ 4 and 5 of the Act, in

the same manner as purchases are reviewed under

prior emergency procedures.” Order 491-B added

that pipelines will be permitted to pass on purchased

gas costs “only when such rates can be shown to

have been required by the public interest.”* The

FPC amplified its intention by noting that costs from

purchases “improvidently consummated at a rate

which was more than necessary to secure the gas

for the interstate market” could not be fully recouped

from consumers.“ The Commission’s brief seeks to

add a gloss that “any unreasonably high prices” or

reasonable standard for not even “a little unlawfulness is per-

mitted.” 417 U.S. at 399. Second, Texaco makes no exception

to the just and reasonable requirement for initial sales even

though such new small producer sales were included within

the scope of Order 428. The Court’s failure expressly to

address the question to initial sales leaves open the possibility

that they could be tested against comparable “in-line” rates

rather than the just and reasonable rate. But see note 56

supra. In either case, the Commission failed to insure proper

producer rates through its scheme of indirect regulation.

** 417 U.S. at 396, 401.

** 50 FPC at 852.

6? Order 491-B, supra note 1, at 13 (emphasis into original).

$8 See id. at 14.

se cary ees occ cagi cas a a Ka as a

25a

any costs that “appear to have been unreasonably

incurred” may not be passed on to consumers.”

As in Texaco, the FPC’s order does not set forth

its standard of indirect regulation with “requisite

clarity” to provide assurance that the rates “ulti-

mately borne by the consumer are just and reason-

able.” * The entire point of Order 491 is to free

“pipelines facing emergencies” from price constraints

to “enable them to secure substantial gas supplies

which might otherwise be lost to the intrastate mar-

ket or interstate pipelines not facing an emer-

gency.” ™ The tenor of the order suggests that the

public interest will be served by matching or outbid-

ding intrastate customers (from whom the producers

may obtain unreasonably high rates, so far as Fed-

eral law is concerned), and that such necessary ex-

penditures for scarce gas supplies may be recouped

from consumers. We believe that Texaco precludes

the FPC from using a scheme as open-ended as this

one as equivalent to a meaningful technique of in-

direct regulation.”

6° Brief for Respondent at 13, 26.

7° See 417 U.S. at 397, 401.

71 See Order 491-B, supra note 1, at 7.

7? A further problem is presented by the possibility that 491

sales will escape indirect regulation as a result of purchased

gas adjustment clauses in existing pipeline rate tariffs. Under

those clauses pipelines may be able to pass on their increased

gas expenses from Order 491 purchases without filing a rate

increase under § 4. See Order 452, 47 FPC 1049 (1972). The

Commission has failed to explain how it can protect consumers

LN Co poy 2 RON MBN HOt, Er agama

SMEARS OLE REIS LH LOL TRIG IE A ERE IES FEO NI LY GE ELTA IE I TE OME TT — |

26a

A related shortcoming is the Commission’s failure

to provide pipelines with standards to guide them in

latitude contemplated in contracting for emergency

purchases. Under Order 491, if pipelines pay too

much for gas supplies, they may incur expenses that

are nonrefundable.” “ In Texaco the Court was con-

cerned with the squeeze on the pipelines which

stemmed from making payments that would be both

disallowed and nonrefundable, and made it clear that

any such program would require “guidance” for

those that might be affected.* The warning in Order

491 against “improvident” contracts does not provide

adequate guidance to protect the pipelines. The Com-

mission attempts to avoid this problem by stating

that the procedures are “purely optional” and that

the order does not “coerce a pipeline into making

such purchases.” But a commission seeking to de-

fend an exemption order cannot in this way ignore

its responsibility to give guidance to pipelines that

accept the Commission’s open-door invitation to ob-

tain needed supplies through Order 491 purchases.”

against rate increases in the absence of an amendment to the

purchased gas clause regulation, 18 C.F.R. § 154.38(d) (4)

(1974), or a §4 filing. See Brief for Petitioner at 26.

73 See Order 491-B, supra note 1, at 14.

4 See 417 U.S. at 393.

7S See Brief for Respondent at 27; Brief for Pipeline Inter-

venors at 15-16.

27a

IV. THE REFUND ISSUE

Our prior decision to stay Order 491-B pending

appeal rested on a concern that refunds might not be

available as a means of remedying any resulting

injury. In applying to the Supreme Court to vacate

the stay, the Solicitor General represented that should

the order be set aside on review the Commission

“would have full authority to require refunds of any

[excessive] rates collected by a natural gas com-

pany.” The Supreme Court granted the applica-

tion on December 20, 1973, and purchases under the

order were allowed to proceed pending review in this

court.

Petitioners now urge us to order refunds in addi-

tion to setting aside Order 491. But not every deci-

sion invalidating an agency order is given full retro-

active effect." We express no opinion on the refund

issue, beyond saying that, in our view, it involves

complex and difficult questions which must be pre-

sented to and addressed by the Commission in the

first instance. In matters of prospective and retro-

active effect, there are large questions of equity and

public interest—both for agencies * and for courts.”

76 See Application to Vacate Stay entered by the United

States Court of Appeals for the District of Columbia Circuit,

Dec. 1973, at 9-10 n.7 (relying on United Gas Improvement

Co. v. Callery Properties, Inc., 382 U.S. 228, 229 (1965) ).

** Zuber v. Allen, 396 U.S. 168 (1969) ; Blair v. Freeman,

125 U.S.App.D.C. 207, 370 F.2d 229 (1966).

** See Niagara Mohawk Power Corp. v. FPC, 126 U.S.App.

D.C. 376, 379 F.2d 153 (1967).

7° See cases cited note 77 supra.

LSE EI EL PEAR EN OG OE ORS 2 ER IE ED RENE

Ly eRe,

ae Uae

rar Cat WO, ACRE WERE ES EOI OEE TER GLA 8 ER Ee DEE

28a

While full refund under an invalid order is a sound

basic rule, it may be offset, at least in part, by the

lack of a mechanism to restore the full status quo

ante, the fact that consumers may have had the bene-

fit of some increase in supply that would not have

been forthcoming under §7 procedures, albeit pur-

chased at an excessive price, and the fact that some

portion of the increased prices paid may be discerned

as consistent with just and reasonable producer rates.

The FPC will have to consider the effect of its

representation to the Supreme Court and its prior

assurance to producers that no refunds would be re-

quired under the order.” Whether and how to exer-

cise an authority to order refunds requires the de-

velopment of factual matters not presently in the

record as well as a broad and penetrating analysis

of “the factors pro and con a refund, and its amount

or extent, in arriving at an equitable conclusion.” ™

V. CONCLUSION

As a reviewing court, we must grant the Commis-

sion broad latitude in devising methods of regula-

tion “in this time of acute energy shortage.” “ But,

although we are receptive to “novel” approaches, we

* Cf. FPC v. Sunray DX Oil Co., 391 U.S. 9, 46 (1968).

81 See Public Service Comm’n v. FPC, 117 U.S.App.D.C.

287, 295, 329 F.2d 242, 250, cert. denied, 377 U.S. 963 (1964).

82 See, e.g., Mobil Oil Corp. v. FPC, 417 U.S. 283, 331

(1974) ; Public Service Comm’n v. FPC, No. 73-1338, slip op.

at 32 (D.C. Cir., Jan. 14, 1975).

