Brief for Petitioner — FPC v. Transcontinental Gas Pipe Line Corp.

Supreme Court brief1961

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U.S

james R. BROWNING. Clos

Jn the Supreme Court of the United States

OcToBER TERM, 1960

’ FepERAL Power COMMISSION, PETITIONER

Sy ? : U.-

‘TRANSCONTINENTAL Gas Prre Line Corporation, Con-

SOLIDATED EDISON COMPANY.OF New York, INc., AND -

‘THE City oF NEW York,

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE THIRD ONQCUrs P

' BRIEF FOR THE rE PSDERAL POWER COMMISSION

ee J. LEE RANKIN,

Solicitor General,

GEORGE COCHRAN DOUB, ?

Assistant Attorney General,

ALAN S. ROSENTHAL,

ANTHONY L. MONDELLO,

_ Attorneys,

; Department of Justice, Washington 25, D.C. -

JOHN C.. MASON, °. ees,

_. General Counsel, ‘

HOWARD E. WAHRENBROCK,

Solicitor,

ROBERT L. RUSSELL,

Assistant General Counsel,

DAVID J. BARDIN,

Attorney,

_ Federal Power Commission, Washingion as, D. Cc

——

. , . Page

Opinions below- - - -- - - - ere eaecads ascetic das 1

7 ESL LEE OES II ma Re: STF ates 1

Questions presented----- --- eideeoemetis Cen: F

Pa ee eee ee S 3

DM cndécbenesekdnaneebkeeedeacacduee °3

~.Summary of argument... .......--..-------.--- 11

oeediin is wucpatidasaansvenkitteads acs 20

I. Introduction—The problem of direct inter-

‘state purchases of natural gas by large

industrial consumers-------------.-._- ee

II. The legislative history of the Natural Gas

Act demonstrates that the Commission

' is empowered, in passing upon applica+

tions to transport gas, to consider the

end-use of the gas, the price impact of the

transaction, the effect on supply, and .

comparable factors.:__....-__._.+____- - 24

A. The legislative history.....-______ 25

B. Significance of the legislative his-

adda tedcin wed dae nae 40

III. The accepted interpretation of the “present

or future public convenience and neces-

sity” standard likewise empowers. the

Commission to consider end-use and com-

“ee NR acaba ackons cdees - 45

IV. _The Commission’s evaluation of the various

factors was reasonable and should not be -°

Ova tat ce ndciesawacs "See pie 55 -

A. End-use-.------- ‘ittenccsnsauaae ae

: B. Price impact; preemption of gas

‘supply; preemption of pipeline ~ |

—C. Air pollution hbscaler mate esawditceate

664653—60——1 — (x)

Pe ee

-V. The Court of Appeals should _ not ‘have

ordered the Commission. to issue the -

certificate applied for, but should have .

remanded for. further area by’

Page

the Coffimission - - --- ee ee 82

Conclusion... ....---.-- oh DRT AD SO te ato 86

pS EE Te ewcence-ewes 87

x CITATIONS sea

Cases:

_ , Addison’ v. Holly Hill Co., 322 U.S. 607_...--. 83

American Trucking Associations v. United

Ce Ee Fe itn enaendbcanbecdcnes ae

Armstrong. Paint & Varnish Works v. Nu-

enamel Corp., 305 U.S. 315__. -.-------.- 45 |

Atlantic Refining Co. v. Public Service Commis-

sion, 360 U.S. 378____ 15, 29,44; 49, 57, 62, 67, 73

Battle Creek Gas Co. v, Federal Power Commis-

_ sion, No. 15,368, C.A:D.C., decided July 14,

Poe a re

‘Cabot Gas Corporation, Re, 4 PUR (NS) 443... 79

Carroll Broadcasting Co. v. Federal Communica-

tions Commission, 258 F. 2d 440. -__..__-- 52

Chicago, B. & Q. Ry. Co. v. Babcock, 204 US.

SRE A ES Seta eh ae Sn ee RN 82

Charleston & W.C. Ry. v. Federal Power Com-"

DO Ee eee eee 59, 80

Cities Service Gas Co. v. Peerless Oil & Gas Co., i ee

OF I ee oe

Cities Service Gas Company v. ‘State Corporation ;

Commission of Kansas, 355 U.S. 391_----- 22

City of Pittsburgh v. Federal Power Commission, Sr ik

237 F. 2d 741___-_-_- 49, 53,54, 58, 59, 62, 80, 84

Colorado Interstate Gas Co. v. F-P.C., 324 USS.

pia

Cases—Continued |

El Paso Natural Gas silica 22 F.P.C. 900,

petition for review. pending sub nom Southern

California Edison Company v. Federal Power aun

‘Commission, No. 13178 (C.A. 3)___.______ 69, 78

Federal Communications Commission v. Potts-

ville Broadcasting Co., 309 U.S. 134.____ 48, 52, 83

Federal Communications Commission v. Sand- 3

ers Bros. Radio Station, 309 U.S. 470____-_' 52

Federal Power Commission v. East Ohio Gas

Co., 338 U.S. tduéetcaeckdme, sible 14, 39, 40

Federal Power Commission v. Hope Natural

Gas Co., 320 U.S. 591___ 14, 26, 29, 38-39, 57, 60

' Federal Power Commission v. ‘Idaho Power. Co.,

344 U.S. 17____- Sadun units abd Civeths cee... 83

Federal Radio Commission v. Nelson Brothers

Bond & Morigage Co., 289 U.S. 266__:____ 45

Federal Trade Commission v. Morton Salt Co.,

ee - 83

Gulf Interstate Gas Co., 12°F .P.C. 116__.____ 72

. Incorporators of Service Gas Company v. Public -

_ Service Commission, 126 Pa. Super. 381, 190 ©

Ne i a ee eee en ee 41

- Interstate Commerce Commission v. Railway La-

bor Executives Assn., 315 U.S. 373________ 51

Interstate Commerce Comimission v. Parker, 326

ee ee ts 45, 47, 51 -

Interstate Power Co. v. FPPC. 236 F. 2d 372,

certiorari denied, 352 U.S. °° aaa Sl 82

' Iroquois Gas Corp., F.P.C. Opinion No. 279

(mimeo., pp. 19-21, 13 F.P.C. 492)_______ 64

Johnston Broadcasting Co. v. F.C.C., 175 FY2d

___ RAR RII ak Se als J o52

Kansas Pipe Line & Gas Company. and North

Dakota Consumers Gas Company, 2 F. P.C,

29 pafdinibndii divin dtbaawdneu naib k< cee 47

Cases—Continued

KFKB Broadcasting Ass'n. v. Federal Radio page

Ce, Gr Ws Oe Pee 4->- ~~ 55-.--0 =... 52

Market Street Ry. Co. v. Railroad Commission

- of California, 324 U.S. 548...-.----.-.---- 82

Misilickept River Fuel Corp:, 12 F. P.C. 109__ 59-60

enews v. Kansas Natural Gas Co., 265 U.S.

aetna chien anc otlik wai Sig aane a 22

National Broadcasting | Co. v. United States, 319

. = Si a ee 26, 46, 47, 49, 51

National Coal Ass’n v. Federal Power Commis-

sion, 191: F. 2d 462--_-_- jak LE Aiea Rae 53, 59, 80

National Labor Relations Board v.. Seven- Up

Bottling Co., 344 U.S. 344._-...---------- | 81

Natural Gas° Pipeline Company v. Panoma

‘Corporation, 349 U.S. 44_----- beaedeaGeks 22

‘Panhandle Eastern Pipe Line Co. v. Federal

Power Commission, 324 U.S. 635__...__..- «50

Panhandle Eastern Pipe Line Co. v. Michigan

_.. Public Service Commission; 341 U.S. 329... 22

Panhandle Eastern Pipe Line Co. v. Public. .

| Service Commission, 332 U.S. 507_-.-_---- 22,23 .

Pennsylvania v. West Virginia, 262 U.S. 553.. 22

Phillips Petroleum Co. v. Wisconsin, 347 U. S.

IR aie ae rar trea ann mali wean

Plains Radio Broadcasting Co. v. F.C.C., 175

le Sra eh ned aon cweldiw os 52

Public Utilities Com mission v. ia Steam 7 er |

& Electric Co., 273 U.S. 83__...-..------- 22 -

Schaffer Transportation Co. v. United States,

rcditeceteecdtedndatendan~s 51

_ Scripps-Howard Radio, Inc. v.. Federal Com-

a munications. Convmission, 316 U.S. 4.---- ee | ae

Securities and Exchange Commission v. Chenery

ee ee Wn do. oe nen awe 83-4

South Carolina Generating Co. v. F.P. C., 249 F.

_ 2d 755, certiorari denied, 356 U.S. 912. rhea 82

Co. PER Oe AGC OEE AIDS TO.

ee NAT: 0. am

bad

Cases—Continued : Ph

Sunray MidyContinent Oil Co. v. Federal Power _—

Commission, 353 U.S. 944._....--...-..- 83

-- Sunray Oil Co. v. Federal Power camnereniagy

HII, GOS ic sae wees oatietaednicaiel - 58,62. -

Tennessee Gas Transmission Co., 12 F.P.C.

Ee ee RE OR Ae TRE ee 64, 72

Texas Eagern Transmission Corp., SF. P.C.139. 72

Transcontenemial Gas Pipe Line Corp., 7F.P.C..

_ BESTA MMSE Pare Ly RIS 5

Transcontinental Gas Pipe Line Corp. 9F. P. C.

PE Uetewighsoeckyodswteeadee ccc 38, 70, 72

Tienadinbineatal Gas Pipe Line Corp. + 16

PIE Ms scvelincsbiccreatcinccume: > Oe

Franscontinental Gas Pipe Line Corp., 22 ~~

F.P.C. 836... .- feiigsie tieadii dcp aes

Trinity Methodist Church, South v: Federal

Radio C’ ., 62 F. 2d 850, certiorari denied,

284 USS. = 2 & See 52 ©

United Airlines v. C.A.B., 155 F. 2d 169-____ 81

United States v. Carolina Carriers Corp. 7 S15

I Sacto a es ‘a. <a

United States v. C.I.0., 335 U.S. 106_________- 45

United States v. Detroit Navigation Co., 326

Rr ei Cos eae 45, 49

Ungted States v. Lowden, 308 U.S. 225.._..__. 51

United States v. n Corporation of America,

= See eee 54

United States v. leon: , 2p Se see 45

Universal Camera Corp. v. N.L.R.B., 340 U.S.

ES Se eS Ee AE en 78

Western Air Lines v. Civil Aeronautics Board, ‘

on Ck if _ | REL Eee Se aaee 51-

Wrather-Alvarez Broadcasting, Inc. v. Federal

Communications Commission, 248 F. 2d 646. 52

_ W.S. Butterfield Theaters v. Federal Communi-

cations Contmission, 237 F’. 2d 552--........ 52

— ————— VI s

Statutes: ¥?

, Civil Aeronautics Act, Sections 401(4) and i), a

Es IG Eisdeces es cgcenaestces 51

Communications Act: 3 ia, ict

OF Ss a wns biccensnesaesoesesue 52

SA ee en S aeewecwus 51

; “TP en, bonne snedescaaecdhbawe 62

Federal Power Act: eke ;

est a ee otal ms 4b

Se ican new uee oe Rap eTe oo 41

Motor Carrier Act, Section 207(a),49U.S.C. —._—&

NY Bia tate shreds se chvaglanaccndduadoe 47,51

Natural Gas Act, 52 Stat. =, ‘as amended,

15U.5.C. 717: |

Section 1(a)__.: Bae ee eran eee 13, 25, 87,

Section 1(b)....-........------- *‘_._ 11, 20, 87

Section 4(a)..........--.-- Sees ra eee 38

Section 4(b)__..... 2. ____- SRA ee pp Pest 85

MEE cudicnus<dsadecoatnas tes 38

‘ME Cis natdetnscaess vad dinowiege 2,

3, 11, 14, 24, *, 29, 31, 35, 36, 37, 55, 61

Section 7(c) Veccsasnees 20, 28, 29, 31, 37, 87-88

Section 7(e)..-...-- taeeuee cae ee

: Section 19(b)_.......---- ae ae yas '* 82

_ Miscellaneous: ;

Federal Power Commission Annual Report, ~~

SN Med csccodadduatanticiekiowescs 30

Federal Power Coniiniss:9n. howell Report,

SE cusidndas cians tungwasetumece uit 39, 43

ic Gadacweuhesieg ers ee eh aca 30, 37.

Wl pile endceenoouscseeinaiwenis 60

i eadkaatdeusinaweihkonswvnunets 38°

_——— ~~.

Miscellaneous—Continued oe

F.P.C.,-Natural Gas Investigation, Olds-Draper —

Report:

F.P.C., Natural Gas Investigation « (1948),

Docket G-580, Smith-Wimberly Report, oa

pp. 353-354. ........: 2.

Federal Trade Commission, Final ‘Report to

the Senate of the United States, Sen. Doc. 92,

70th Cong., Ist sess., Part 84—-A (1936):

; Hearings before a‘Subcommittee of the Senate —

S Committee on Interstate and Foreign Com-

i ’ * merce on S. 734, 80th Cong., Istsess....... 58

| Hearings on H.R. 5249, House Committee on

Interstate and Foreign Commerce, 77th

Cong. ist, sess.:

| Sree, |, ko selene peiid lsat acoeuare cer 30, 31. |

ae Sen NE ONES enum 31, 37, 47

Pe Mi cevdwah cans voetsctdeuensecuneans 33, 42

De asivaesncettentendilay boas busidenbed 42

SPU thecesveaduccan cup caGeaemencemee 37, 42

ite ccdcusédenddwanssadbaansdhaes 37, 42

i iadelsiniald-s a ekoudeanew dicen ov a

OG citings dii anata ued 42 °

PE nawonnlendudustugnenusenkas 37

De Mie dvs neewslundcntdelebeatueteansn 37

Pi Bla ese ge cceenncesccas Seceames 47

-«N.Y.\Herald Tribune, Sept.-19, 1960_______- o

‘Oil & Gas Journal, November 9, 1959, p.113__

vill

Miscellaneous—Continued .