ISSR PRLS Pree Ae Ta ee es eS

~ A i ee

=e oe

cannot neglect our duty to “assure fidelity to the

functions assigned to the regulatory agencies by Con-

gress.” Our examination of Order 491 convinces

us that the Commission has exceeded its authority

under the Act. In essence, it has attempted to rem-

edy the shortfall of supply in the interstate market t

by authorizing a supplemental injection of large '

quantities of gas through sales freed from the con- F

straints of meaningful regulation. We reject the :

FPC’s claim that §7(c) supports this substantial,

partial deregulation, and find that the Commission

has neglected its rate control responsibilities under 3

the Act. Congress has yet to embrace proposals for

deregulation of new gas supplies.“ Until it acts to

alter the present “system of regulation by an agency

subject to court review, the courts may not abandon

their responsibility by acquiescing in a charade or a

rubber stamping of nonregulation in agency trap-

pings.” 85

8° See Texas Gulf Coast Area Rate Cases, 159 U.S.App.D.C.

172, 208, 487 F.2d 1043, 1079 (1973), vacated and remanded

sub nom. Shell Oil Co. v. Public Service Comm’n, 417 U.S.

964 (1974).

% See FPC v. Texaco, Inc., 417 U.S. 380, 400-01 (1974). The

natural gas deregulation bills introduced in the 93d Congress,

S. 2048 and H.R. 7507, did not receive committee approval in

either chamber despite President Ford’s September 12, 1974,

message to Congress placing priority on natural gas deregula-

tion.

** Public Service Comm’n v. FPC, No. 73-1338, slip op. at 33

(D.C. Cir. Jan. 14, 1975).

SEE SNE REN RARE RR ERAT ie TINIE OE OI ING PLE TPR NLDA EBON NE, SIE ONES A EDT Os, le

6. EEL ING AT REDE OOO AIT TLD 9 ic PEED EA CLC BELLE Re CE ONS TAI

30a

Accordingly, the orders under review are set

aside.”

So ordered.

% Intervenor Associated Gas Distributors claims that we

need not set aside the entire order if we find that the FPC has

exceeded its authority in granting a 180 day exemption for

sales by gas producers. While we recognize that sales and ex-

changes of gas by intrastate distribution companies may be

distinguishable from the producer sales at the core of this

dispute, the matter has not been subject to scrutiny by the

Commission and the other parties or addressed at argument.

In this posture, we cannot say that this minor strand of Order

491 should be severed and preserved. This question may

properly be addressed by the courts if it is first presented

to the FPC for focused consideration in light of this opinion.

é SO Dig reac Os eee :

Ss oe reek Geek Boat DP PA RAGS

oot aed

8la

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 73-2009

September Term, 1974

[Filed Mar. 13, 1975, United States Court of Appeals

for the District of Columbia Circuit, Hugh E. Kline,

Clerk]

CONSUMER FEDERATION OF AMERICA

AMERICAN PuBLic GAS ASSOCIATION

AMERICAN PUBLIC POWER ASSOCIATION

NATIONAL LEAGUE OF CITIES—UNITED STATES

CONFERENCE OF MAYORS, PETITIONERS

Vv.

FEDERAL POWER COMMISSION » RESPONDENT

THE PUBLIC SERVICE COMMISSION FOR THE

STATE OF NEW YoRK

ASSOCIATED GAS DISTRIBUTORS

TEXAS GAS TRANSMISSION CORPORATION &

TRANSCONTINENTAL GAS PIPELINE CORPORATION,

INTERVENORS

PETITION FOR REVIEW OF ORDERS OF

THE FEDERAL POWER COMMISSION

Before: DANAHER, Senior Circuit Judge, LEVEN-

THAL and WILKEY, Circuit Judges

PORES LEG ELIS EDEL SO CAGE GI EREED GOLA TEES EO LE SIE TILL LDE IESE BIOS EL ANTE END REGIEED SN oe nas OTP OL, a

32a

JUDGMENT

This cause came on to be heard on a petition for

review of orders of the Federal Power Commission

and was argued by counsel. On consideration of the

foregoing, it is

ORDERED AND ADJUDGED by this Court that

the orders of the Federal Power Commission on re-

view herein are set aside, in accordance with the

opinion of this Court filed herein this date.

Per Curiam

For the Court

/s/ Hugh E. Kline

Hugh E. Kline

Clerk

Date: March 13, 1975

Opinion for the Court filed by Circuit Judge Leven-

thal.

EIR LL BOY LEE RG PORT RITA RAIL AI LISA GANG IARI, TR ORT PGE

33a

APPENDIX C

UNITED STATES OF AMERICA

FEDERAL POWER COMMISSION

Docket No. RM74-3

(18 CFR 157.22(d), 157.29, 2.68 and 2.70)

Before Commissioners: John N. Nassikas, Chairman;

Albert B. Brooke, Jr., Rush

Moody, Jr., and William L.

Springer.

Policy with Respect to Establishment of Measures

to be Taken for the Protection of Reliable and

Adequate Service for the 1973-1974 Winter Heat-

ing Season

ORDER NO. 491

STATEMENT OF POLICY AND ORDER AMEND.

ING PRIOR POLICY STATEMENTS AND REG-

ULATIONS UNDER THE NATURAL GAS ACT

(Issued September 14, 19738)

Effective upon the date of issuance of this order,

the Commission issues herein a new policy statement,

amends Sections 2.68 and 2.70 of its General Policy

and Interpretations and Sections 157.22 and 157.2¢

of its Regulations under the Natural Gas Act,

Our authority to promulgate this policy statement

and amend prior policy statements and regulations is

contained in the Natural Gas Act, particularly Sec-

tions 7 and 16 therein, and the Administrative Pro-

TE SI end EI

34a

cedure Act. No notice of these actions is required

under the Administrative Procedure Act, nor do

we find that notice and public procedure would either

be practicable, necessary, or serve the public inter-

est.. We have used such summary procedures in

order that we may promulgate policies to assist some

43 million gas consumers to obtain adequate, safe

and reliable service for the 1973-1974 winter heat-

ing season.” However, we will re-examine our ac-

tions herein, on or before March 15, 1973, the latter

being the termination date unless otherwise ordered.*

In Commission Order Nos. 402 and 402-A,* the

Commission promulgated a policy statement (2.68 of

our General Policy and Interpretations), which en-

couraged persons and companies exempt under Sec-

tions 1(b) and 1(c) of tae Act (distribution com-

panies and intrastate pipelines) to make short-term

sales or deliveries of natural gas in interstate com-

merce so as to make available temporary emergency

15 U.S.C. 553(b) (3) (A) and (B). Cf. Memphis Light,

Gas and Water Division v. F.P.C., 462 F.2d 853 (D.C. Cir.

1972), reversed on other grounds, 411 U.S. 458 (1973).

2Cf. F.P.C. v. Louisiana Power & Light Co., 406 U.S. 621

(1972) ; Alabama Gas Corp. V. F.P.C., 5th Cir., No. 72-1415,

February 7, 1973; P.S.C. of N.Y. v. F.P.C., 467 F.2d 361

(D.C. Cir. 1972). See also Gulf States Utilities Co. v. F.P.C.,

S.Ct. No. 71-1178, May 14, 1973, slip op. at 14-15; Mobil Oil

Corp. V. F.P.C., 469 F.2d 130 (D.C. Cir. 1972), cert. denied,

S.Ct. No. 72-1108, June 4, 1973.

’See P.S.C. of N.Y., supra, rehearing order of May 19,

1972.

+43 FPC 707 (1970), 43 FPC 822 (1970).

APNE HLL YLTE TORE L LEG EM LAELIA LEADON!

35a

gas supplies, without our approval, for up to 60

days.

Under Order No. 418,’ we amended Sections 157.22

and 157.29 of our Regulations under the Natural

Gas Act, to provide for emergency sales by producers

to interstate pipelines and for emergency operations

(e.g. exchanges) between pipelines for up to 60 days,

which transactions were exempted from prior Com-

mission certificate authorization under Section 7 of

the Act.

In conjunction with Order Nos. 402 and 418, the

Commission issued Order No. 431,’ promulgating

2.70 of our General Policy and Interpretations, in-

dicating that “[n]otwithstanding these emergency

measures [Order Nos. 402 and 418], a number of

natural gas pipelines indicated their inability to de-

liver sufficient gas to meet their firm demands.” By

that order we continued the prior emergency mea-

sures, i.e. up to 60 days, but provided that we would

consider limited-term certificates for purchases ex-

tending beyond that 60-day period, with pregranted

abandonment, if the pipeline demonstrates emergency

need and has (1) made every reasonable effort to fill

all storage fields and (2) filed curtailment plans.’

2.70(b) (3)

544 FPC 1574 (1970).

¢45 FPC 570 (1971).

* Such filings for limited-term certificates were made pur-

suant to Paragraph 12 in Docket No. R-389-A, July 17, 1970.

35 Fed. Reg. 11638.

36a

Promulgation of the above-emergency measures has

resulted in commitments of natural gas to interstate

consumers of 1.2 trillion cubic feet, through pur-

chases ranging for 60 days to three years, from

1971 through May of 1973.

In Order No. 418, we noted that:

Several parties suggested that the proposed 60-

day period of emergency operation be extended

to periods ranging from three to six months.

* * * We shall * * * defer disposition of this

issue until such time as we may propose addi-

tional rules applicable to emergency transactions

on a more extended basis. 44 FPC at 1575.

We now dispose of that reserved issue, at least on an

interim basis.

On July 16, 1973, the Commission’s staff released

its most recent report on past curtailments and pro-

jected curtailments for the 1973-1974 winter heating

season. That report indicated (after eliminating in-

tercompany transactions) that net curtailments of

firm requirements customers of the major interstate

pipelines represented about .8 trillion cubic feet from

April 1972 to March 1973, and was reported to in-

crease to about 1.2 trillion cubic feet during the April

1978-March 1974 period. Such curtailments for the

1973-1974 winter heating season are estimated to be

.5 trillion cubic feet of natural gas; the equivalent

of about 85 million barrels of oil. The report further

8 We take official notice of FPC News Release No. 19441,

July 16, 1973, publishing that report.

37a

indicated acute regional curtailments, both this sum-

mer and for the current winter-heating season, in

the New England, Appalachian, Great Lakes and

Northern Plains regions. Such curtailments will re-

sult, as they did last year, in severe economic and

environmental consequences, resulting in the closing

of schools and factories, the denial of utility service

to new customers, the utilization by industry and

electric utilities of alternate fuels which impact upon

ambient air quality standards, and the transfer of

unfulfilled demand to other fuels in short supply

with the resultant upward price pressures. At least

for the 1973-1974 winter-heating season, reliable and

adequate gas service is even more jeopardized than

at the juncture when we initiated emergency mea-

sures, supra, over three and one-half years ago.

We further take notice of the overall domestic

fuel situation for this 1973-1974 winter heating sea-

son. The unfulfilled demand for natural gas cannot

be readily transferred to other fuels. Propane and

fuel oils are in limited supply and neither can fulfill

the projected firm requirements for customers of

interstate pipelines.

In order that this Commission can discharge its

responsibilities to the Nation’s gas consumers and

carry out our Congressionally-delegated mandate, we

are effective this day amending Sections 2.68 and

2.70 of our General Policy and Interpretations and

Sections 157.22 and 157.29 of our Regulations under

the Natural Gas Act, to change the 60-day emer-

gency measures provided therein, so as to change the

‘

ee: |

38a

term to a maximum of 180 days under which no

Commission authorization is required in advance."

Concurrently, we are providing that Section 2.70(b)

(3), which provides for the filing of limited-term

certificates under Paragraph 12, supra, is hereby

stayed, pending further review and order of the

Commission. All such limited-term certificate ap-

plications, which have been filed with the Secretary

as of the date of issuance of this order, will be

processed, as in the past, and any applications sub-

mitted after the date of this order, shall be returned,

without prejudice to the applicant. Applicants are

free to file notices of withdrawal of limited-term

certificates previously filed, pursuant to Section 1.11

(d) of our Rules and Regulations.

On or before March 15, 1974, the Commission will

have reviewed the emergency measures provided here-

in. Transactions entered into prior to March 15,

1974, may continue for a period up to 180 days,

i.e. an emergency measure initiated on February 1,

1974, may continue until July 31, 1974. Those 60-

day emergency transactions which have commenced

as of the date of issuance of this order may continue,

depending upon the agreement between the parties,

* Section 7(c) of the Act provides, in part, that we “may

by regulation exempt from the requirements of this section

temporary acts or operations for which the issuance of a

certificate will not be required.” 15 U.S.C. 717f(c) See Sec-

tion 2.67a of the General Policy and Interpretations, concern-

ing the finding of insufficient gas supplies and rate treatment

of the investment tax credit. Order No. 448, 47 FPC 141

(1972).

39a

for 180 days beginning at the time of termination of

the 60-day transaction. In addition to the existing

reporting requirements, we will require that the pipe-

line purchaser report to the Secretary within ten

(10) days after deliveries commence under the 180-

day procedure, the estimated volumes and rate

charged for the emergency sale.

We will review these measures to determine their

impact during the 1973-1974 winter-heating season

and to determine what emergency measures may be

required during the 1974 summer storage injection

period and the 1974-1975 winter-heating season.

The Commission finds:

(1) The revisions to the policy statements and

regulations herein do not require notice or hearing

under 5 U.S.C. 553.

(2) Many interstate natural gas pipelines have

been unable to obtain and are expected to have prob-

lems in obtaining, short-term emergency gas supplies

to meet their firm requirements during the 1973-

1974 winter-heating season, in the absence of the

revised emergency measures herein promulgated.

The Commission orders that effective upon issuance:

(A) Part 2, Subchapter A, General Rules, Chapter

I of Title 18 of the Code of Federal Regulations, is

amended by revising the following:

§ 2.68(a) and (b)—The 60-day periods found

therein are changed to 180 days.

40a

§ 2.70(b) (3) —The 60-day periods found therein

are changed to 180 days.

The following provision is stayed pending

further order of the Commission:

If the emergency purchases are to extend

beyond the 60-day period Paragraph 12 in

the notice issued by the Commission on July

17, 1970, in Docket No. R-389-A should be

utilized. The Commission will consider

limited-term certificate with pregranted

abandonment, if the pipeline demonstrates

emergency need, after complying with sub-

paragraph (1) and (2) of this paragraph.