Hearings on H.R. 5249—Continued 3 —_

EE EC ee em ee ae 34

ENE die bnntwegunsweuwed a 45

is ern oad wecm eames eenwd een 81

Ce ee en ae - 29

ee SES SES a ee SRO, SME Poe ~ 30, 37

Pa ubhitdgaasncduesedabativeneders 31

SEER aR it oper pe pavain de acdc 31

A ccivaed dunes wa treg ceguehe sag an ib 29

disp atin thc piakeaienh avieae es gcuckd 32-33

irene cudstends oe cteine ios 30, 37

Eas ietnesags~ «std povensness a Oe

‘H. Rept. 1290, 77th Cong., Ist eose |

PE iatdncusayancus Geant aan _ sr

RE Rek dace tn senna cadsscnenchse 47

babe ier dela kane kak iain ie ius 36

SSIES LER, La aaa eae eee a ------ 31-32

H.R. 4819, 87th Cong. Rec. 4301--__-.-..-- 3i

H.R. 5249, 77th Cong., Ist sesqgp_____. teens 31, 35

Jacobs, Are Sampling and A is Techniques ©

Adequate for Today’s Needs? Proceedings,

National Conference on Air Pollution, Pub-

lic Health Service (1958), pp. .94-99-___- ca 75

Makie, The Regulation of N atural Gas (Ameri-

can Enterprise Association pamphlet, 1957)- ©

Oil & Gas Journal, July 25, 1960, p. 131-_, --

Orning, Industrial Sources of Air Pollution—

Electric Power Plants (Coal Fuel), found

in Proceedings, National Conference on Air

“Pollution, Public Health Service (1958),

(Raa te a Sa Sale EP ROR sae acai

agine

Miscellaneous—Continued

Petroleum Week, November 13, 1959, p. 22--

Proceedings, National Conference on Air Pol-

lution, Public Health Service (1958):

of 167-170... _--- ao alee le ie

S. Rept. 948, 77th Cong., 2d sess., pp. 1-2---

Zimmermann, Conservation in the Production of

ree (1957), p. 242.......-.. “ieenae

ON} Dink Be

In the Supreme Gourt of the Writed States

QcroseR TrRM, 1960

No. 45.

FEpERAL PowER CoMMISSION, PETITIONER

v. .

TRANSCONTINENTAL-Gas Pree Line Corporation, Con-

SOLIDATED Epison COMPANY OF NEW York, Inc, AND

THE: Crry oF NEw YORK

on, WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

| APPEALS FOR THE THIRD CIRCUIT

eV OPINIONS BELOW

The orders of the Federal Power Commission deny-

ing the certificate application (R. 174a-183a) and

denying rehearing -(R. 184a-194a) are reported at 21

F.P.C. 138 and.399. The opinion of the Court of

Appeals (R. ne) is reported at 271 F; 2d 942.

JURISDICTION. ;

The judgment of the Court of Appeals was entered

on November 3, 1959 (R. 325). By order of Mr.

Justice Brennan dated J: aftuary 27, 1960, the time

within which to file a petition for a writ of certiorari

was extended to March 1, 1960. The petition for a.

(1)

—“~s

2 :

writ. of certiorari was filed on February 29, 1960,

and granted on April 18, 1960. 362 U.S. 948. The

jurisdiction of this Court rests upon 28 U.S.C.

1254(1). and Section 19(b)’ of the Natural Gas Act,

15 U.S.C. 7lir(b).

; QUEEFIONS PRESENTED

A ‘New York electric, gas, ‘and steam utility con-

tracted to buy natural gas-in the field in Texas for con-

sumption. under its own boilers in New York.

’ Federal Power Commission approval of such trans-

_ actions would not be required since no sale for re-

sale is involved. 'The New York company arranged

for transportation of the gas from the places of

purchase in Texas to the point of consumption in

New York.. The transporting pipeline company then

applied to the Federal Power Commission for a cer-

tificaté of convenience and necessity, under Section

7 of the Natural Gas Aci (15 U.S.C. 717f). In

denying the certificate, among other things, the Com-

mission considered the effect of this.and future similar

transactions on the price and availability: of natural

gas generally; also,:the desirability of the particular |

end-use to which this gas would be put. The questions

presented are:

1. Whether, under the public convenience and ne-

cessity standard of Section 7, the Commission has the

’ power to evaluate the end-use to which the respondent —

industrial consumer would put the gas transported

by the respondent natural gas company.

2. Whether, taking into account all of the factors

considered by the Commission, its decision denying

pinhextit, dasssbevs ovat

a Ba

peGhez J

AREA Bbila eM ODA A FEA,

eS eS ee

Ste

—s-

issuance of the transportation certificate was a rea-

sonable exercise of its judgment which should not ;

have Be disturbed by the Court. of Appeals. i

3. “Whether the Court of Appeals erred in re-.

manding ‘the case to the Commission “with direc-

tions to issue the certificate applied for”’. ’

STATUTE INVOLVED —

The pertinent provisions ‘of the N pine’ Gas Act,

52 Stat. 821,.as amended, 15 U.S.C. 717, are set

forth in the Appendix, infra, pp. 87-89.

STATEMENT

1. In a certificate proceeding brouglit under Section

7 of the Natural Gas Act, Transcontinental Gas Pipe

Line Corporation (Transco) sought from the Federal

Power Commissiori.a certificate of public convenience

and necessity to transport in interstate commerce, for

Consolidated Edison Company of New York, Ine.

. (Con Edison), natural gas which Con Edison’had con-

tracted to buy from producers -in Texas, Because

Transco proposed to perform the transportation under |

a specially tailored “X-20” rate schedule applicable

to Con Edison alone, the arrangement has come to be

known as the ‘‘X-20 service.”’ | : 7

Con Edison had eontracted to buy natural gas at’

1914 cents per Mcf in the Normanna and Sejita’fields, -

’ in southern Texas, foy use as boiler fuel at its Water- .

side steam-electric station in New York City.’. The

gas-purchase contracts prohibit resale of the gas by.

‘The gas would thus be carried from one extiemity of Trans-:

co's pipeline to. the other. See Transco’s system map, R. 117a.

. 5 +] -

Pr 4

Con. Edison,’ ‘and therefore no, Commission approval,

of the sales or purchases is required by the Natural

Gas Act.. Con Edison then, arranged with Transco for

‘transportation, of the gas at a rate of “—". Mef?

daily to New York City.*

To the Commission Transco proposed the service

’ to Con Edison as part of its application in F.P.C.

Docket. No. G-13590, which together with three other

‘gt dockets * represents a major expansion of pipeline and

———

* Con* Edison’s Vice President testified ie it acquiesced in

‘ the producers’ insistence’ that the gas not be for resale because |

it wanted a firm supply, which could not be assured for boiler- .

fuel use if purchased from Transco under Transco’s. regular

tariff (R: 30a). The tariff provision in question is patagraph -

2(b) of Rate Schedule CD-3, under which Con Edison buys

gas from Transco, and which permits curtailment of. deliveries

“destined for use as boiler fuel when the gas is needed for wise

in Transco’s underground storage facilities (R. 154a~-155a).

The X-20 arrangement is so framed that no equivalent tariff - .

limitation would apply to any of the gas, or to facilities for its

" ‘transportation.._See infra, p. 85, noteB0. |

*An “Mcf” is one thousand ‘cubic feet. The figures in this

Statement are rounded out to close approximations. °

‘The proponents testified that they planned shortly to increase

X-20 transportation to 120,000 Mcf per day. . Transco also

undertook to sell from its own, reserves; at Con Edison’s option,

and without.restriction as to resale, up to 50,000 Mcf per day ;

‘5 on up-to-60 Gays of the year, backing off the transportation

service to obtain pipeline capacity to deliver its own gas. Con —~

Edison presented testimory that it would exercise that option a

only in part, and that it planned te burn as boiler fuel, on |

every day.of ‘he year, -at least 25,000 Mcf of the gas ithad_ . .

purchased in the field ‘(R. 7a, 29a, 98a). Although under the

X-20 arrangement Con Edison would have the right to buy up

to 3,000,000 Mcf 4 year from Transco for resale, ‘the estimate

presented to the Commission by Transco was for actual pur-

_ ehases of only 912,500 Mcf (R. 123a, line 10). F |

/~." *G-13143, G-13745, G-13793.° a i

————— a

EG NE TI EE ES EI EER I A aT AE. 5 a BEATER ene Ss Gatlin I it 9 aan t cet Ca i Warpath le Sere ts Sor’ ea

r e ; . ; ° is . . ,

‘

| pt ire

tae .

sforage facilities. In this Docket No. G-13590, Trans-

‘ @o proposed to inérease its pipeline system peak-day

capacity by some 200,000 Mcf at an investment of

$137,000,000 in new facilities.‘ Of this capacity, 50,-

000 Mcf a day represents capacity for the’ service to

Con Edison under the new “X-20” rate schedule.

| 2. At the certificate hearing, ‘ Con Edison undertook

to show that its proposed use of the gas was in the

public interest as the only effective and economical

_ means of reducing air pollution in the vicinity of its

_ Waterside station, which is located near the United

Nations building i in New York City. No showing was

made that other fuels were in short supply in’ New

York City, nor, that any large price: differential ex-

isted between gas and coal. Neither did Transco show. ~

any significant advantage to its load factor Aa e., the ©

ratio of actual annual flow to designed annual capac-

: ity), because it is high in any event, and because the

*To appreciate thie magnitude of the expansion proposed in

G-13590, we may compare it with the 958,000 Mcf which is the

total of all previous Transco peak-day allocations (including

those in earlier dockets, which were pending at the time of the

G-13590 application | 3 unallocated pipeline peak-day capacity

- would be mini imal. Transco’s original capacity, as certificated _.

in 1948 before construction of the pipeline, was 340,000 Met a

per day. 7 FPC 24. .

*The Commission permitted intervention’ by Con Raison sed

the City of New York (which supported Transco’s ‘applica-.

tion), by the “coal interests” (National Coal Association, .

United Mine Workers of America, and Fuels Research Counc il,

. _Inc., which opposed the application), and by the New York

Public Seryice Commission (which remained mute as to the —

X-20: proposal), among others.

X20 service does nothing to fill seasonal valleys in the -

use of its system ‘eapacity." Transeo sought instead to.

show a positive public need arising from the benefit to »

be achieved by reduction of air pollution. ae

The record shows that Con Rdison’s Waterside plant

daily emits large quantities of smoke containing fly- ~~

_ ash, unburned carbon, and sflphur. dioxide. Citizens

have complained about flyash they attribute to Water-

side. But the record fails térelate the part Water-

side plays in the total air pollution problem of New

York City, Manhattan, mid-Manhattan, or even the

"vicinity close by Waterside. The Waterside plant is

located in Manhattan’s eastside, on the west bank, of

the East River. New York City’s air-pollution ex-

pert, Dr. Leonard Greenburg, then Commissidrier of

Air Pollution Control, testified that the prevailing

winds are from the west (R. 51a; see photographs

tS and. map, R. 133a, 134a, 146a). * The only testimony

of personal or’ property damage resulting from the

Waterside smoke is his expert opinion that_as-a

medical matter such effluents are detrimental to

health (R. llla) and that there was precipitation in

the neighborhood due to Waterside (R. 15a). Dr.

Greenburg offered neither figures nor studies as to

actual damage caused by Waterside (R.. 110a-t13a),

and couched his discussion ‘of the health, as contrasted

. *From Transco’s Exhibit 7, page 1 (R. 118), there. can be

compfited ‘the system's <lelivery requirements for the year

November 1958 through October 1959 as_a percentage of the

system's capacity for the.same period. With the X-20 service

the figure is 9S.MS8°); without X-20 the result is 98.900,

The reason X-20 fails to contribute to raising the system load

factor .is that the boiler-fuel portion may be interrupted in

favor of the “60-day, consumer gas” only at Con Edison's ~

opt jon.

ee ae

Le Ne theta Ty te Ne cet at Se Ke te tan tat sme wnsitatedh ts MQ ~ ir ieee

ore ew th eee”,

bg 7

with the nuisance, implications of such emissions with

’ the caution that “there is a lot we still have to learn”,

“the health implications * * * is sogeething to be

regarded with suspicion’? (R. 48a). However, Dr..

Greenburg did assert that there appeared to be “no

other practical solution” than to tonvert two of the’

older boilers at Waterside to natural gas (R. 50a).

There was. testimony that aggravated smoke con-

_ ditions at Waterside are due primarily to perform-

ance difficulties with thoge two older boilers, and

perhaps with their dust collectors as well” (R. T5a-

77a, 78a-8la). There was no detailed evidence com-

paring the costliness of various alternative means of

abating the pollution problem at Waterside. | Re-.

placement of the two boilers would be expensive,

time consuming, and would require advance planning

to shift system load. Con Edison's Vice President

Manz ¢oncluded that this remedy would be impracti-

cal (R. 16a; ef. 8la-84a). Raising one of the smoke

stacks would probably ameliorate the smoke condi-—

_ tions, but might require municipal consent (R. 87a-

88a). ° Also, coal at Waterside costs slightly more than

gas “(R. 102a-103a).”

The record does not show a clear violation of New

York City’s air pollution ordinance; there was testi-

mony of occasional failure to meet the vaguer “‘nui-

sance” standards (compare R. 93a-97a, 108a-109a,

113a-115a). Con Edison has long been concerned

with the Waterside smoke emissions,. but has’ de-

-Veloped no plans. to shift the load to other locations

* But see Con Edison's Brief in Opposition, p. 6, % to the

changed situation since the record was made.

664653_60— 2

.(R. 107a). It burns ‘large volumes of gas on an

interruptible basis at other plants, but has not utilized

that gas to alleviate, during at least the. warmer por-

tion of the year, the supposedly unique ‘situation at

Waterside (R. 89a-92a).

3. The hearing examiner regarded the evidence con-

cerning, pollution as most speculative, and found that

_ the proponents ‘had not |sustained their burden (R.

171a, 172a). W eighing the public interest in consum- —

ing gas for superior uses against respondents’ claim °

that this particular boiler fuel use was, in fact,

“superior”, he found that the applicant had failed to

demonstrate that the public convenience and necessity

required the transportation service, and therefaye, that

on this basis the certificate should be denied. The

examiner did. note that the peaking service portion of

X-20* “does have very demonstrable and real benefits -

. for Consolidated Edison’s gas customers * * *.

However, these, benefits are obtainable in other ways

than hy this arrangement and these benefits should

not be regarded as being a special, attraction” (R.

173a). Finally, however, the examiner held that the -

Commission had no legal basis for inquiry into the

merits of the proposed end-use ‘and approved the

requested transportation servite (R. 171a).

-¥ Since the hearing, Con Edison’s mint recent annual report

_ to the Commission indjcates that it has moved in that direc-

tion; in 1959, without any X-20 arrangement, it managed to

burn. 10,437,005 Mcf -at Waterside (F.P.C.-Form No. 1, p.

86-1). Thus, the perticular situation at Waterside today

provides less support for respondents’ certificate application.

* Sypra, p. 4, notes 4.