(B) Section 157.22, Subchapter E, Chapter I, Title

18 of the Code of Federal Regulations, is amended

by revising the following:

§ 157.22(a)—The sixty-day period is changed to

180 days.

(d)—The 60-day period is changed to

180 days.

18 of the Code of Federal Regulations, is amended

by revising the following:

§ 157.29(a)—The sixty (60) day period is

changed to 180 days.

(b)—The 60-day period is changed to

180 days.

(D) The revisions and amendments in (A), (B)

and (C) are effective upon issuance and until March

15, 1974.

4la

(E) The Commission provides that any interested

person may file comments on the revisions effective

herein, such filings to be made in written form with

the Secretary of the Commission and to be filed

during the period January 15, 1974 to February 15,

1974, for consideration by the Commission prior to

its March 15, 1974 review.

By the Commission.

[SEAL]

Kenneth F. Plumb,

Secretary.

Oe eI

PPAR ILD LEI Le EOL ID BILLET SE Ah ORES OA AERP OLE ©

42a

APPENDIX D

UNITED STATES OF AMERICA

FEDERAL POWER COMMISSION

Before Commissioners: John N. Nassikas, Chairman;

Albert B. Brooke, Jr., Rush

Moody, Jr., and William L.

Springer.

Docket No. RM74-3

Policy with Respect to Establishment of Measures

to be Taken for the Protection of Reliable and

Adequate Service for the 1973-1974 Winter Heat-

ing System

ORDER NO. 491-A

ORDER MODIFYING PROCEDURES ON

RECONSIDERATION AND DENYING

MOTION FOR STAY

(Issued September 25, 1973)

On September 14, 1973, we issued Order No. 491

which amended Section 2.68 and 2.70 of our General

Policy and Interpretations and Sections 157.22 and

157.29 of our Regulations under the Natural Gas

Act so as to extend the term of the emergency meas-

ures prescribed therein from 60 days to 180 days,

subject to our review on or before March 15, 1974.

On September 20, 1973, applications for rehearing,

petitions to intervene and motions for stay of Order

No. 491 were filed by the Public Service Commission

of the State of New York (New York) and the Con-

DEEDS ERIE POE SRI PIRI RISE FR ROE NOES AE EEN BE RE siphon tin DY

43a

sumer Federation of America, the American Public

Gas Association, the American Public Power Asso-

ciation and the National League of Cities—United

States Conference of Mayors (Consumer Federation,

et al.).

New York and Consumer Federation, et al. con-

tend that the issuance of Order No. 491 was proce-

durally defective under the Administrative Proce-

dure Act (APA), since no opportunity for public

comment was provided. As we stated in Order No.

491, notice and public comment thereon are not re-

quired: when the agency finds and states that such

procedure would be “impracticable, unnecessary, or

contrary to the public interest.”’ Petitioners argue

that since notice was issued and comments received

in our similar action in Order No. 418,? a fortiorari

the same procedures are required here. However, the

mere fact that we solicited comments in the prior

order does not mandate adherence to the same proce-

dures in this case.* This is particularly true where

our action is compelled by the exigencies of the short-

age of natural gas for the impending winter heating

system. Moreover, the effect of our present order is

only to extend the authorization of emergency opera-

tions by pipelines from our previously approved 60

*5 U.S.C. § 553 (b) (3) (B).

* 44 FPC 1574 (1970).

* Compare City of Chicago V. F.P.C., 458 F.2d 731 (D.C. Cir.

1971), cert. denied 405 U.S. 1074 (1972).

CIO (aOR RT) ay

44a

day period to 180 days.* However, even though the

Commission is not required to provide for notice and

comment as a matter of law, upon reconsideration we

have determined to allow public comment as to

whether or not Order 491 represents a reasonable

accommodation of alternatives to alleviate the criti-

cal natural gas shortage for the 1973-74 winter heat-

ing season. To allow the parties to properly focus

their comments and thus increase their usefulness to

the Commission, we are providing a more detailed

statement of the evidence indicating an energy short-

age of critical magnitude during the approaching

winter heating season.

In Order No. 491 we indicated that a substantial

increase in curtailment of gas supply was projected

for the major pipelines during the 1973-74 season.

The effects of such curtailments to which the Com-

mission must respond was also pointed out (mimeo

4):

Such curtailments will result, as they did last

year, in severe economic and environmental con-

sequences, resulting in the closing of schools and

factories, the denial of utility service to new

customers, the utilization by industry and elec-

tric utilities of alternate fuels which impact

upon ambient air quality standards, and the

transfer of unfulfilled demand to other fuels in

short supply with the resultant upward price

pressures.

* Previous 60-day emergency sales have been extended for

periods of up to an additional 120 days. Cf. Docket No.

CI73-621.

45a

The supply data from which we have concluded that

immediate action is required, is contained in a report

recently issued by our staff.’ That report is, in turn,

an updating of the information reported July 15,

1973,° entitled “Firm Requirements and Curtailments

of Major Interstate Pipeline Companies.” Our staff’s

revised report indicates (after eliminating inter-

company transactions) that eleven of thirty-three

reporting companies had experienced curtailments of

approximately .4 trillion cubic feet for the period

April through October 1972 (summer season). For

the same period in 1973, thirteen companies reported

actual and estimated curtailments‘ totaling slightly

more than .7 trillion cubic feet. This represents an

increase in curtailments of 75 percent over the same

period one year ago. Similarly, fifteen companies re-

ported actual curtailments of .4 trillion cubic feet

during the period November 1972 through March

1973 (winter season). For the approaching 1973-74

winter season, fourteen companies estimated curtail-

ments totaling approximately .5 trillion cubic feet—

an increase of 25 percent. Furthermore, the supply

deficiencies for the 1973-74 heating season which

were projected in the July 1973 report have substan-

tially increased in the September report. This indi-

cates that the major pipeline companies are experi-

> FPC News Release No. 19640.

®° FPC News Release No. 19441.

* April through July volumes were actual, whereas, August

through October volumes were estimated.

SRA 4

46a

encing increasing difficulty in obtaining sufficient gas

to maintain reliable service. The following table rep-

resents the extent of curtailed service each of the

major pipeline companies projects for the 1973-74

season (April 1973 through March 1974):

Firm Volumes

Requirement Curtailed Percent

Mcf Mcf Curtailment

*Algonquin 177,935,800 17,431,500 10.0

Arkansas-Louisiana 495,548,000 119,887,965 24.0

Cities 571,164,000 29,856,000 5.0

Columbia 1,532,573,000 12,574,000 1.0

El Paso 1,906,747,000 147,474,427 8.0

*Louisiana-Nevada 147,271,334 56,700* Negligible

Mississippi River 209,296,000 7,996,118 4.0

Natural 1,207,139,000 228,868,178* 19.0

Northern 896,000,000 11,800,000 1.0

Panhandle 825,708,000 36,079,308 4.0

Texas Eastern 1,081,814,000 164,503,788 15.0

Transco 1,097,152,000 141,018,748 13.0

Transwestern 360,532,000 20,759,957 6.0

Trunkline 597,986,000 165,601,429 28.0

United Gas 1,602,798,000 541,937,052 34.0

* Summer curtailment only.

Furthermore, all of the above pipelines, with the ex-

ception of Algonquin and Louisiana-Nevada, have

been obtaining some gas under the Commission’s

present emergency purchase provisions. The project-

ed curtailments would thus be even greater without

the increments provided by such temporary pur-

chases.

The effects that such curtailments are having on

the distributor and industrial customers of these

pipelines are evidenced by the increasing number of

petitions for extraordinary relief from curtailment

presently being received by the Commission. A list-

47a

ing of the more recent petitions for relief, and a

brief summary of each, follows:

Arkansas Louisiana Gas Company—Docket No. RP

71-122

Arkansas Lightweight Aggregate Corporation

Relief required to operate kilns. No alter-

nate fuel capability installed. Without re-

lief, production would be reduced by 50 per-

cent and several employees would be laid

off.

El Paso Natural Gas Company—Docket No. RP72-6

City of Wilcox, Arizona and Arizona Electric

Power Cooperative, Inc.

Relief required for safety and reliability of

its electric generating plant. No alternate

fuel supplies.

City of Mesa, Arizona

Relief required to avoid possible endanger-

ment of residential and commercial service.

Department of Water of the City of Los Angeles

and Southern California Edison Company

Relief required to prevent curtailment of

firm electric loads. No alternate fuel sup-

plies.

Florida Gas Transmission Company—Docket No. RP

71 128

Edgar Plastic Kaolin Company

Relief to continue operations. Alternate

fuels (propane and butane) are not avail-

48a

able. Without relief production would be re-

duced 30 to 40 percent and a 3 to 4 month

shut-down or possibly the closing of its

plant.

Panhandle Eastern Pipe Line Company—Docket No.

RP71-119

DeKalb Agresearch, Inc.

Relief required to dry seed corn for next

year’s planting. No alternate fuel facilities

and propane is not available. This plant’s

production represents a corn crop of nearly

40,000,000 bushels.

Michigan Seamless Tube Company

Relief required to avoid shut down until al-

ternate fuel capability is installed (560 em-

ployees).

Eugene W. Stallings (an independent oil pro-

ducer)

Relief required to operate compressor en-

gines and treat oil produced in an in-situ

(fire flood) oil recovery operation. Program

would be uneconomical if equipment has to

utilize other fuels.

As the winter season arrives, additional requests

for relief will undoubtedly be received. Furthermore,

some, if not most, of these requests will require de-

termination after formal hearings. This Commission

will thus become increasingly burdened in resolving

these requests and some petitioners will sustain seri-

ous operational and economical injury during the

interval.

49a

Although the projected deficiencies in gas supply

are endemic to the nation as a whole, our studies

show that certain areas of the country will be particu-

larly hard hit. These regions * include: the Gulf Coast,

Pacific Southwest, Appalachian, Great Lakes, and

Southwest. (See attached Appendix A). The problem

is compounded by the fact that these same regions are

also faced with severe shortages of suitable alterna-

tive fuels, such as propane and distillate fuel oil. In-

deed, it is this high degree of interdependence be-

tween the available natural gas and the supply of

suitable alternative fuel, such as propane and num-

ber 2 heating oil, that further exacerbates our overall

energy problem. This is indicated by data presented

to the Commission, by various state regulatory bodies

in response to our request for specific fuel supply in-

formation, in which each state outlines the extent and

effect of immediate and projected shortages of pri-

mary fuels. These responses’ concluded that addi-

tional curtailments of natural gas this winter will

force many industrial plants to operate part-time or

shut down completely. Many of these plants could

have relied on propane as a satisfactory alternative

fuel. However, the equally severe shortage of propane

fuel would eliminate this safeguard. In testimony

*The names of these regions refer to the designations by

the Future Requirements Committee.

* See telegraphic request of August 15, 1973, from Chair-

man Nassikas to state regulatory utility agencies. Responses

to this request were received between August 20—September

21, pertinent excerpts of which are attached as Appendix B.

oe OUT ITE FRE AT KY

REAR) PULTE ERNE S

50a

given at a public hearing instituted by the White

House Energy Policy Office on September 7, 1973,

many of the Nation’s largest propane suppliers testi-

fied that supplies for the 1973-74 heating season

would be 15-25 percent less than the amount avail-

able for the 1972-73 season.

The situation regarding fuel oil supplies does not

appear quite as bleak as that of natural gas and pro-

pane. However, strong evidence exists indicating a

shortage of even these petroleum products, especially

home heating oils. In a Notice issued August 27,

1973, the White House Energy Policy Office estab-

lished a public hearing to be held on September 6,

1973. At the hearing comments and testimony were

received on all phases of the “Proposed Program to

Establish Priorities and Allocate Supply for Certain

Low Sulfur Petroleum Products”. These comments

and testimony document the existence of a generally

tight fuel oil supply, with severe shortage evident

in certain areas of the country in home heating qual-

ity oils. In order to make available supplies of this

product for human needs and other essential require-

ments, the supply of heating oils for industrial con-

sumption must necessarily be decreased. Since many

larger industrial natural gas customers have con-

verted gas burning equipment to dual-fuel capbility in

anticipation of continued gas shortage, the unavail-

ability of oil as an alternative fuel will result in

plant shut-downs. In some. areas the reliability of

electric generation may be threatened.

5la

It was in response to this increasingly deteriorat-

ing energy situation that we initiated our present

action. The 60-day emergency purchases and limited-

term certificated previously authorized in Order Nos.

402,” 418," and 431,” have not enabled the pipelines

‘to avoid curtailing the firm, higher priority service

along with lower priority, interruptible service.

Clearly, further measures must be taken to increase

the gas supply available to the vital interstate mar-

ket during this coming winter. In this regard, we

are mindful of our authority under Section 7(c)

of the Natural Gas Act, 15 U.S.C. § 717f(c), to “ex-

empt from the requirements of this section temporary

acts or operations for which the issuance of a cer-

tificate will not be required in the public interest.”

The courts have accorded wide discretion to the Com-

mission’s efforts to protect the adequacy of service

to the consuming public.”

We believe that the provisions of Order No. 491

will increase the supply of emergency gas available

to the interstate market during the coming winter.

An extension of the period during which emergency

sales can be made from 60 days to 180 days, will

10 43 FPC 707 (1970), 43 FPC 822 (1970).

1 44 FPC 1574 (1970).

12 45 FPC 570 (1971).

13 F.P.C. v. Louisiana Power & Light Co., 406 U.S. 621, 642

(1972); Permian Basin Area Rate Cases, 390 U.S. 747, 776

(1968); Public Service Commission for the State of New

York v. F.P.C., 467 F.2d 361, 367-69 (D.C. Cir. 1972).

ERR ON TT ae

eet Be Tt os oe Bit

52a

assure the seller of the gas a more definite market

for a given quantity of gas. The seller would thus

be more likely to enter into a contract for emer-

gency sales to the pipeline.

The fact of an assured supply over a longer defi-

nite time period also benefits the pipeline buyers,

and in turn, their customers. As illustrated by Ap-

pendix C, a large number of pipeline companies util-

ize large volumes in underground storage to meet

their requirements during the winter heating season.

This more definite flowing supply will improve the

flexibility afforded by this underground storage, thus

permitting the pipelines to respond more effectively to

the extreme circumstances affecting their own and

their customers operations during the winter period.