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4. The Commission noted the attractiveness of the

idea of ameliorating the- unpleasant air pollution both

around the United Nations building, and generally in

New York City (R. 178a, 191a-192a). It. con-

~ eluded, nevertheless, as had the examiner, that the —

air pollution showing was inadequate to outweigh the

socia] and economic waste of burning natural gas. as

_ boiler fuel. It found, too, that weightier considera-

_ tions compelled the denial of the grant, and in deny-

ing rehearing it painted to various possible adverse

effects of the proposal, including (R. 185a, 189a) :

the effect of stimulating increared purchases

‘of gas in the field by distributing companies in

substitution for the present, prevalent types of:

interstate natural-gas service involving pur-

‘chases and resales.by natural-gas pipeline com-

panies ; the effect of pre-empting pipeline capac-

ity. which would otherwise be available. for

more widely beneficial public service; the effect

of making it more difficult to meet the require-

ments of smaller purchasers in the event

arrangements of this type become wide-spread ;-

and the effect of increasing the rates for gas,

to the detriment of the consumer. We also

- considered the proposed inferior end use of the

gas. ** *

. 7 + * .

Contrary to applicants’ contentions, we do nat

view the proposed end use of the gas involved

‘in this case as of decisive importance. In

accordance with the National Coal Ass’n case,

it is but one factor, and that not of determina-

tive importance, which we consider in the

exercise of our judgment on all the facts.

Weighing the adverse factors against the desirability ~

of alleviating air pollution, and other conventional

elements which favored granting the application, the

Commission found the proposal not in the public

interest, and denied the application.

5, The Court of Appeals set aside the Commission’s

order denying Transco’s application, on the basis that.

the Commission had exceeded its jurisdiction by con-

. . sidering the-end-use to which the gas would be put.

It read in the Commission’s ‘‘examination and ae

proval of the end use to be made of this gas”,

‘assertion of “a general allocation and et te

authority over the natural gas fields of the United —

States” (R. 312). It found from.its examination of

legislative materials that the Commission had _re-

quested such general conservation authority from

Congress and was not granted it in the Natural Gas

Act or its amendments. The court commented direct-

ly on each of-the critical policy considerations which

persuaded the Commission, on balance with other fac-

tors, to deny the application. It found two of these

considerations—i.¢., preemption of capacity, and effect

‘on prices—to-be implicit assertions of general conser-

vation authority. Without characterizing the Com-

mission’s consideration of the small gas consumer’s

inability to bid competitively with large purchasers

in the gas fields, the court found this also to be a con-

sideration ‘“‘which the Congress did not envisage” (R.°

323). ;

The court directed that the » ance grant the

certificate, permitting it first to’ conduct hearings on

only one minor, disputed, factual matter.

''The'threat posed by the X-20 type of arrangement

to the small consumer, the person for whom the pro-

tections of the Natural Gas Act were designed, lies in

its potential to establish a new, unregulated, intet->

state market for natural gas—by the large industrial

consumer purchasing directly from the ‘producer—

which will compete for new gas supplies with the reg-__

ulated market over which the Commission currently

exercises jurisdiction. This unregulated alternative to

selling gas in the rate-controlled interstate market is

most attractive to producers and to large industrial

consumers alike, and has the potential for absorbing a

dangerously large proportion of new gas reserves as__

they become available in the future.

Since the X-20 arrangement involves a direct ies.

state purchase of gas for its own boiler-fuel use by

a large industrial consumer from producers in the

field, the transaction is not within the Commission's

jurisdiction over sales of gas for resale by a nat-

ural gas company. But the interstate transporta-

tion of gas so purchased is within Commission juris-

diction under Section 1(b) of the Act, and such trans-

portation is not permissible unless the Commission

finds it to be in the public interest, and issues, there-

for, ander Section 7 of the Act,.a certificate of public °

convenience and necessity.

In the Commission's view, the new market which this *

and further X-20 transactions would éstablish (1) por-

tends definite and lasting inflationary impact on gas

12 .

prices generally, (2) would probably be devoted to.

end-use§ inappropriate to the Act’s purposes, (3)

would disrupt patterns of industry growth carefully

evolved during 20 years “of congressionally-directed

regulation, and (4) would be ‘beyond elective am -

regulation.

-‘On the basis of its judgment that these damaging :

probable effects outweighed both (1) Con Edison’s

need for the gas, and (2) thé inadequately shown con-

tribution which burning the gas as boiler fuel might :

make to local air pollution control, the Commission

denied Transco’s application for a certificate as not

-being required by the present or future public conven-

ience and necessity. The court of appeals ruled, how-

ever, that Congress, in the Natural Gas Act, had

precluded the Commission from taking such matters .

into. account in determining, under the standard of —

**publie convenience and necessity”, whether .a trans-

portation certificate should issue.

We show in Point II, from the legislative history .

of the Act, that Congress clearly empowered the

Commission to consider end-use, price impact, preemp-

tion of gas and pipeline capacity,’and comparable fac-

tors.. We then show in Point IIT that the accepted

intérpretation of the present or future public con-

venience and necessity standard likewise permits

- and tequires Commission‘~-consideration. of ‘such.

factors which affect the public interest. -In Point

IV we explain why the Commission’s appraisal in

this case of the various relevant factors it considered

is. a reasonable and appropriate evaluation and

should not be overturned; we conclude by pointing

aut in Point V that, in any event, the court of 7

— ores

peals should not have ordered the Commission to

issue the certificate, but should have remanded the

case for further exercise of the Commission’s- own

judgment: in the light of the court’s opinion and

changed circumstances...

The lagiilative history of . the Natural Gas Act

shows clearly - that Congress, in its-grant of certificate

authority to the Commission, entrusted it to consider .

. all relevant factors which might have a bearing

~ on the public convenience and necegsity—including

the end-use of the gas, conservation, price impact

of a-transaction, ete. The 1936 report of the Fed-

.eral Trade Commission on the natural gas industry,

noted in Section 1(a) of the ‘Act as a main source

of its policy, recognized that, in view of the ex-

haustability of the precious natural gas feserve, the

burning of natural gas for boiler fuel is an inferior

-use compared to its usé’for cooking, and hot water

and space heating by householders and other small

~ consumers. Stressing the need for conservation of

the resource in terms of avoidance of inferior uses,

the Trade Commission suggested a public agency

which could weigh private rights and equities to-

gether with the general public interest. In the °

original 1938 Act, Congress provided a general cer-.

tificeate authority to protect the gas consumer’s in-

terest in--adequate service at reasonable rates, but

‘limited it tothe construction of facilities which -

would transport gas to a market in which natural

gas was already being served by a natural gas com- ¢

pany. Since the limitation proved unworkable, the

«_*

414

Commission sought amendment, of Section 7 of the

Act to broaden the certificate authority to cover-all

constructions and extensions of service. The explicit

purpose of the amendment was to give the Com-

' mission “complete regulatory control” over trans-

portation, and over the evaluation of the interests

of competing fuels and competing methods of trans-

portation. The hearings (on the bill which con- ;

- stitutes the 1942 amendment to Section 7 of the

Act) ¢ontain (1) abundant reference to the broad

inquiry ° "permitted the Commission in certificate

cases, (2). unchallenged assertions by a Commis-

- sioner of the Federal Power Commission of the breadth ©

and scope of Commission power in such cases, (3) the

‘ Committee’s rejection. of a suggestion that the cer-

tificate power be curtailed by a specific enumeration

of permissible*areas of inquiry, and (4) the stated

lack of opposition to the “bill by the industry. In

our view, the Committeé Reports on the bill coincide

with the Commission’s understanding of its breadth. _

In dealing with this legislative history in Federal

Power Commission v. East Ohio Gas Co., 338 U.S. 464,

468-469, and Federal Power Commission v.-Hope Nat-

ural Gas Company, 320 U.S. 591, 612, 616-617, this

Court confirmed that it demonstrates the Commission’s

present power, in certificate cases, to consider the end-

use and conservation: aspects of the probleme with

which it is concerned.

There is no indication in the legislative history that

Congress had any design to limit the Commission’s

_ range of inquiry in its application of the standard of

public convenience and necessity. On the contrary,

this history shows that the Commission is empowered*

. broadly: to promote the development of the industry

along lines which would be:consistent with the public

interest, and without undue disturbance of existing

operating arrangements of natura) gas companies.

III

A. In addition to the particular history of the Nat-

ural Gas Act, the Commission’s view of the breadth of

its permissible inquiry is ‘supported by the a¢cepted

function and meaning of the standard of public con-—

venience and necessity in federal publie utility régu-

lation. This Court has held that use of the standard

in the Natural-Gas Act, as well as in other legislation

establishing federal regulatory commissions, author-

izes the expert body chosen by Congress to determine,

from its analysis of the “‘total situation”, on which

side of a controversy the ‘public interest’ lies. The

Court recently cautioned that, in performing this cer-

‘tifieate function, the Power Commission must consider

all factors bearing on the préblem before it (Atlantic

Refining Co. v. Public Service Commission, 360 U.S.

378, 391). ss |

B. In particular, it. is clear under the Natural Gas

Act and under ‘comparable legislation that. such ‘con-

* sideration ean and must include relevant factors

which the regulatory commission cannot directly regu-

late: Such eléments are not excluded in deciding

_Where the public interest lies in the particular trans-

action which the Commission éan regulate.

C. Regulatory agencies are similarly required to

.16

consider important Siiiedionl policies which per- -

meate other legislation, such as national defense or

antitrust policies. And whatever the area of consid-

eration, the Commission is not restricted to the nar-

row transaction immediately before it, but may ap-

‘propriately take account of a wide range of factors

_ bearing upon its obligation to — tlie general pub-

lic interest.

- Th¢ discretion exercised by the Commission in this

~ -ease—its weighing of the factors of end-use, price im-

pact, preemption of gas supply and pipeline capacity,

the “conventional requirements”, and the record made

on air pollution control—is reasonable and is war-

ranted by thé particular record before it, its own gen-

' eral expert judgment, and the overriding concern of

the Natural Gas Act with,the protection of the small .

consumer. This reasonable and appropriate judg-

ment should not be overturned. :

A. End-use. The Act’s requirement that the oo us

mission consider the interests of competing fuels nec-

essarily involves an ultimate judgment as to whiclf

of two or more fuels shall be used. Consideration of

such use is necessary and responsive to the unusually

explicit Congressional direction in the legislative his- -

tory that the rdies of competing fuels be assayed.

‘Application to the facts of this record of the Com-

mission’s flexible boiler-fuel policy—its rebuttable

presumption that the use of gas as boiler fuel is in- —

ferior usage and should be permitted only on a posi-

‘tive showing that the public interest requires it—is

wholty reasonable.

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B. Price impact and preemption of gas supply and

pipeline capacity. The most damaging impact of the

X-20 type of direct industrial sale will fall upon the

general public utility consumer, for whose protection

the Natural Gas Act was principally designed. The

Commission’s judgment that the presence of additional

bidders in the gas fields will drive up the price of gas

is supported by the demonstrated attractiveness to

producers of an unregulated market and the attrac-

tiveriess to large industrial consumers of a firm (not

interruptible) gas supply. Past transactions, current

negotiations which await the outcome of.this litigation,

testimony in other procéedings, and the predictions of

the trade journals, all’ combine to. support the accu-

racy of the Commission’s judgment that the vastness

-of the potential direct industrial sale market will prob-

ably have an unduly inflationary impact on gas prices.

Protection of the smaller. consumer depends on the

- extent to which new gas reserves are dedicated to

. interstate sales under regulated prices. If. the unreg-

ulated market Broadly expands, as permitted by the

X-20 type of arrangement, the dual effect of diversion

_ of new gas and uncontrolled prices will probably mean

for the consumer that he will have less adequate sérv-

ice at higher prices. i

Moreover, gas consumed as boiler e is preempted —

from sible use for more beneficial public needs,

such as immediate more desirable use, or temporary

storage for such ultimate use. Similarly, the limited -

capacity of a pipeline to expand beneficially is pre-

empted by the dedication ‘of a portion of its unused

capacity to less desirable transportation. Private in- °

| uo

‘ ‘

centives. may well encourage expansion of the unregu-

_lated™ ‘market, and abandonment of the industry pat-

terns (i.e., resale to the ultimate consumer after pipe-

line transportation and sale) which currently protect

the public utility consumer’ because ‘DE the Commis-

sion’s power over, the pipeline’s. sale to the. local dis- |

tributing company or to the industrial purchaser,

C. Air pollution. The record made by respondents.

om the effect of Waterside’s addition to New York

City’s air pollution control | problem | left much to be-

desired. No’ adequate study. was presented of the

sources near Waterside, or elsewhere in the city, of

gaseous ‘and particulate contaminants emitted into the . —

atmosphere. No discriminating analysis was made of

the source of the contaminants of either sort which

grounded the complaints of the local citizens. Inade-

quate account wes taken‘of the effect on the pollution

problem of prevailing winds and the proximity of the - .

Z East River on the leeward side of the Waterside sta-

tion. Also lacking in significant detail is the testi-

~ mony regarding @he cost of various pollution abate- —

ment alternatives available to Con Edison. ‘No actual

health or property damage attributable to Waterside

emissions’ was shown. On. this record, the examiner’s

finding of record inadequacy, and the Commission’s

’ determination that the showing fell short of outweigh-

ing competing publie interest factor$-4s certainly both

‘ reasonable and well supported.

In sum, the Cammissian’s conclusion, we after -

- weighing all of these factors in the’ public interest,-is .

. a reasonable judgment which Congress entrusted to

the Commission, and which should be respected by the °

courts:

pi Aerteaie - ee et et eee etn ae et ee ea ae |

or ; :

Assuming that the court of appeals’ ruling om the

legal question of Commission power was correct, it

should still, under established principles, have » re-

manded the case to the Commission for reconsidera-

.tion in-light of the court’s ruling. Additionally,

special. reasons exist in this case for following this

.. normal ‘course..

A. In _ proceedings | cibiaeti to its denial of

ua Transco’s application, the Commission authorized

Transco to build and dedicate to other purposes some

of the facilities which its former application proposed

for X-20 use. The former application is now out of

date,.and literal compliance with the-court of ap-_

_ peals’ direction to ‘‘issue the certificate applied for’’ .

- would not enable performance of the X-20 service.

Present circumstances would require a different or.

amended application to be determined on the basis of

the facets as they now are.

' B. Similarly, the court of appeals’ directign that

the Commission isené a certificate deniés it the oppor- -

tunity to impose regulatory conditions ‘on transporta--

tion of the X-20 gas, which it had not needed to_

-consider because it had wholly denied the certificate:

Unrestricted remand to the, .Commission would enable

it to protect the public interest in chtacamaeiae of

the X-20 gas. /

C. The availability of gas for boiler fuel use to Con.

Edison through ordinary purchases from Transeo (it

‘burned over. 10,000,000 Mef at Waterside in 1959,

without, the X-20 service) is an additional question

that could be re.olved on remand.