Similarly, assured 180 day emergency supplies en-

tering the interstate market in the latter part of the

winter season will enhance the pipelines’ ability to

manage their usual supply sources more effectively

during next summer’s storage injection season.

As we indicated in Order No. 491, we will review

the rates and volumes of natural gas under these re-

vised procedures, to determine the efficacy of our pol-

icy to cope with the existing emergency for the 1973-

1974 winter heating season, and take whatever ac-

tion is warranted to serve the overall public interest.

The rate at which these emergency volumes are com-

mitted to interstate pipelines will be examined in our

pipeline regulatory review under Sections 4 and 5

of the Act, in the same manner as purchases are

reviewed under the prior emergency procedures.

53a

New York questions whether or not the extension

from 60 to 180 days is required to meet the pro-

jected needs for the 1973-1974 winter heating sea-

son. From 1970 through May 1973, 442 60-day emer-

gency purchases were initiated at prices ranging

from 35-54 cents per Mcf with volumes aggregating

385 Bef. From 1971 through May 19738, 226 limited-

term certificates were initiated at prices ranging

from 30-45 cents per Mcf and for volumes of 792 Bcf.

Under Order No. 491, the limited-term certificate

procedures were stayed, pending further Commission

review and order. The 60-day period is too short to

obtain sufficient commitments for this winter heat-

ing season and we fully anticipate that commitments

will increase by the extension of the term to 180

days, thus alleviating the short-term emergency con-

ditions for this winter. In staying that portion of

2.70(b) (3), providing for limited-term certificates

under paragraph 12 of R-389-A, 35 Fed. Reg. 11638,

we anticipate long-term dedications (in addition to

the 180-day short term emergency purchases) under

the optional certificate procedure, the area rate pro-

cedure, or petitions for special relief from area rates.

However, as we review the volumes and rates of

gas which is committed pursuant to these amended

procedures, we will consider whether the public in-

terest requires reinstatement of limited-term certifi-

cates with pregranted abandonment.’* Because of

138 Order No. 491 (mimeo. at 5-6).

54a

our mandatory review prior to March 15, 1974, and

through the advance reporting procedures prescribed

in Order No. 491, we will closely monitor and re-

view the results of these emergency procedures in

fulfilling our Congressionally delegated mandate to

assure adequate and safe service to the Nation’s

gas consumers during this emergency period and will

determine whether any modification is necessary to

serve the public interest.

As can be seen from the foregoing,’ there is un-

controverted and substantial evidence that an emer-

gency will be present for significant segments of

gas consumers for the 1973-1974 winter heating sea-

son. The evidence before us requires prompt Com-

mission action, the result being Order No. 491. How-

ever, we will provide for procedures so that an in-

terested person may file written comments, as well

as written responses to comments in Docket No.

RM74-3, concerning alternative emergency measures

for the short-term situation. After receipt of those

comments and responses, the Commission will issue

an order on reconsideration in Docket No. RM74-3,

on or before November 13, 1973."

New York and Consumer Federation, et al. also

request a stay of the effectiveness of Order No. 491

1* Neither New York nor Consumer Federation, et al. con-

test that an “emergency” exists.

15 New York avers that we were “tardy” in issuing Order

No. 491. However, FPC Press Release No. 19640, issued

September 17, 1973, containing the most recent curtailment

projections, was only recently available to us.

FERS

55a

pending consideration of their applications for re-

hearing, contending “irreparable injury to the in-

terests of N v York gas consumers” (New York at

2) and that a stay would “prejudice no one for the

effect of a stay would be to reinstate the 60-day and

limited-term procedure of Orders No. 418 and 431”

(Consumer Federation, et al. at 13). In determining

whether or not to stay the effectiveness of its order

pending further review, this Commission applies the

standards enunciated by the D.C. Circuit in Virginia

Petroleum Jobbers v. F.P.C.** Under these guidelines,

to prevail in staying our order, the petitioners must

show:

(1) likelihood of prevailing on the merits of their

requested review ;

(2) that they will suffer irreparable injury if the

stay is not granted;

(3) that other parties will not be substantially

harmed by granting the stay; and

(4) that the public interest will be served by grant-

ing the stay.

In the instant case, neither petitioner has met these

standards.

The only possible references to a claim of prevail-

ing on the merits occurs in New York’s contentions

that the Commission has overstepped its Section 7(c)

authority (New York at 5-7). However, even here

New York admits that “[I]t is arguable that the

16 259 F.2d 921 (D.C. Cir. 1958).

2 AYA RY A

56a

sixty day period previously prescribed by the Com-

mission’s Rules in which producers can operate with-

out a certificate * * * is an appropriate exercise

of the Commission’s authority under Section 7(c)

* * *”| This in no way indicates the probability of

success that must be shown under the Virginia

Petroleum doctrine.

Even less substantial are the Petitioners’ claims of

irreparable injury unless we stay the effectiveness of

our order. The only harm alluded to on this point

involves possible increases in prices to some con-

sumers while the emergency provisions are in effect.

However, as we have stated above (p. 8), the rates

at which any emergency purchases are made pur-

suant to this order will be subject to our full regula-

tory review subject to Sections 4 and 5 of the Natural

Gas Act. Moreover, the emergency procedures es-

tablished by Order Nos. 402, 418 and 431 (See Or-

der No. 491 at 2-3) are legal regulations of this

Commission, and no longer subject to court review.

The effect of Order No. 491 was limited to merely

extending the term of the measures prescribed there-

in from 60 days to 180 days. As Consumer Federa-

tion indicates (Consumer Federation at 13), the ef-

fectiveness of Order No. 491, from its date of is-

suance until November 13, 1973, i.e. 60 days, is the

same as would be the case under existing lawful

regulations. There is thus no change in the status

+ quo until after November 13, 1973, and to contend

57a

otherwise, represents a collateral attack upon exist-

ing regulations.”

When we consider the final factors that must be

shown, i.e., whether other parties or the public in-

terest in general will be served, it is clear that we

must deny the stay of our present order. As has been

previously shown, it is the critical magnitude of the

gas supply deficiency with its threatened immediate

harm to the entire consuming public that mandates

our emergency action. To grant the Petitioners’ re-

quest would be an acceptance of the paradoxical rea-

soning that, having determined the appropriate ac-

tion with which to respond to an emergency situa-

tion, we will now wait until a more appropriate

time to implement that action. Such an argument is

untenable. Our present action represents a clear case

where the fulfillment of our statutory duties re-

quires “the interest of private iitigants to give way

to the realization of public purposes.” (Virginia

Petroleum Jobbers, supra, 925). Inasmuch as pe-

titioners have failed to meet the standards required

for grant of a stay as set forth in Virginia Jobbers

and have failed to show how the continued effective-

ness of order No. 491 (at least for a period of 60

days from its issuance) in any way undermines their

interests, the motions for stay are denied.

New York and Consumer Federation, et al. have

petitioned to intervene in Docket No. RM74-3. Be-

7 Cf. F.P.C. v. Colorado Interstate Gas Co., 348 U.S. 492,

497 (1955)

58a

cause of the modified procedures set forth infra, we

will deny their petitions to intervene, because they,

along with all other interested persons, are afforded

the opportunity to comment on the procedures pre-

scribed in Order No. 491. Those additional argu-

ments raised by New York and Consumer Federa-

tion, et al., to the extent not addressed in either

Order No. 491 or in this order, are deferred for

further consideration in the order to be issued after

receipt of comments.

For purposes of clarification, the only modification

to Sections 157.22 and 157.29 of our Regulations

under the Natural Gas Act was the extension of time

of an emergency transaction from 60 days to 180

days. The exemption from Section 7(c) certifica-

tion authorization is restricted to pipelines to:

assure maintenance of adequate natural gas serv-

ice where interruption or serious curtailment of

service exists or is threatened because of failure

of facilities or failure or curtailment of supply

or unusual and unexpected demand on such fa-

cilities or supply. § 157.22(a) and § 157.29.

Additionally, such pipeline purchasers should also have

on file with the Commission a curtailment plan pur-

suant to Section 2.70(b) (2) (i) to be eligible for such

emergency purchases.

The Commission orders that:

(A) New York and Consumer Federation, et

al., motions for stay of Order No. 491 are

denied.

PALES TOLLE EIA CIAL CLL LORE LEONI IME ENCED

59a

(B) New York and Consumer Federation, et

al., petitions to intervene in Docket No.

RM74-3 are denied, without prejudice to

the submission of comments, as provided

in (C) and (D) herein.

ments concerning the modification of emer-

gency measures prescribed by Order No.

491 with the Secretary at the Federal Power

Commission, 825 North Capitol Street, N.E.,

Washington, D.C. 20426, by October 8, :

1973. The submittal shall state the name, q

title, qualifications, mailing address, and

telephone number of the person or persons

to whom communications concerning this

matter should be addressed. An original

and fourteen conformed copies of such re-

sponse shall be filed with the Commission.

(D) Responses to the submittals shall be filed

no later than October 17, 1973, in the same

form and number as the original submittals.

(E) All submittals and responses shall be under

oath and acknowledged by a notary public

or comparable official, and that the person

making such filing is authorized to verify

and file the document and that all state-

ments contained therein are true and cor-

rect to the best of his knowledge.

(F) New York and Consumer Federation, et

al., applications for rehearing of Order No.

491 are treated as motions for reconsidera-

tion and will be deferred and taken under

advisement pending further Commission or-

et Neh hah)

DE SEIN, SLOW LEE LEIS LOLS PEDIC SA. CLIGIE LE LBL LIEDER ILI LEE LOL LLCS DIOL LEED IPE ES ELEN =

60a

der, on or before November 138, 1973, after

receipt of the comments provided in (C)

and (D) above.

By the Commission.

{SEAL]

Mary B. Kidd

Acting Secretary

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63a

APPENDIX B

EXCERPTED QUOTES FROM STATE FUEL REPORTS

State

California

Comments

Acquisition of sufficient gas and fuel oi! to

satisfy foreseeable generating requirements

during the forthcoming winter heating

season and subsequently through 1976, is

the specific energy supply problem most

urgently facing California electric utilities.

It will be noted from Table 1 page 2 that

the estimated decline in gas fuel supply

from 65.8 million barrels in 1973 to 25.5

million barrels in 1974 results in as yet

uncovered requirement for residual! fuel oil

of 57.7 million barrels in 1974. Similarly

uncovered fuel oil requirements for 1975

are 76.2 million barrels and 56.1 million

barrels for 1976. At present it appears

that unless additional gas is made avail-

able or gas service priorities are revised,

it is likely that electric curtailment will

occur during 1974.

There are 10 liquefied petroleum gas utili-

ties in California that will have an esti-

mated requirement of almost 140,000 bar-

rels of propane for the year 1973. These

utilities’ customers are limited to the resi-

dential and commercial type. Their 1973-

1974 winter requirement will be slightly

in excess of 55,000 barrels for the months

of December, January and February. The

precise disparity in supply and utilities re-

quirements is now under evaluation. The

first indications are that those utilities not

owned by large propane companies may

have supply problems this winter. It ap-

pears these supply problems may be in-

tensified if the proposed mandatory alloca-

SLRS LOLOL LITLE DESO LOG EIEIO DLLME LEP LOALL RL IIE LENE ID ELEN SI

i se bel

A Perm egiee: 3

Cia in oe al ls

State

California

(continued)

Colorado

Florida

New Hampshire

64a

Comments

tion procedures of the Energy Policy Office

are put into effect, with public utilities

ranking next to last in the eighth priority

classification.

In summary, Colorado will experience a

greatly intensified demand for all alternate

fuels with utilities, gas and electric, shar-

ing the best position. A need for all energy

users to at least hold to the 1972/73 levels

is to us obvious, unless producers come up

with reliable assurances that they can and

will provide the indicated total quantities

of fuels.

The anticipated requirements for LP gas

for the winter season is 350-400 million

gallons with an anticipated shortage of

5-7%. We have been informed by the Flor-

ida LP Gas Association that the various

distributor companies have filled the tanks

of residential and commercial customers

unless there is a severely cold winter sea-

son.

The problem facing the companies rests

with propane availability—they have been

served notice by the suppliers that winter

contracts may not be met, at least on the

terms normally expected in the past. Tra-

ditionally, gas companies have purchased

LPG on a winter-summer relationship of

at least two to one, with shipments arriv-

ing by rail car or truck transport on a

schedule which minimizes the amount of

on-site storage; therefore, whereby five

carloads per week might suffice during the

summer season when only the company’s

bottled gas business required product, ten

cars per week would be delivered during

the winter when peak-shaving was neces-

sary.

State

65a

Comments

New Hampshire The companies have been told that these

(continued)

‘New York

delivery schedules will no longer be hon-

ored. LPG will be brought in primarily on

a constant one-to-one schedule, and the

only way they can be assured of enough

product to carry them through the winter

will be to install sufficient on-site storage

to build up a tremendous supply during

the summer. It will be noted that Gas

Service, Inc., Manchester Gas Co. and Con-

cord Natural Gas Corp. are doing exactly

that, and the investment costs are stagger-

ing.

To compound the problem, the companies

are now receiving feed-back from the LPG

suppliers that this one-to-one schedule may

not even be assured. They are continuously

revising their estimates of projected sup-

ply availability, and it appears they will

continue to do so right into the peak-shav-

ing season.

The State of New York is dependent upon

every fuel you have mentioned, and all of

our investigations indicate a shortage for

each fuel, some potentially more serious

than others.

Natural Gas

Curtailments by the major interstate pipe-

lines serving New York during the 1973-

74 heating season are anticipated to be

over 30 billion cubic feet or approximately

15 billion cubic feet more than occurred

during the last heating season. The cur-

tailments will be partially offset by almost

6 billion cubic feet of alternative gas

sources. The main impact of the deficiency

this winter will be on the combination util-

OV VatiSeRteO tAy S)

State

New York

(continued)

66a

Comments

ities where there will be a reduction in the

amount of natural gas available for boiler

fuel for electric generation of about 15

billion cubic feet, 10.5 billion cubic feet

worse than last year.

The impact upon retail interruptible cus-

tomers will only be slightly greater this

coming heating season than they experi-

enced last season. We estimate curtail-

ments of interruptible customers amount-

ing to 8.5 billion cubic feet, 1.5 billion cubic

feet more this heating season than last

heating season. Almost all interruptible

customers were completely curtailed dur-

ing the last heating season.