20 .

ARGUMENT

‘ I

INTRODUCTION—THE PROBLEM OF DIRECT IN'FERSTATE

PURCHASES OF NATURAL GAS BY LARGE INDUSTRIAL

CONSUMERS |

This case involves the range of Federal “Power

Commission_ inquiry, under its statutory power to ~

‘regulate the transportation of natural gas,” in an area

where the“denial 6f Commission power gravely im-

pedes effective regulation of the industry. Because

Con Edison’ s purchase and -industrial use of the

Texas gas are not in themselves regulable by the Com-

‘mission, the Court of Appeals has held the Commission

barred from considering that «use in passing: ‘ypon

#2 Section 1(b) of the Natural Gas Act gives the Federal

.» Power Commission jurisdiction oves the “transportation of-

* natural gas in interstate commerce.” 15 U.S.C. 717(b). Natu-

ral gas companies . (Transco, here) may transport ‘natural gas

in their pipelines only as authorized by “a certificate of’ public

convenience and -necessity” issued, after hearings, by the

Commission. 15 U.S.C. 717f(c). ‘The certificate, authorizing

all or part of an application, is issued to any qualified.

applicant,

eoCHRS —_" that the applicant is able and willing

properly to do the acts and to perform the serv ice proposed ~

‘and to conform to th&pryvisions of this chapter and the’ re-

quirements, rules, and regulations of the—Commission there-

under, and that the proposed service, sale, operation, construc-

tion, extension, . or acquisitiop, to the extent authorized by the

certificate, is or will be required. by the present or future

public convenienve and necessity ; otherwi ise such application

shall be denied. * * *”:

The Commission is also yiven the

'4* © © power to attach to the issuance of, the certjficate and

to the exercise of the rights granted thereunder such reasonable

terms and conditions as the public convenience and necessity

may require.” .

Transco’s application to transport the gas. If this

jaterpretation of the Natural Gas Act is permitted

to stand, there will, in all ‘probability, arise a new,

unregulated, interstate market for natural gas—so

vast in potential that it could absorb a dangerously

large portion of*the new gas reserves which become

- available in the- United States. The Commission: is

_ of the view that this new market—by industrial enter-.

prises purchasing intérstate for their own. use—

which would compete for gas supplies with the regu-

lated market over which the Commission curre..tly

exercises jurisdiction, (1) portends definite and !ast-

ing inflationary, impact on gas prices generally, (2)

‘could, and probably would, be dev oted to end-uses in-

appropriate to the purposes of the Act, (3) would

disrupt patterns of industry growth carefully evolved

during 20 years of congressionally-directed regula-

tion, and (4) would be beyond oRective state

~ regulation.

If the Court of Appeals is ‘cortect; under the direct

sale-transportation arrangement proposed in the

X-20 service here, only the ‘bare transportation of

the gas would be subject to regulation—the purchase,

sale, and use of the gas concededly being wholly out-.

side the rate-setting and other powers of the Com-

mission. The incentives for gas producers and

industrial consumers to make such arrangements are

strong and obvious. Producers ceuld sell at uncon-

trolled prices to out-of-state purchasers.” By virtue

“We recognize, of course, that _producers today make wholly °

intrastate sales at uncontrolled prices. But the intrastate.

market* is relatively stable and does not threaten suddenly to

of the very decisions. of this Court which prompted

passage of the Natural Gas Act in the first place, there

is some question whether the producing states would

have power effectively to coi.. J] rates for and uses of

such interstate sales. In any event, there is no in-

eentive for a producing state to. regulate such prices.

The purchasers could use the gas ‘as boiler“fuel, with-

out hindrance or federal supervision. And as an added

spur to. such arrangements, the producers ‘and the

industrial purchasers copld count on the Commission

to wnderwrite low transportation rates for such gas —

in’ effectuating the statutory objectives of its juris-

diction over transportation. *

In view of the natural gas industry’ s post-World

War II history. of dynamic expansion, -coupled with

grow by. leaps and bounds. Furthermore, congressional ex-

emption of: exclusively intrastate arrangements (7.¢e., ones not

dependent. on interstate facilities) from. the coverage of the

Act. can fairly be read as giving a deliberate advantage to

the local economy in the use of a local sub-soil. resource:

(Thus Texas may,’ and does, ‘further local industrialization by .

leaving intrastate sales unregulated, which gives local buyers

a bargaining advantage in deating with producers. Cf. F.P.€.,

Natural Gas Investigation, Olds-Draper Report, pp. 33-49,

€i-74. | Producing states, however, lack direct: power to retain

their gas witin their borders. Pennsylvania v. West Virginia,

262 U.S; 553.) Today, prices.in the smaller intrastate market :

often follovthe regulated interstate prices.

4 Miszouri v. Kansas Natural Gas Co., 265 U.S. 298; Public

Utilities Commission v. Attleboro Steam & Eleetric Co., 273

U.S. 83; see Phillips Petroleum Co, v. Wisconsin, 347 U.S. 672,

* 682-683 ; but see Cities Service Gax Co. v. Peerless Oil & Gas Co.,

- MOTUS. 179, 187-188; Panhandle Eastern Pipe Line-Co. v. Pub- .

lie Service Commission, 332 U.S. 507; Panhandle Eastern Pipe

Line Co..v. Michigan Public Service Commission, 2A1 U.S. 329;

compare Natural Gas Pipeline Company v. Panoma Corpora-

tion, 349 U.S. 44: Cities Service Gas ‘Company v. State Corpo-

ration Commission of Kansas, 355 US. 391.

ane iF fe

5. ete cet aR CSS hs DE A

' Transco’s application was entirely reasonable.

ever-increasing demand in large, and still unsatisfied, -

geographi¢ areas of the country, it seems certain that

this type of arrangement will prove attractive and

will give rise to vigorous competitive bidding in the

fields for gas to supply these demands. Unéontrolled

price negotiations—gas to the-highest bidder—will

determine, in large measure, whether gas will con- |

tinue to serve the firm needs of its millions of existing

_cohsumers, or will instead be diverted to the inferior

uses like industrial boiler-firing. And if the Com-

mission. has no control over this type of service,

under its transportation jurisdiction, new construc-

tion and extension of existing pipelines may well

concentrate on essentially industrial service.” .

The answer of the Third Circuit to this problem

is siraply that, even though the Commission may be

right in its appraisal of the potentially injurious

effec ‘ts of unregulated transactions .of this type, Con-

gr ess has precluded it, in the Natural Gas Act, from

taking account of these consequences in ‘determining

Whether a pipeline should be permitted, under the

standard of public convenience and necessity, to carry

in interstate commerce the gas sold directly for such

industrial use. On the gther hand, we believe that

the Congress whose purpose it pee “to create a

comprehensive “and effective regulatory scheme”’

(Panhandle Eastern Pipe Line Co. v. Public Service’

Commission, 332 U.S. 507, 520) did not so -disable °

We discuss in more detail; infra, pp. 587, the adverse im-

pact on the smaller consumers of direct sales to large-industrial

consumers,-in_ connection with our argument that the Commis-

sion’s evaluation of the various factors properly relevant. to

864658003

“4

the Commission. W e shall show, first, that the Com-

mission can and must consider end- -use, price impact,

-preemption of supply: and piffeline capacity, and

other factors bearing on service to smaller consumers

when it is called upon to apply the «present or

future public convenience and necessity’ criterion of

Section 7 toa pipeline’s application to transport gas

to large industrial cohsumers. Second, we shall ex-

plain-why the Commission’s appraisal in this case

of these relevant ‘factors was reasonable and should

_not be’overturned. Finally, we’shall point out that,

in any event, the court below should not have ordered

the Commission: to issue a certificate to Transco but

should. have done no more than:remand for the

further exercise of the Commission’s own’ judgment.

THE LEGISLATIVE HISTORY OF THE NATURAL GAS. ACT

DEMONSTRATES THAT THE COMMISSION IS EMPOWERED, ,

IN PASSING UPON ‘APPLICATIONS TO TRANSPORT GAS, TO

CONSIDER THE END-USE OF THE GAS, THE PRICE IMPACT

OF THE TRANSACTION, THE EFFECT ON SUPPLY, AND

COMPARABLE - FACTORS

The Court of Appeals reversed the Commission's

order . because: it felt that the Commission had im-

properly taken account, with respect to ‘Transco’s

application for authority to transport Con Edison’s

gas, of factors excluded by Congress from the confines

of the public convenience and necessity standard of

- Section 7;’and the court’s view of the limits of, that

“standard rested primarily, if not exclusively, on its

reading the legislative history of that section. The

‘opinion sees the history’ of the 1942 amendments to

Section 7, and especially certain subsequent Commis- .

sion statements, as precluding a Congressional pur-

pose to grant “conservation’’ power over natural gas.

It-:then coneludes that the various factors considered

by the Commission, here—i.e:, price impact, -avail-

ability of gas supply, preemption of, transportation

facilities, and end-use—are all evidence ¢ ° assertion

by the Commission of “a general allocation and. con-

servation authority over the natural gas fields of the

United States” (R. 312,- 321-323). We shall show,

however, that while the Commission does not have,

and has never clatmed, such swee ping’ powers as the

court’s language suggests, the legislative history does

support the Commission’s position that it can and

must consider these various factors, which involve the

effect_of the industrial transaction on non-industrial

and smaller consumers, when it applies the ‘present

or future publie convenience and necessity ”’ standard

of Section 7 to a pipeline’s application for authority

io éarry the industrial gas.

A. The Vegislative history —The Federal - Trade

Commission investigation, which is spécifically Singled

out in the introductory clause of Section 1(a) of the

Natural Gas Act as a source of the poliey of the Act,

_ cone luded that:

‘Conservation is the first problem that de-

mands attention. * * * Such.a valuable non-

replaceable natural resource of general country-

wide use or need should, in the public interest,

be conserved and utilized to the highest .eco-

nomic and social advantage. .

® Federal Trade Commission, Final I port to the Sonate of

the United States, Sen. Doe. 92, 70th Cong., Ist sess., Part 84-A

(1936), p.. 608, ‘

564653-—80@—+4 5

™~ :

The Trade Commission suggested ‘a spectrum of rel-

atively wasteful or beneficial uses. Lowest on the |

scale is wastage without any beneficial use whatsoever,

as When.gas produced in conjunction with oil is.vented -

or flared, a practice which was common in the 1930's.

Next are minor beneficial uses, such as recovering gas-

oline from the gas or burning the gas to produce

earbon black, which waste the great bulk of the energy

stored in the gas. A higher use is firing gas wmer

boilers (as Con Edison would do here) in lieu of

coal. The Trade Commission noted that such use was

common and reduced business investment and operat-

ing expense, but that the coal supply for firing boilers

and furnaces seemed ample fer many § generations, | It

then commented :

The gas’ induatry claims that the supply to

general consumers at prevailing prices is only ,

made possible by the quantity sales to industry

in direct competition with coal and_ oil.

Whether such a situation is essential to main-

* tain seryice at moderate prices to general con-

sumers is one problem, but it does not eliminate

the fact that every thousand feet used to replace

coal in. large operations has diminished the fu-

ture supply of, natural gas available for the

householder and other. retail consumers, w hich

The need for effective regulation in light of the exhaustibility

of the precious natural gas resource is the most basic fact of.

the natural gas industry, and one which this Court has amply

recognized: See Federal Power Commission vy. Hape Natural

- Gas Co., 320 U.S. 591, 606. Limited resources are “precious:

they cannot be left to wasteful use without detriment to .the

public interest.” National Braadcasting Co. ¥.. United States,

. 319 U.S. 190, 216.

Het 3 a haliy aaa

a fie iin. nites nimMstee saben Shes. Vranas

‘aide hans

Ce een re er ie = oar

eet OR Sinead ipesionsdedei aida bie

. *

| 27

may be considered the highest grade of service

to which natural gas may be put. .

. a ‘* Oe a ie

When -it comes to regulation of the essential

Waste that occurs in obtaining a partial or low-

form recovery of the inherent qualities of the

gas, especially in the absence of. a sufficient

7 competitive market to absorb all the available

gas at prices making it uneconomic to carry on

the wasteful proéesses, a delicate problem

arises. It contrasts individual property rights

and realization of immediate income with the

F ultimate general godd. It should be solved in

favor of the public interest before this natural

resource is destroyed.” [Emphasis added. ]

The Trade Commission did. not offer final answers

to the end-use problems which its investigation raised,

beyond the need for regulation in the national publie

interest." The Natural Gas Act of 1938, and particu-

"Sen. Doc. 92, 70th Cong., Ist. sess., Part 84-A, pp. 125-126

(1936) (emphasis added). oer as ;

“Sen. Doc. 92, 70th Cong., 1st sess., Part 84-A, pp. 101-102

(1936): va ON . é

“The economié necessity for conservation of natural gas lies

in the importance of preventing excessive waste of this limited

and exhaustible natural resource, the exploitation of whic¢h is

subject to the effects of selfish and short-sighted operations.

The interest of the public consists jn conserving gas for those

_ uses for which it is. especially adapted, and in fonserving the

gas energy in the ground ‘aS A means of increasing oil.

production. * * * The economic interests concerned &re so nu-

‘merous and so often in conflict that it is hopeless to expect the-

formulation or application of an effective plan for preventing

waste by these interests unassisted by public authority.

* * * The question of preferential interest in the use of gas.

involved in what constitutes wastage as distinguished from legal

larly the 1942 amendment, lodged. consideration of.

these qttestions with the Federal Power Commission.

The original 1938 Act delegated rate-making and a

limited. certificate authority over natural gas com-

panies to the Federal Power Commission but,’ until

1942, the Act lacked the universal requirement that

companies possess a certificate of public convenience

and. necessity prior to engaging in interstate transpor-

tatisn or wholesales of gas. The. Commission juris-

diction over the proposed construction of facilities was

limited to those which would transport gas to A market—

in which natural -gas was already being served ‘by a

nattiral gas company; but within this limit service

was to, be provided ‘tat the lowest possible reasonable

rate consistent with the ‘maintenance of adequate serv-

ice in the public interest.” Section 7(c). 52 Stat.

use, must be given attention. Closely allied is, the subjeet of .

competition of natural gas with othér fuels, particularly in in-

dustry, the ‘extent to which it is practicable and desirable to

restrict production and use to public-utility and domestic. uses

‘for which natural gas is particularly adapted, but which may

furnish demand wholly inadequate to take production, especial-

ly -in the flush prodiction. period of oil fields. The feasibility

of restricting use of natural gas to such ‘purposes in the light

of the effect ef low-load factors attainable for domestic and

commercial use on the operating expenses and rates’ of/natural-

gas utility companies, if they are denied the privilege/of selling

gas for industrial uses,Qmust also be taken into consideration.

Then, too, there are the interstate and intrastate fra

business and the fact that part of the interests inyolved are

subject to public-utility regulation, while other parts are con- - °—

ducted as unregulated competitive ventures’ Asx a whole, the

question of conservation and prevention, of waste of natural

gas, therefore, involves an extremely complicated and difficult

_ situation, any a tory solution of which requires impartial

weighing of Pprivd&e, rights and equities and ‘public inter-

indian Sraph sis added.)

dentate he oaks eine >) eile on,

7 wm ot

—s = al

<a Titi ei ea St AIM oO

“s “s of gs ed

chip ade See allan” adi tli

\«

1D nc Srnallha Seg ad) er =

Sak

825; and see Atlantic Refining Co v. Public Service

Commission, 360°U.S. 378, 388, and footnote 7.

y 1942. when the amended: Section 7 was enacted,

circumstatices had changed greatly. The original Act.

had been passed during a period of economic depres-

sion in a relatively static economy, by a Congress pre-

occupied with the prevention .ef price abuses in’ a

market in which producer gas was in over-supply, but

where the main. sellers (the pipelines) held natural

monopolies.” By 1941 the effects of the defense econ-

omy were beginning. to be: felt, stimulating increased

demand for natural gas and a resulting interest. in

proposed pipeline construction (documented: in the. -

legislative. history of the-1942 amendments ““), ‘These’

amendments, embodying a changed and expanded

philosophy of federal gas regulation, were a response

to the pressure of these conditions and to dissatisfac-

tion with the existing Section 7(¢). oe Petes

For it was universally recognized by 1941 that the

original Section 7(e) was defective. The Commission

- had found Section. 7(¢) unworkable and undesirable

for two principal reasons: (1) the lack of certificate

authority. over most pipeline extensions made it mach

more difficult to regulate the operation ‘of such new

extensions once initiated; and (2) the Section 7(c¢)

requirement that the Commission, prior té assuming

jurisdiction over a new service, decide the complex -

economic question of whether the ‘“‘market’’ in ques-

*See Federal Power Commission v. Hope Natural Gas Co..

520 U.S, 591, 610.

* Hearings on H.R. 5249, House Committee on Interstate and

Foreign Commerce, 77th Cong., Ist SeSS., pp. 33-34, 61-63.

30.

tion was ‘already being served by anethcr natural-

gas company’? had proved. unworkable.*\ The pipe-

lines did not oppose extension of federal certification

to all their interstate operations, because the lack of

a universally applicable and workable certificacion

procedure made it difficult for them to promote and

finauce pipeline extensions in order to meet tne grow-:

ing need for gas.” _

Tn its 1940 Annual Report to Congress,” the Com--

mission underlined its concern with then Section

7(¢)’s unworkability, and its consequent inability to °

egntrol the rapidly expanding industry with a. view

to conserving one of the eountry’s valuable but ex-

haustible energy resources. ‘It stated (p. 78) :

It ‘should be noted that the Commission’s ju-

risdiction over proposed new pipe-line construc-

tion is limited to those cases in which the new

line will enter the market area already being

served -by another natural-gas company. This

limitation has serious disadvantages in terms of

the general purposes of the Natural Gas Act.

In the first place, as there is no precise defini-

tion of the market area of another natural-gas

- company, the Commission must decide in each

instance whether or not it has jurisdiction. In

tite second place, it: prevents any serious effort

to controt the unplanned construction of nat-

ural-gas pipe lines with a view to, conserving

* Hearings on H.R: 5249, supra, at pp. 81-84; F.P.C. Nine-

teenth Annual Report for- fiscal year ended June 30, 1939,

p. 2t. : :

2? Hearings on H.R. 5249, supra, at pp. 3, 35.

“23 F.P.C. Twentieth Annual Report for fiscal year ended June

30, 1940, transmitted to Congress under letter dated Decembe

1, 1940.:- . |

eo?

= .

PE TE Fe OR ye ET re tee

~ lab

ve Oe

dong

sched a

for

Sadi. ct a mtg A Aelia i agaist ai te

me i

wale eae ®

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e .

a AA elk ie eb, & Bae ABBE Me PE te eel tes» 2 omy 8

ots 31

one of the dountry’s valuable but erhaustible

energy resources. | Emphasis added. |

In 1941, the Commission implemented its re¢om-

mendations. by submitting to. Congress a draft of an_

amendment to Section 7 of the Aet. In hearings on

this bill which led to the 1942 amendment, Commis-

sioner Manly testified to the Commission's view that,

because of the limited range of its certificate jurisdtes

tion’ under: the 1938 Aet,, ite should not permit full

rights of intervention to coal, labor and railroad in-

terests in its hearings, on the basis that Congress had

not intended it to weigh the social and economic in-

terests in competitive fuels and competitive methods

‘of transportation.” In recognition of his stress on

the unsatisfactory administration of Section 7(¢)

which contained these limitations, the House report on |

the amendment stated:

_* * * The bill when enacted will have the ef-

fect of giving the Commission an opportunity

to scrutinize the financial set-up, the adequacy

of the gas reserves, the feasibility and adequacy

of the proposed services, and the-characteristics

of the rate structure in connection with the pro-

‘posed construction or extension at a time when

such vital matters ean readily be modified as

onmsngnleniatie

** The bill was sina introduced on May 20, 1941 as H. R.

4819, 87 Cong. Rec. 4301, which was revised and resubmitted

as ILR. 5249. H.R. 5249 was prepared im cooperation with the

National Association of Railroad and Utilities Commissioners as

well as other interested groups. Hearings, supra. pp. 3, 38, 50.

The amendment, insofar as here pertinent, was enacted. substan-

tially in the form presented by the Commission. See H. Rept.

1290, 77th Cong., Ist sess., pp. 1-6."

** Hearings before the Ilouse Committee on Interstate and

Foreign Commerce on H.R. 5249, ith Cong. Ist sess.; p. 5.

} 32 |

the public interest may demand. Ww ithout such

authority, the’Commission may find. itself con-

‘fronted with a situation where it must either

accept conditions which appear undesirable in

_ the public: interest, or require, subsequent to ~

construction,- changes which may have much

more serious practical’ consequences than they

would. have had if they had been made before

the public was asked-to finance the enterprise. +

’ The bill, as amended, eliminates the objec-

tions to the present” Section 7(c) above men-

tioned. By this legislation * * * the door is

opened tothe eonsideration by the. Commission

_ of the effect of construction and extensions upon

* the interests of. producers oft competing fuels

— and competitive transportation interests. [H. -

Rep. 1290, 77th Cong., Ist sess., p. 3; emphasis :

added. ] cid “.

The Commission’s vjew that the bill’s purpose: was

to grant it “complete regulatory control’ over trans- ,

portation .and evaluation of competing fuel’ interests

was stated in-its report to the House on the bill

(House of Representative’s Committee on Interstate |,

Commerce, Hearings on H.R. 5249; Natural Gas -Act |

Amendments (77th Cong., Ist sess, 1941), p: 82):

The present provisions of section 7(¢) also

restrict the Commission unnecessarily in the mat-

ter of allowing intervention by parties whose —

primary concern may be fheir own economic in- ;

terests, but whose participation may be in thé $

public interest. The Commission’s opinion In —

the. Matter of- Kansas Pipe Line & Gas Com-*. |

pany, Docket No. G-106/[2/F. PC. 29]; In the ™

past of North Dakota Consumers oy sCom- 3

ny, Docket No. G-119 [2 F:P.C. 57], holds |

tis . ax Congress i in section 7(¢) gave. "the ‘Com if

mission jurisdiction ‘fonly when the sroposed

constrigtion is of facilities for’ the transporta-

tion of natural gas to a market ‘in which Patu-

tal gis -is already - being served by another

natural-gas company,” “it would appear that

Congress did not intend this Commission gen-

erally to weigh the broad social arid economic

éffects of thé use of various fuels” in’ passing

on applications in. certgficate cz ases under the

section. The amendment as proposed would —

remove: tlie obstacle which the language of the

existing statute presents to the:allowance of in-

tervention by representatives of competing fuel

rterests. ) _ ;

aa oar ae *. .

7 ae sil bill in all its provisions:

seems well adapted to accomplish the avowed

purpose of vesting in the Federal ‘Power Com-

mission ccmplete regulatory control through

‘the instrumegtality of the certificate of publie

convenience und necessity over the trinsporta-

tion and, sale of natural .gas and all extensions

and new construction of pipe lines and other

facilities by n: itural-gas companies,

And in his detailed testimony, ‘ommissioner Manly

emphasized the broad and timely ipeyuiny the amend-

tient. would permit the Commission. to make, a facet

he described as ‘the most Important aspect of the pro-

posed a from the stand point of the publie

“interest.” He continued: °

It will have the e ffect, HW) OUTeOpinion, of aiv-

-ing the Commission an opportunity to se rutinize

the financial set-up, the adequacy of the gas

reserves, the feasibillt® of the proposed serv-

* Hearings, supra, p. 6.

es ome 5

- .

- * dees, and the characteristics of the rate strue-

ture at a time when sue ‘h vital matters can be

revised and modified as. the pyblic ‘interest

demands, Without this authority the Conmis-

sion is toe ‘often confronted with a situation in

which it must cither accept conditions which

appear to be undesirabie from the publie stand-

point or take the alternative course of subse-

_quently requiring changes. whicke-may have.

- much more serious consequences than would

have been the case if-such changes had been

¢ effected be fore: the public Was hivited to invest

< in the ne W enterprise,

Thereafte r, at the hearings, there de ve loped a dine of

questioning whe ther, in certifieate eases, the Cominis-

sion could yive consideration to public needs S*by

broadening or extending the application in such a way

as to better serve the public interest, ale. by requir-

ing the applicant “to render more useful op more

- general service, * Commissioner. Manly's response

was that he was sure the Commission had done so in

all-cases, and he gave as an example a ease in whieh

the. Commission conditioned a ce ‘rtificate by requiring

_ the applicant to serve commfinities lving along the

route of a proposed pipeline, when the application

had contained no such service Proposal, ( Hearings,

supra, pp. 2 23-24.)

At this gitieture, it was suggested by a member of

the’ Committee that the power to condition certificates

should be -curfailed, and the Commission's certificate:

authority” should be limited to ‘conditions affecting

rates, services, and things of thaf nature.” Commis-

sioner Manly’s reaction wa: emphatically to the con-

-—?

Fw aria

Sere etye Ss ore

trary. Pointing out that the Commission would have

ne objection to language which would limit the power

‘to “relevant, inmateml, reasonable terms and condi-

tions,” which would be limited in turt by * the

“requirement that the public interest and necessity

Should require such conditions,” he added:

I would ask that vou do not: attempt te

specify, beeause. when vou speciiv, Vou ean

hever anticipate all of the. situations that are

going te agpise. In fact. you usually do not -

anticipate the ones that customarily arise, and

under the rales of construction, if you specify

them, von have limited the type of conditions

that can be attached. If yeu make: it reason-.

‘able, reievant; and material, se that the party

‘has a right to go inte court if the Conimission

* attempts to get tyrannical .or arbitrary, fine;

but when vou try to spell out tlie terms and

cauditions, vou do make’ it awfully hard te

: administer, aan ; sz

Significantly, the Committee followed Commissioner |

Manly’s urging. In preparing thre final form of the

imended Section 7, it decided nét.to limit the substan-

five range of Commissisn concerns ‘in conditioning

service authorizations.” Pe

_e—_—_———

* Tnstead, the Committee merely assured the possibility. of

* t >. .

. Judicial review by. inserting the word “reasonable” and delet-

ing the phrase “in its judwwent™, #5 follows: “The Conmis-

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

tificate and to the exercise of the rights granted thereander

such reasonable terms and conditions as + is jidgment the public

convenience and ng cessity thay require.” TLR. 5249, 77th Cong.,

Ist Sess., as reported with amendments October 21, 1941. Unién ”

Calenlar No, 457, p. 4, lines 2-5, :

36 |

As we have already indicated, the Committee’ re-

ports on H.R. 5249 he ar out the broad ra inge ‘of in-

quiry permitted the Commission by the 1942 amend-

ment: to Section 7. The: House report CH. Rept.

1290, 77th Cong.,-Ist Sess., pp. 2-3) states:

The bill, as amended, eliminates the objee-

tions to i eeu section 7(¢) above men-

tioned, By this degislation, the present

jurisdiétional disputes are eliminated, and. the

door is opened to the cousideration by the

‘Commission of the-effect of construction and

_ extensions upon the interests of producers of

competing fuels and competitive transportation

interests. This result is accomplished, more-

over, without undue-disturbance of existing op-

erating arrangements of natural-gas companies.

Similarly, the Senate report on the bill (S. Rept. 948,

T7th Cong., 2d sess., pp. 1-2) states: °

Provisions of the Natural Gas Act empower

the*Commission to prevent uneconomic exten-

stoms and. waste, but it’ can so regulate such

_ powers only when the extension is to “ta market |

in whieh natural gas is already being served by”

another natural-gas company.’’ Thus the possi-

bilities of waste, uneconomic and uncontrolled:

extensions ave multiple and tremendous. The

present bill would correct this glaring .inade-

quacy of the act. It would alse authorize the

“Commission to examine costs, finances,. neces-

‘sity, feasibility, and adequacy of proposed serv-

ices. The characteristics of their rate structure

could be studied, Obviously these are powers

that Federal /Power Commission. should have

and should exercise in the publie interest. .

- In sum, the original Act expressly provided con-

sumer protection* in terms of reasonable rates and

Pedals. Patt i

eee

a ae ~

ainereliomeie can ot

vents any ‘serious effort to control the unplanned.

37 i ee

adequate service in areas already served by natural

gas companies, The 1942 Act was not designed .to

retreat from this protection. ‘The complaint against

the original statute ris that the protection afforded

did* not apply to all new: services and was therefore

inadequate to control either uneconomic expansion or

the competition between fuels. Hearings on H.R.

9249, House Committee on Interstate and Foreign

Commerce, 77th Cong., Ist Sess., pp.5, 8, 9, 11-12,

81-84. While the industry might have preferred that |

wny inhibitions or expansions in development Should

he left ‘‘more to thé economic nature of. the matter

than to the * * * ruling of the Cominission” , the

bill was not opposed by the industry (Hearings,*

supra, p. 39). It was clear that the 1938 Act left

the unserved area of the United States “wide open

for natural-gas companies to exploit or develop in

any Way that they choose and without regard to * * *

public interest”’ requirements, and that the new bill

would give the Commission control over such develop-

ment (Hearings, supra, pp. 12, 35). It is in, this

light that Congress accepted the Commission’ s Annual

Report: for fiscal year’1940 which stated (p. 78), ir

recommending amendment of the then existing Sec sm |

7, that the incomplete coverage’ of that Section “pre-

construction of natural-gas pipe lines with a view to

couserving one of the ‘country’s ‘valuable but ex-

haustible energy resourc¢es.”* And this Court: has

8 It should be noted that this statement is‘in the Section of

the Commission's Report dealing solely, with the proposed

ameiidment to Section 7(c) of the Natural’ Gas Act, and does.

‘Power, Commission V. East Ohio Gas Co,, 338 U.S.

“38

confirmed the close relationship of the Commission’s

1940 report to the 1942 amendments—in Federal

464, 468-469, infra, a case overlooked by the court of

‘appeals. | ie,

‘In Federal Power Commission v. Hope Natu-

ral Gas Company, 320 U.S. 591, the Court re-

_fused to require. the Commission to effect end-use con+

servation objectives in exercising its jurisdiction

under Sections 4(a) and 5(a) to regulate rates.” But

with peapect to certificate cases, the Court stated (Id.

at 612): ; -

waive, 3 Je may assume that, apart tres the

express exemptions contained in § 7, considera-

tions of conservation are material to the issu-

ance of certificates of public convenience > and

necessity. * * *

The Court also said (Jd. at 616-617) :

— * * * The Act-of February 7, 1942, by broad-

ening §7 gave the Commission some additional

author ity to deal with the conservation aspects

of the problem.” * * *

» The Commission has Been alert to the problems of conservation tn its

administration of the Act. It has inde®d suggested that it might be wise: -

to restrict the vse of natural gas “by functions rather than by areas.”

acurn™ Annual Report (1940) p. 79.

not relate to the Commission's entirely independent recom-

mendation in the report (pp. 79-80) that it be given broad -

conservation authority permitting it to allocate the consumption

of natural gas on’a country-wide basis.

* Justices Frankfurter and Jackson dissented. They would

have read the “just and reasonable” rate standard ‘as embracing

conservation tonsiderations. 320 U.S, at 624, 628. Cf. Zrans-

continental Gas Pipe Line Corp.e9 F.P.C. 32, 50.

ae eek Poke

ee ee

i te Oe ee

COP OE ree a

39 ‘

\ . .

The Commission stated In that connection that natural gas was par-

:; ticularly adapted to certain industrial uses. But it added that the general

use Of such gaa “under boilera for the production of steam” ia “under

moat circumstances of very queationabic social evoneme " Ibid. [Emphasis

added. }

“And speaking of the extension of certificate jurisdic-

tion in the 1942 amendment, the Court said Ge at

613, footnote 23) : |

Considerations of ¢onservation entered into

the proposal, -to on the Act that broader

scope. :

Subsequently, in Federal Power Commission v.

East Ohio Gas Company, 338 U.S. 464, 468-469, the

Court confirmed its interpretation: of the 1942

amendment : |

Moreover, the initial interest of Congress

~ in regulation of transportation , facilities was

re-emphasized in 1942 by passage pf an amend- ,

ment to §7/«) of the Act broadenmg the Com-

mission’s powers over the construction or

extension, of pipe lines. 56 Stat. 83.. This

amendment followed a report of the Commis-

sion to Congress pointing out that without

amendment the Act vested the Commission :

with inadequaté power. to make ‘‘any serious ° ”

effort to control the. unplanned construction

of natural-gas pipe lines with a view to con-,

serving one of the country’ - ve aluable but’ ex-

haustible energy xesourees.” [The Court's -

footnote is omitted.¥]. &

amendments in support of its holding that the Commission

has independent jurisdiction over “transportation” even apart *

from a jurisdictional “sale.” That holding explains the basis .

for Transco’s application in this case. And Congress effec-

__ B. Significance of the legislative history.—1. This

legislative history does not support the argument that

the Act, as amended in 1942, prohibits the Commis-

; sion:from inquiring into end-use, price- impact, pre-

emption of facilities, availability of- gas supplies, or

any other factots bearing on the adequacy of service

to: existing or potential consumers. On the contrary,

the legislative backgrotind reilects neither a niggardly

delegation of power, nor an itivitation’ to cramping

construction. Congress was clearly made aware that

the Commission would ase its certificate power—under

the broad rubric of “present or future public’ con-

venience and necessity’’—-to take account of conserva-

tion factors, comparative end-uses, competing fuels,

and the congeries of, other elements affecting the pub-

tively ratified the Court's analysis of the statute when, in

enacting Section -1(c), 68 Stat. 36 (1954), 15 U.S.C. 717(c), it

deliberately overruled only the particular result in East Ohio,

but not its basie rationale, by. exempting only a part of such —

transportation, as the text of that Section shows:

“(c) The provisions of this Act shall rot apply to any person’

eagaged in or legally authorized to engage in the transporta-

‘tion in interstate commerce or the sale in interstate commerce

for resalé, of natural gas received by such persaa from another

person within or at the boundary of a State if all the natural

gas so received is ultimately consumed within such State, or to

any facilities used by such person for such transportation or

sale, provided that the rates and service of such person and

facilities be subject to regulation by a State commission. The

matters exempted from the provisions of this Act by this sub-

section are hereby declared to be matters primarily of local con-

cern and subject to regulation: by the several States.” A certifi-

cation from such State commission to the Federal Power Com-

mission that such State commission has regulatory jurisdiction

‘over rates and service of Such person and facilities and is exer-

cising such jurisdiction shall constitute conclusive evidence of

such regulatory power or jurisdiction.”

—— 2

ae San > eee

yee

peta Re GP RE RS POEL

, | | pam

| 41 ;

: ' 3 4 :

lic interest. No artificial limits were suggested for

the range of relevance. There is ne reason to believe

- that Congress wished to depart in any way from the

accepted: breadth of the con¢ept of “public conven-

ience and necessity’ (see infra, pp. 45-55)!"

In addition, - Congress was aware of the devefoped

patterns and arrangements of the industry, and, as

the House report notes, the full scale of Gonsiderations

permitted the Comniission would be effected ‘‘without

- undue disturbance of existing operating arrangements

of natural-gas companies” (supra, p. 36). Included

in such operating arrangements is industrial con-

sumption on an interruptible basis, as a device for

inereasing the “‘load factor’? in pipeline facilities.”

Such consumption in warm periods, when the demands

of smaller domestie and commercial consumers are re-

‘duced, permits optimum vear-round use of pipeline

; . |

facilities, thereby making it possible to provide gas

service to domestic consumers who.word not other-

Autininstinblaias fd ;

* *%t should be explicitly noted that Congress was dealing

with a precious natural resource, and thatthe certificate mecha-

nism is often used as a device to help prevent the squandering

of such a limited resource. -Compate the licensing requirement

in' the Federal Power Act, 16 U.S.C. 797, which limits the

number of developers and the aims, of development for the

nation’s limited water resources, with the willingness of Con-

gress to subject merely to rate regulation however many electric

utility companies wish to transmit or sell electric power in

interstate commerce. 16,U.S.C. 824.

_% This pattern was noted in the basic Federal Trade Com-

mission report, supra, pp. 27-28, note 18; and is discussed in the

Brief Amicus Curiae of the Southern California Gas Company

and Southern Counties Gas Company of California. See also

Incorporators of Service Gas Company v. Public Service Com-

mission, 126 Pa. caper. 381, 190 Atl. 653.

664655 60—5 , 3,

wise be served, or to do so at lower unit costs than

would otherwise be required. Another pattern, fos-

tered by the Commission since it tends to extend the

deliverability life of particular reserves, and lacks the

undesirability of consumption of ‘gas under. boilers, is

the storage’ of natural gas’ near centers of consump-

tion. Congress clearly entrusted the Commission with

discretion to consider these patterns and their alter-

natives, and to act on certificate applications ii im accord

with such basie policies.”

Indeed,. except for erasing the pre- -1942 limitation

of Commission power to extensions into areas al-

ready served, the 1938- Act itself, read against this

legislative history, was’ a sufficient grant of power

to permit the Commission to consider the various

factors proseribed by the court helow. The 1942

amendments completely eliminated any doubt on this

score. ‘They broadened the Commission's jurisdiec-

tion over the construction and extension of pipeline

facilities and empowered the Commission to consider

in‘ this connection “the use-of gas and competitive

fuels, and competitive methods of transportation.

This meaning of the Act and ‘its history has been’

——

fully confirmed by this Court (supra, pp. 38-39).

ere,

*) the original Act gave the Commission full power to act in the

% At the hearings, no adverse reaction. met Commissioner

Manly’s statement that “this amendment will * * * have the

effect’ of promoting the development of the natural-gas industry

along lines which will be consistent with the public interest”

(Hearitigs, supra, p. 6), nor with his-consistent assertions that

~ public interest, but limited to the area of competition between

natural gas companies (id., pp. 6,7, 8, 9, 10, 11). 1

BM vn Lain tir itaiatisciig ey ee

bt erwsrnsesisi

ee te a ee a ee

TE GP hr

2. As we have noted, the’ court of appeals treated

the various factors considered by the Commission as

though they were.all of'a piece—and equated them

all with ‘‘conservation’’, which it held had ‘been

placed beyond Commission power hy the legislative

history.“ Actually, the Commission did not consider

_the end-use issue as controlling its decision in -this

case; in its order denying rehearing (21 F.P.C. 399,

401) it said (supra, p. 9):

Contrary to applicants’ contentions, we do not

view the proposed end use of the gas involved

in this case as _of decisive importanee.° In

accordance with the National Coal Ass’n case, it

is but one factor, and that not of determinative

importance, which we consider in the exercise

of our judgment on all the facts.

Px court ‘of appeals relies on Commission statements in

whiff’ the court saw “the Commission's own concession” of a

lack of power to consider end-use (R. 315). But the question.

of power can only be resolved by examination of the Act and

its history, whiclr reflect. the powey Congress intended to give

the Commission. — In any event, we tlfnk it-clear that in.its de-

cisions,, as well as ‘in. its’ non-decisional Statements made prior

and subsequent to passage of the 1942 amendments to the Natu-

ral Gas Act, the-Commission -has never conceded that it has no

power to deal with conservation, but merely that it did not

have the full, specifie and comprehensive: power over conserva- .

tion and allocation of gas which it has recently sought from -

Congress. This understanding is explicit even in the portions”

of the reports of 1940 and 1944 quoted by the court. below,

Note the impli¢ations of “treat fully” (line 4, footnote 20) ;

“broadened” (second: from last line, footnote 20): “comprehen-

sive powers” and “specific powers” {second and seventh lines,

last paragraph, footnote 24) (R. 315-316) ~

See also, for a detailed refutation of the claim that the Com-

mission has conceded that it has ne conservation porvers, the

Brief for National Coal Association, et al., No. 46, at pp. 20-24,

The Commission’s. view that the other factors it ©

considered stand‘on their own footing and are not),

coextensive with conservation is clearly correct.”

This Court has. noted that, depending on tbe cir-

‘cumstances, any one factor, such as price, can become

*‘a consideration of prime importanee,”’ Atlantic Refin-

ing Co. v. Public Service Commission, 360 U.S. 378, 391,

but cautioned that “all factors bearing on-the publie-

interest”’ must be evaluated. . e

* Broadly speaking, any grant. or denial of a certificate on

any basis will have some effect on conservation to the extept. rs

that it either fosters the production of gas, or fosters’ Teavi ing it >

in the ground. In ‘this serse, the approval of rates by the 3

Commission, and jndeed the setting ‘of unregulated prices by

producers, have an effect on conservation. Once the gas has

been produced, conservation becomes a concern of the use to

which the gas is put. .Gas is’ then conserved, or not wasted, to ’

the extent that it is spent on socially desirable objects such as

immediate superior use, or storage for such ultimate use. See

infra, pp. 58-60. Conservation policies can thus be brought to

bear, on every stage of the processing of natural gas from pro-

duction, through tranportation, storage, distribution, and con-

sumption. Similarly, the Congressional concern with natural

gas prices can be an influence at any stagé of the processing of

gas. These ‘factors and others vecome relevant to a particular

stage of processing only in terms of the circumstances of con- :

crete proposals placed before the Commission. All the factors _.

- are interrelated, and they mirror the complexities of an enormous

industry.. But these complex relationships provide no warrant

for fusing them all under the name of any‘ one of them, as the

court of appeals attempted t to do.

- ~

pny oNenj i § wilbiios aah sie WP. a

- LO AF ORE fly

‘ Fall el wwe

Si .

Me 23g

THE ACCEPTED INTERPRETATION .OF “THE “‘PRESENT OR

FUTURE PUBLIC ‘CONVENIENCE AND NECESSITY’? STAND-

ARD- LIKEWISE EMPOWERS THE COMMISSION TO CON-

SIDEK END-USE AND COMPARABLE FACTORS

This Court has settled beyond doubt the function

and meariing of the public convenience and necessity

standard used hy Congress in the Natural Gas Act

and in other legislation estahlishing federal regtlatory

commissions.” The language of such standards is

hroad by design.” ‘Phe interpretive function of a voni-

mission under thom is (United States v. Detroii Navi-

gation Co., 326 JCS. 236, 241): + | CN

* * * not enly to appraise the facts and to draw

inference ¥m them but also to bring to bear

upon the problem:an expert judgment and to

* In adopting: in: 1938, and-more broadly in 1942, the stand-

-ard which it had already employed in other federal statutes

dating from 1920, Congress must be presumed to have adopted

the construction placed on-that term of art during some 20-odd .

years of federal regulation. /nterstate Commerce Comission

v. Parker, 326 U.S. 60, 65; United States vy. Pyan, 284 U.S. 167,

175: Armstrong Paint & Varnish Works vy. Nu-enamel Corp.

305 US: 315, 382; United States v. C.1.01, B35 U.S. 106, 112-

-113.- See also Federal Radio Commission v. Nelson Brothers -

Bond & Mortgage Co., 239 U.S. 266, 285,

“As one Congressman put it, “the applicant, in preparing

ts gpplication would be counted: on to take care of iis own tn-

terests, whereas the public, net having set forth any terms or

conditions, might need some protection that the Commission’

could best give.” Hearings, supra, p. 24. As the Court put

itt in Detroit Naviggtion, °The Coramission ‘is the guardian of

the public interest in determining whether certificates of con-

venience and necessity shall be granted. For the perforniance

of that fuaction the Commission has been entrusted with a wide

range of discretionary authority” (326 U.S. at 241).

a 2

“ determine from its analysis of the total situa-.

_ tion on which side of the controversy the public

interest lies * **, [Emphasis added.]

‘Under this standard, the Kederal Power Cheisaie.

sion is authorized to take sae of all factors bear-

ing on the problem before it. « _ = |"

A. The court below; in -its insistence that the Com-

mission could properly consider solely the ‘‘conven-

tional requirements” for granting or denying a certifi- .

cate, would permit consideration, not of the ‘total sit-

“nation”, but merely of those narrow requirements

ee ittwiel to the particular applicant’s (Transco, in

this case): ability to perform the proposed service.

These limited factors—of-technical and economic feas-

ibility of the proposal, adequacy of a gas supply to

the applicant; existence of a ma¥ket for-the gas, and

the rates to be charged for its transportation—essen-

- tially meas#re little more,than whether the proposal is

fair to Transco; its investors, and Con Edison. . While

the stability of the venture in these terms is import-

ant to the. public interest, it certainly does not exhaust

that interest. And this Court has clearly held that a

“* * * Commission’s licensing function ‘cannot be dis-

charged, therefore, merely by finding that there are

* no technological objections to the granting of a li-

cense’’, or that ‘technical and engineering’’ require-

ments have been Satisfied. ‘National Broadcasting Co.

v. United States, 319 U.S, 190, 216, 217. Actually, the .

~ Commission’s acceptance of the showing of ‘‘conven-

tional. requirements”’ has little to.do with the publie

convenience and necessity standard. It is more -di-

rectly responsive to the statutory requirement that the

| ; a Pee

. 47

‘applicant be “able and willing properly to de the ncte

wad te perform the service proposed.” Kansas Pipe

Line & Gas Company and North Dakota. Consumers

Gas Company, 2 F.P.C. 29,57 (1939). at

But conceding that.the Third Circuit's “conventional

. factors’’ fall within the public convenience and neces-

sity sf tandard, there is no ‘to: accept the lower"

= freezing of the. content | the standard to

include only the conyentional requirements which were

“experience-built” in the earliest days of the Gas Act.

This Court has related the public interest standard to |

“living problems” and ‘developing’ problems” of an

industry. National Broadcasting Company v. United

States, 319 U.S. 190, 216, 219. The obvious advan-

tage of such hroad criteria lies in their capacity to -

absorb experience, and to keep pace with the times.

Freezing the standard would render ‘the Commission

incapable of exercising its powers in keeping: with

changing public needs, and would limit its function fo-

rubber-stamping the economically feasible proposals of _

‘certifigate applicants. . $

_ As the Court hasspointed out, the need to ‘examine —

“all factors arises from a matter of legislative neces-.

sity—the practical impossibility of Congress itself

making all of the decisions in all of the areas-requir-

ing regulation. Interstate Commerce Commission v.

Parker, 326 U. S. 60, 65: * 4

™ The Putin case involves Section 207(a) of the Motor Car-

rier Act, 49 U.S.C. 307(a), from which Section 7(e) of the

Natural Gas Act was derived. See Hearings before the House,

Committee on Interstate and Foreign Commerce on H.R. 5249,

Report of Federal Power Commission, 77th Cong., 1st sess. p.

82; id. at pp. 5, 20; H. Rept. No. 1290, 77th Cong., Ist sess., p. 2.

areas,

Public convenience and necessity .is not de-

fined by the statute. The nouns in the phrase

possess connotations which have evolved from

the half-century experiencé of government in

the regulation of. transportation. * * * The

purpose of Congress was to leave to the Com-

mission authoritatively to decide whether addi-

tional motor service would serve public con-—

venience and necessity. Cf. Powell v. United

a States, 300 U.S. 276, 287. This, of course,

gives administrative discretion to the Commis-

sion, cf. McLean Trucking Co. v. United States,

321 U.S. 67, 87-88, to draw its conclusion from

the infinite variety of circumstances which may

occur in specific instances. * * * (See also

Gateway Transportation Co. v. United States, —

173 F. Supp. 822, W.D. Wise.)

The normal involvement’ of a regulatory commission —

with “an infinite variety of circumstances”’ entrusted

to its decision makes it necessary for it to consider all

of the factors that a legislature would examine. if it

were to decide on‘a proposed course of action.@ The

agency’s clear.duty is to do so in the light of the

_ policy objectives which the legislature has determined

are relevant and material to the subject matter en-

trusted to the agency. For only so can the grant of

. power become a “supple instrumert for the exercise

"of diseretion-hy the expert-body which Congress has

charged to carry out its legislative policy... Federal

Communigusions Commission vy. Pottsville Broadcast- .

ing Co., 308 U.S. 134, 138. “In the context of the

developing. problems to which it was directed, the

Act gave the Commission not niggardly but expansive

powers,’ "—and the courts have made this clear.

Consistent judicial interpretation of the public con-

venience and necessity standard leares no Toom for |

doubt that it permits analysis of the “total situation”

in determining both present and future needs,” and

that it is the affirmative duty of the agency’ not to

blind itself to any relevant consideration. This was

most recently emphasized for the Natural Gas Act by

the Court’s statement in Atlantic Refining Co. v.

Public Service Commission, 360 U.S. 378, 391, that

“Section 7(e) requires the Commission to evaluate

all factors bearing on the public interest’? (emphasis

ically applied by the Court to this Commission and to

the Gas Act, in a situation in which it was claimed, as

" National Broadcasting Co. v. U ‘nited States, 319 U.S. 190

219.

“United States v. Detroit Navigation Co; 326 US. 236,

241: “Forecasts as to the future are necessary to the deci-

sion * * * It may be that the public interest requires that

future * * * needs be assured rather than left uncertain. The

Commission has the discretion so to decide * * *.” ee

_ City of Pittsburgh v. Federal Power Commission, 237 F. 2d

741, 752 (C.A.D.C.) > “The public convenience and hecessit y

for which regulatory agencies issue certificates: are’ the con-

venience and necessity of the future. The needs of yesterday

require no fulfillment if they be not the. needs of tomorrow.

They may ‘require recompense, but they need no regulationi.

Every new bas route, new airplane service, new radio Station,

hew stock issue, new pipe line; new power project, and so on,

seeks its permissive certificate upon the basis of future possi-

bilities. * * * So the function of the agencies to which Con-

gress has delegated these responsibilities is*to examine the

relevant past and present and then to exercise a rational judg-

| »” cere |

here, that the Commission had considered dn area-in___

-_ whieh it ‘could not directly regulate. In Colorado In-

terstate Gas Co. v. Federal Power Commission, 324 |

U.S. 581, 602-603, 604, a rate case, the contention had

been raised, on the assumption that the statute’s terms

precluded any Commission contro) over production

and gathering, that it was improper for the Commis-

sion: to include production facilities in a natural gas

company’s rate base, and improper to determine the

expenses incident to such facilities for the purpose of

determining the reasonableness of the company’s rates.

This Court rejected that contention, concluding that

the Commission. was not prevented from taking these

-matters into account." siitanty, it should be able to

take into aécount, in issuing or denying a certificate, .

all the economic realities peculiar to the natural gas .

industry which bear on the public interest, including -

the factors it considered here.

_ ’ The same specific application of the general ‘ public

convenience and necessity”’ principle has been made in

other areas of federal regulation. For example, while

the Interstate Commerce Commission had no direct

jurisdiction over the terms of employment of railroad

employees, this Court rejected that Commission’s de-

termination that it lacked power, under its public con-

venience and necessity standard, to consider the pro-

tection of such employees in an abandonment proceed-

**See also Panhandle Eastern Pipe Line Co. v. Federal

palin ay 324 U.S. 635, 646: “The Commission, while

‘it lacks authority to fix rates for direct industrial sales, may

‘take those rates into consideration when it fixes the rates for

interstate wholesale sales which are subject to its jurisdic-

tion. * *

i a: a

' ing. Interat te Commerce. Commission Vv. Railway

Labor Executives Assn., 315 U.S. 373.° See also,

United States v. Lowden, 308 U.S:-225. Reading the

' standard as having a scope consistent: with the broad

purpose of the Transportation Act of 1920 to provide

the publie, with an efficient and nationally integrated

railroad system, the Court refused to limit the *“pub-

lie” convenience to “the immediate locality and popn-

lation served by the trackage to be abandoned.,”’

There was nation-wide public interest in ‘the’ stability

of the labor supply available to the railroads” (315

U.S. at 377).-. Obviously, such stability was no longer

of concern to the to-be-abandoned trackage and its

managers, bit had to be accounted for because of its

impact on existing regulated facilities. Sce also, un-

der the Motor Carrier Act. (49 U.S.C. 207(a)), Inter-

. state Commerce Commission v. Parker, 326 U.S. 60;

American Trucking Associations vy. United States, 326

U.S. 77; and Schaffer Transportation Co. v. United:

States, 355 U.S. 83. : |

An equally broad construction has been given the

general standard of “public interest, convenience, and

necessity” which controls.the grant of broadcasting

licenses: under the Communications Act (47 U.S.C. -

309), particular emphasis being placed, as it should be

here, on the public interest in the competition for and

the use of the regulated resource. National Broad-

“The Labor Executives doctrine has been applied in a trans- -

fer-of certificate ceeding under the similar standards of Sec-

tions 401 (aad Ui of the Civil Aeronautics Act (49 U.S.C.

481(d), (i).. Western Air Lines v. Civil Aeronautics Board,

" 194 F. 2d 211 (CA. 9).

52 |

casting Co. v. United States, 319 U.S. 190; Federal

° Communications Commission v. Pottsville: Broadcast-

ing Co., 309 U.S. 134; Federal Communications Com- |

mission v. Sanders Bros. Radio Station, 309 U.S. 470,

__ 415-476; Carroll. Broadcasting Co. v. Federal Com-

munications Commission, 258 F- 2d healt “a4

(C.A.D.C.).

Under this standard, in spite of Congress’ explicit -

prohibition against Commission power to censor radio

communication or interfere with the right of free

speech in radio communication (Section 326, Commu-

nications Act, 47 U.S.C. 326), the courts have ap-

proved. the Federal Communications _Commission’s

comsideration of the content of station programming |

as an ingredient in determining whether to grant a

. broadcasting license under the Act (47 U.S.C. 307).

See Johnston Broadcasting Co. v. F.C.C., 175 F. 2d

351 (C.A.D.C.) ; Plains ‘Radio Broadcasting Co.” Vv.

F.C.C., 175 F. 2d 359 (C:A.D.C.) ; Trinity Methodist

Church, South vy. Federal Radio Comm., 62 F. 2d 850

(C.A.D.C.), cprtiorari denied, 284 U.S. 685, 288 U.S.

599; KFKB Broadcasting Ass’n v. Federal Radio —

Comm., 47 F. 2d 670 (C.A.D.C.). One case was re-

manded to that Commigsion precisely. because it had,

amony other things, failed properly to consider the

proposed programming of a station. W. S. Butter:

field Theaters v. Federal Communications Commis- -

sion, 237 F. 2d 552 (C.A.D.C.). The reach of this

extra-jurisdictional consideration by the Federal Com-

munications Commission, in connection with a -certifi-

cate application within its jurisdiction, is perhaps

farthest develofed in Wrather-Alvarez Broadcasting,

? ‘

‘

‘53

Ine. v. Federal Communications Commission, 248 F.

2d 646, 651 (C.A.D.C.), involving an application to

_ provide network programs to a Mexican broadeaster -

whose affairs were beyond Commission control... Al-

though the Commission. could not directly regulate

the-programming of either the foreign station or the

. American, yet it was required to give these matters’

consideration the better to assess, in terms‘of the im-

pact of the Mexican broadcasts on American cities,

whether granting the application would be in the

. publie interest. . _

C. Public interest and public convenience and

necessity standards-are also broad enough to require

agency consideration of important congressional poli-

eies which permeate other legislation, such as national

defense or antitrust policies. —

While under the Natural Gas Act the : Federal

Power Commission has no explicit power in the area

of national defense, considerations of national defense”

were held properly to have been given great weight

in the certification of firm natural gas. service to re-

place coal as boiler fuel in the Atomic Energy plant

at Oak Ridge. National Coal Ass’n v: Federal Power

Commission, 191 F. 2d 462, 466-467 (C.A.D.C.\— In

that case, national defense considerations overrode the

Commission’s own policy, discussed infra, pp. 59-61,

which limits the use of natural gas for boiler fuel.

The same court of appeals has -held that it is not

only within the Comiission’s power, but it is its .

duty, to consider the asserted national defense aspects

of a certificate case involving the displacement of oil

barges by a natural gas pipeline extension. City of

f : . 54

Pittsburgh v. Federal Power ‘isiaaiaiiitaee 237 F. 2d

741, 754-155 (C.A.D.C.).° -

The need te consider national antitrust policy is

equally clear. Regulatory agencies deaiing with com-

peting Imsiness giants must often eensider the anti-

trust policies: of the Clayton and Sherman Acts, not

for the purpose of determining whether those “con-

gressional dxpression(s) of fundamental national

policy’ “* have been violated, but for gauging whether,

. in the light of antitrust policy, given business activity

is in the public interest. In charting the breadth of

the “public interest; convenience, or necessity” “stand-—

ard of the Communications Act in Nationel Broad-

casting Co. v. United States, 319 U.S. 190, this Court

approved the provision, in regulations: of the Federal

Communications Commission, for regular Commission

consideration of antitrust policy in appropriate cases:

And in United States v. Radio Corporation of Amer-

ica, 358 U.S. 334, 351-352, the Court sugges that. *

“ National defense interest in the need for helium gas to fur-

ther the war effort was recognized in. an early case under this .

Act where this need was presented to the Commission by the

United States Bureau of Mines. The Kansas Power and Light

Co., 4 F.P.C, 946. The Commission certificated the dedication

_ of natural gas reserves containing-helium gas upon the express

‘condition that, if the Government so requested, all of the gas

from the field reserves containing helium be made available to

the Government’s nearby helium plant for extraction of the

helium before its transmission for use.

“ City of Pittsburgh v. Federal Power Commission, 237 F.

@d T41, 754 (C.A.D.C.). This case regards antitrust policy and

assertions of damage from unfair competition, like national de-

fense policy, as matters requiring, and not ited itl

Commission consideration. _

- “i ° 55 e

“the a ae might find that antitrust lial

tions alone would keep the statutory standard from

being met * * * Mansfield. Journal Co. v. Federal -

mit

34.”’

- In sum, the publie convenience and necessity stand-

ard of the Natural Gas Act is a general grant of |

power to protect the gas consumer’s interest in ade-

quate,service and low prices. It is designed té per-

Commission to guide the deve ‘lopment of the ,

: industry through the problems envisaged by Congress,

to conserving one of the country’s valuable, but ex-

haustible, natural resources. The Commission is not

lunited, in passing upon applications for certificates,

to the narrow transaction immediately before it but

may appropriately take account of the wide range of «

factors bearing directly and indirectly upon its obli-

gation to protect the public interest.

: IV

THE COMMISSION’S EVALUATION OF THE VARIOUS FACTORS

WAS REASONABLE A SHOULD NOT BE OVERTURNED,

We think it clear/that the discretion exercised in

this case by the Commission, and its consideration of

the Various factors, fit comfortably within the. broad

confines of power granted by the public convenience . ' |

and necessity standard of Section 7, interpreted as

_ We urge in Points’II and III, supra, it should be

interpreted. Because the Commission’s general state-

ment of i its_reasons somewhat exceeds the portion .

et?

‘ quoted and numbered by the court below (R. 309-

310), we set it out in the margin in fuller form.“

We shall discuss each of the factors: considered by

the price impact of arrangements such as.X-20; their

“This case involves more than merely “the conventional re-

quirements of public convenience and necessity. Opposing the

grant of the X-20 service are a number of important factors,

chiefly policy considerations. In our judgment, countervailing

factors suffice to’tip the balance against. the grant of the a

requested by Transco.

“Certainly, if we were to grant this request we er soon be

‘confronted with many requests of the same general character; and

‘granting the X-20 proposal, we would have no fair or rational

basis for denying similar such requests. - Likewise, the authoriza-

tion of this and like proposals would pre-empt for this usage

_ capacity which would otlierwise be available to meet more urgent

and widely beneficial public needs, even though the bare authoriza-

tion here sought would not of itself nullify the Leidy Storage

project.

“Gas distributing companies may find it to the advantage of

their customers to seek their new squrces of gas in the field

rather than to rely om pipeline suppliers to do so. But there

are risks of grave disadvantage as well,

“The impact of lange demand on relatively limited supply is.

certain enough to raise rates and field prices if only one bidder

is bringing that demand to bear on the supply. Flow “much .

more serious is that impact when it is in the form of multiple

bidders, each attempting to reserve to itself a firm supply.

Inevitably, there would be upward pressure on rate levels in

the fields. We do not believe we ought to.encourage such when

it is unnecessary. - But there is at least one other drawback.

“Large purchasers of gas, like Consolidated Edison, can readily

compete with pipelines for gas purchases. .Here, for example,

out of approximately 100 million Mcf that is proposed ultimately

to be brought through Transcontinental’s lines for Consolidated”

Edison’s use in 1961, almost 44 million Mcf would be under a.

_ purchase-contract carriage arrangement. That is the equivalent |

to a pipeline of about 120,000 Mcf per day capacity at 100% load

factors. But the small purehasef may not be as fortunate. He

will have to rely on the pipeline supplier. And how long the

~ effect on the supply of gas ‘available for the smaller

ultimate consumer; air pollution—and show that the

Commission’s appraisal was reasonable and war-

‘ ranted by the particular record before it, its own

general expert judgment, and the overriding concern

ultimate consumer. Federal Power Commission v.

~ Hope Natural Gas Co., 320 U.S. 591, 610; Atlantic

Refining Co. v. Public Serv. Comm’n, 360 U.S: 378,

pipeline can continue to buy in competition with nonjurisdictional,

large volume purchasers, or indeed, how willing it might be to

undertake such less desirable service, is at least a question, ~

“These are all factors that weigh against the grant. They would

confound and make more difficult a decision in such a case as this

even if the gas were to be used for a demonstrably superior use.

But when the purpose for which the sale would be made is some-

thing less than desirable, they take on more serious, even con-

trolling, significarice.” (R. 178a-179a) (footnotes omitted ).

In‘ite opinion denying rehearing, the Commission agreed that

there could be tio preemption of unbuilt yr but reaffirmed g

the sense of its earlier-statement, saying (R.191a): .

“[T]he construction and utilization of given capacity for serv-

ice of the character proposed here would reasonably lessen the

likelihood of capacity ‘being constructed for other and future

service of a character more in accordance with the requirements

of public convenience and necessity.”

‘-And in its order denying, rehearing, the Commission also sum-

marized the factors which it had consid as follows (R. 185a) :

“Included among these were the effect of stimulating increased

purchases of gas in the field by distributing companies in sub-

stitution for the present, prevalent types of interstate natural-gas

services involving purchases and resales by natural-gas pipeline

companies; the effect. of pre-empting pipeline capacity which

would otherwise be available for more widely beneficial public

service; the effect of making it more difficult to meet the require-

ments of smaller purchasers in\the event arrangements of this type

become wide-spread; and the effect of increasing the rates for gas,

- to the detriment of the consumer. We also considered the pro-

posed inferior end use of the gas. ° oe”

388; Sunray Oil Co. v. ‘Federal Foew Commission,

364 U.S. 137, 147.

A. End-use:—The Commission’ s consideration of

end-use was prompted in part by the urgings of the

coal interests which sought the 1942 amendment

precisely because their interests as producerg of a

competing fuel were unprotected. As we have pointed

out, the House report on the bill noted that the door

was now opened in certificate cases “to the considera-

tion by the Commission of the effect *-* * upon the

interests of prodycers of competing fuels.’? Supra,

p. 36. Obviously, adequate consideration of the com-

petition between fuels requires consideration of their

use, and an ultimate judgment of which should be

used in particular circumstances. The discretion to

make this final judgment, which rationally@cannot

be divorced from the consideration of competition

eS See Ce ated t Ge

Commission.“

That a certificated pipeline extensior will displace the

transportation of oil by river barges is the critical’

competitive fact. which gives. the barge operators -

standing to challenge the grant of the certificate, -

" @ When in 1947 « proposed bill would have precluded the

Commission from denying a certificate because of end-use.

considerations, Chairman Smith of the Commission testified:

“Just how public convenience and necessity could be deter-

mined without any consideration of the market and the

nature of the demand for gas is hard to see.” Hearings

before a subcommittee of the Senate Committee on Interstate

_» and Foreign Commerce on S. 734, 80th Cong., 1st ‘sees, 60.

The bill died in committee.

- Ses City of Pittsburgh v. Federal Power Commission, 231

_ F.2d 74, weaves (CA.D.C.).

59 as &

and it demonstrates that-the use of one means of

transportation, rather than another, may constitute

the heart of the controversy which must be ‘resolved.

Similarly, the displacement of coal by gas, and the

‘resultant displacement of railroad transportation for

,. the coal,” show that consideration of this competition

_ and of which fuel shall be used -are virtually indis- :

tinguishable. As the Court of Appeals for tke Dis- -

trict. of Columbia Circuit has noted, “‘[t]he corollary .

of [the Commission's] authority to allow interven-

tion is-the duty to explore all pertinent aspects of an.

‘intervenor’s relationship to the matter under con-

sideration”’,” including the desirability of burning

gas under boilers when coal is readily and economi- '

cally available, ‘or Preserving the less abundant pre-

mium fuel—gas—for stiperior uses." Yo

‘The Commission’s concern’ with end-use considera- _

tions in this case is thus reasonable, necessary, and re-

sponsive to unusually explicit Congressional direction.

Moreover, its decision here is not novel, but follows

\4 traditional and ‘consistent approach’ to the problem ‘

of the desirability of burning gas under boilers, or -

preserving it for more desirable use. In the course of

administering the. Gas > Act, thé, Commission has

- evolved the rebuttable presumption (Mississippi River.

Fuel Corp., 12 FPO-109, at 112); | |

F.9d at 466 (CAD.C.), i :

“Charleston & WO. Ry. v. Federal Power Commission,

234 F. Od at 64 (C.A.D.C.). 7 |

. 6esess—eo_ °

60°

* * * that the use of natural gas as boiler fuel*

is an inferior usage and that, while it is not

to he denied in all‘situations, it should be per-

mitted only on a positive showing that’ it is |

required by public. convenience and neces-

_ ity. 62 8 @ #9?

“The many cases im-which the Commission has adhered

to this standard for choosing between the two alterna-

In labelling “inferior” the use of gas as boiler fuel, the

Commission simply recognizes the competition of a moreeabun-

dant fuel in New York City’s fue] supply—coal: The charac-

terization “inferior” coincides with the evaluation of the Federal

Commission report on the industry (supra, pp. 26-27),

and the Commission’s own Annual Report of 1940 at p..-79. -

It was implicitly adopted by this Court (supra, pp. 38-39). The

court below does not reject the label, and, indeed, grants that

Mr. Justice Jackson’s dissenting opinion in the Hope case

(supra, 320 U.S. at 629) “goes far in stating reasons of public

policy for a strong conservation program by way of husbanding

‘ our natural gas resources.” (R. 320). That opinion describes

the inferiority of boiler fuel use as an essential ingredient of

the policy against premature exhaustion of the natural gas

resources (320 U.S. at 629, 634-635). Following the exhaustive

. Natural Gas Investigation (1948, F.P.C. Docket No. G-580),

the report of Commissioner Smith’ and Wimberly urgéd the

~ industry -to limit inferior industrial consumption, even if the

result might’ be a lowering of the system load factor which

. is improved by the interruptible sale of gas for industrial .

_ use. during the warmer months (Smith-Wimberly report, pp.

353-354). Commissioners Olds and Draper urged continued

_and increased. use of the certificate jurisdiction to control waste-

ful end-use of gas, and to develop storage possibilities (Olds- _

Draper report, pp. 6-13). The lower court’s observation that

‘the Commission had ignored the fact that gas used at Water-

side would generate. steam for ultimate use for space-heating

and lighting (R. 323-324) does not-detract from the thesis

burning~gas under boilers is undesirable (R. 323-324).

focus. of ‘this case is not how the steam is used, but which

of at least two competing fuels — be used to fire the

- steam oe

tives are collected and discussed in the lower court’s

opinion, and need not be repeated here (R. 316-318).”

The eourt of appeals felt that these cases were lacking

in present significance, since it was willing to concede

that “if the Commission has authorfty ‘to regulate

end use as part of a conservation plan it certainly has

the authority to palance the factors in each individual

case as it arises” (R. 318, fn. 33). This makes clear

that the court sees the Commission’s action in this case

as a’direct regulation of end-use—as though the Com-

- mission were dictating that a particular batch of gas

had to be used in a particular way. This proceeding,

- however, cannot be given that gloss., The Commission

is not telling Con Edison how to use its gas, but is

telling. Transco how not to. use tts facilities because

the use it intends is not in the public interest. Cer-

tainly, if Con Edison discovered gas reserves under-

‘neath its Waterside station, the Commission would

have no concern with its use of the gas in New York

City; but if Con Edison sought to transport the gas

through interstate pipelines, it could not complain if

the Commission refused its request.

As we have shown in Points II and III, supra; the

Con Edison’s end-use in ing upon Transco’s ap-

plication: Though it could not command Con Edison

to use its gas in a certain’ way, it could reject

_ “For the history of the Commission’s boiler fuel policy, see also

the Brief for the ‘National Coal Association, et al., No. 46, at

Pp. 25-29, -s

. Transco’s proposal to transport it— and this is all it

did“

B. Price impact; “preemption of gas supply; pre-

emption of pipeline capacity—In. the Pini 8.

view, the most damaging impact of a direct industrial

sale of the X-20 type will be upon the general

public utility consumer, who is supposed to be the

. prime Mneficiary of the Natural Gas Act. Atlantic

Refining Co.-v. Public Serv. Com., 360 U.S. 378, 388;

Sunray Oil Co. v. Federal Power Commission, 364

U.S. 137, 147. To permit the diversion of large

amounts of new gas to industrial interstate markets,

under this kind of arrangement, will in all probability

result. ultimately in either less gas, or higher prices —

(and perhaps less gas at higher prices), to the smaller

consumer. In its initial order the ‘Commission de-

clared that the impact of large demand on relatively

limited supply “is certain enough to raise rates and

field prices if only one bidder i is bringing that demand

‘to bear upon the supply” (R. 179a, supra, fn. 45,

p. 56). ‘“‘How much mote serious is that impact,”

asks the Commission, “when it is in the form of

, multiplé bidders * * *” (id.). In denying rehearing

the Commission acknowledged that its judgments on

the “probably undesirable consequences for the public .

and the consumer”, particularly respecting future |

price consequences, were inherently less susceptible of

“ “The existence of a more desirable alternative is one of the

factors which enters into a determination of whether a. particu-

lar proposal would serve the public convenience and necessity.

That the Commission has no authority to command the alterna-

tive does not mean that it cannot reject the proposal.” City of

Pittsburgh v. F.P.C., 237 F. 2d 741, 751, fn. 28 (CADC).

absolute demonstration than present facts (R. 191a).

But it concluded that, in its analysis of the “total sit-

uation’’, its conclusions had ‘ “substantial support in

‘faet’’ (id.). These conclysions are plainly reasonable

and have support in commonsense, as well as in the

structure and history of the natural gas industry.

, 1. There can be little doubt that approval of the

~20 service, with its invitation to similar schemes,

would increase the number of large industrial bidders

in the gas fields, and find favor with the gas producers.

‘The X-20 type of arrangement opens to producers the .

_ vista of large new interstate sales, free of price super-

vision (except as to the pipeline company’s trans-

portation increment), and in what is a seller’s market.

The profit incentive for the producer is obvious, and

adequently explains the producers’ long-held desire to

avoid regulation.” _

The attractiveness of X-20 service to the large indus-

trial consumer also seems .clear, for the convenience

that a firm gas supply represents to domestic consumers

may attain a special fiscal importance in an industrial

setting. Without the need for large stockpiles of

In their Report vestigation

p. 12), Cactladenees Git ot Deen noted “* “sae

voluble insistence by representatives of the industry on their

desire for s virtually unregulated market for natural gas at

, a ee

coal," valuable land on which the coal was stored may

become available for other use. The labor force de-

voted to coal movement, as well as the heavy para-

phernalia used to move it, would no longer be needed.

Special planning for periods of labor unrest in the

coal mines or on the railroads, with its requirement

for increased stockpiles, would be at an end. Addi-

tionally,-to industrial users of gas on an interruptible _

basis, achieving a firm basis of supply would obviate

the need for standby facilities to burn either coal or -

oil-during the winter months of increased domestie

- user demand. And to those potential industrial users

of gas to whom interruptability was itself an over-

riding inconvenience, a firm supply eliminates their-

major objection..

The gas