During sustained cold spells, firm indus-

trial sales and large commercial uses may

also be affected in the course of a “normal

winter.”

With respect to special problem areas con-

cerning natural gas, it should be noted

that substantial volumes of gas are used

within the State in the agricultural indus-

try. Agricultural customers are served un-

der industrial rate classifications and are

not separately identifiable. It is important

to note, however, that assuming normal

weather conditions, the volumes of gas re-

quired by agriculture will be substantially

greater than the volumes consumed by this

industry in New York last year. Last year

the severe floods associated with Hurricane

Agnes destroyed crops and resulted in a

reduced natural gas requirement. Since

this Commission’s restrictions include vol-

umetric limitations based on the highest

annual use during the three years preced-

ing our restrictions, the utilities serving

State

New York

(continued )

67a

Comments

agricultural customers have planned to

meet the historic limitations, not the below-

normal agricultural consumption of gas

last year. They would not, however, take

into account increased crop sizes.

Propane and Other Liquid Petroleum Gases

The information we have indicates approx-

imately a 1% deficiency of supply against

estimated total requirements of 150 million

gallons, assuming a normal winter. There

is concern, however, that railroad and pipe-

line transport difficulties may cause tempo-

rary shortages, especially during the peak

of winter. In addition, concern was voiced

that suppliers might not fully deliver on

contracts.

Some distributors indicated that transport

and weather conditions could cause short-

ages of 10-20%, but that such an imbal-

ance would be “solved” by curtailing in-

dustrial users and encouraging residential

conservation by limiting deliveries to par-

tial fills or emergency service only.

Distillate Fuel Oil

Although supplies for this season are ex-

pected to remain at last year’s levels, indi-

cations are that requirements have in-

creased by as much as 5% under normal

weather conditions.

Most major petroleum companies in the

State indicated their ability to supply oil

at volumes equal to 1972 levels. Some could

not do as well. Obviously, this leaves no

room to accommodate growth in demand

or to care for increased needs in a severe

winter. More important, the big independ-

State

New York

(continued)

North Carolina

Shy LEDGE LP RIL E Cid OL OEM

68a

Comments

ent dealers in the market indicated that

their stocks were low. It is apparent that

they are concerned about their ability to

meet even past demand.

Residual Fuel Oil

As is the case with distillate oil, the major

oil suppliers to the State have indicated

that supplies of residual oil are expected

to remain at last year’s levels while re-

quirements are expected to increase at a

rate of 7% annually. A major portion of

the increase is required by electric utilities,

because of growth in power demand and

because of the shortage of natural gas.

It appears at this time that our most criti-

cal areas relating to availability of fuel

during the winter heating season will be

propane, kerosene and number 2 heating

oil for agriculture, commercial and home

heating. Number 2 heating oil availability

for industrial purposes could create a most

serious problem if there are additional

curtailments of natural gas over and above

that resulting from the interim curtailment

plan. This matter was discussed in the

letter of August 21, 1973, from the North

Carolina Utilities Commission and will be

elaborated on in detail at the Federal Pow-

er Commission hearings scheduled for Sep-

tember 18, 1973. However, we desire to

point out that we are by no means certain

that sufficient number 2 heating oil will

be available to fill the needs of aditional

product required by industry even under

the interim curtailment plan. One of the

primary reasons for our shortage of num-

ber 2 heating oil, kerosene and LPG in the

State of North Carolina is that two of the

State

North Carolina

(continued)

Virginia

69a

Comments

major suppliers, British Petroleum (BP)

and Atlantic Richfield (ARCO), have re-

cently withdrawn completely from the

State.

A specific problem area which exists in the

State of Ohio is that of the grain harvest.

The outlook indicates a late, wet harvest

which will require more propane and natu-

ra] gas than has been estimated for a nor-

mal harvest (per FPC’s request).

The Commission provides that industrial

customers generally are curtailed first, so

residential and commercial customers

should have an adequate natural gas and

propane supply. This will alleviate the

situation to an extent, but it will by no

means solve the shortage problem. To date

Ohio’s small propane distributors have been

unable to secure more than 20% of their

estimated need for the late harvest season.

Of five distribution companies that utilize

propane for peak shaving, two report ade-

quate stock in storage for normal winter

requirements. Both hope to make replen-

ishment purchases. The remaining three

companies are short 12% (11% million gal-

lons), 50% (496,000 gallons) and 67%

(102,000 gallons). None of these have

been able to contract for the requirements

as of this writing.

Motor Fuels and Heating Oils

From November, 1972 through March,

1973, Virginia used 1,155,879,859 gallons

of motor fuel. Most projections are on the

increase for 1973 of about 7% if the win-

ter is normal. This means the State will

need about 1,236,927,000 gallons of motor

meerare

State

Virginia

(continued)

BIEN E<"

PAS EASE ALLBO IE nha?

I BP LOE AEE Bie? FOE PL POs IBA

Fie

70a

Comments

fuel to get it through the winter in good

shape.

The Commonwealth used about 1,053,533,-

000 gallons of all types oil for household

use in 1972. An average increase of 7%

is expected this winter if it is not severe.

About 84% of the year’s total is used in

the months from November through March.

Virginia then will need about 946,915,345

gallons of all types fuel and heating oils

for this coming 1973-74 winter. Of this

amount, 469,124,000 gallons will be +2

fuel oil and 204,164,000 gallons will be

kerosene.

The Commonwealth of Virginia has bought

both kerosene and #2 fuel oil to provide

its citizens if a shortage does arise and

from indications already received, it does

seem there will be one. We do not know

just how severe it will be though, and it

is impossible to determine the degree to

which the major oil companies will be able

to meet the demand.

Liquid Petroleum Gas

The LP Gas Industry was canvassed by

the LP Gas Association to determine sup-

ply, demand and end use. Approximately

39% of the respondents replied represent-

ing about 40% of the total gas volume

used in the State, therefore, the informa-

tion is of limited value. The LP gas situa-

tion at the time the query was first dis-

tributed in June was fairly good, however,

by the last of August, the availability had

deteriorated and allocations reduced to a

critical stage in some instances. The con-

sumer field storage is generally consider-

State

Virginia

(contiuued )

Wisconsin

Tla

Comments

ably lower than normal for this time of

year.

#1 fuel oil—critical

#2 fuel oil—very tight

Gasoline—barely adequate, with localized

distribution problems

Diesel—very tight

Propane—terrible, compounded by distri-

bution difficulties

Natural gas—ok, given greater number of

interruptions

Coal—ok. Electric utilities have long-term

contracts.

We do not have any specific information as

to the amounts of curtailment anticipated

but it is assumed that interruptible cus-

tomers will be interrupted more than they

have been in the past. Some pipeline com-

panies will have limited curtailment which

may also mean that interruptible custom-

ers will be interrupted more than they

have in the past. Such interruptible cus-

tomers will find it difficult to obtain substi-

tute fuels as they did last winter and as

other industrial customers are experienc-

ing problems in obtaining adequate sup-

plies of oil and propane.

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75a

TABLE 2

REPLENISHMENT OF NET STORAGE WITHDRAWALS

SINCE 4/1/73?

(Thousand Mcf—14.73 Psia)

EASTERN AREA: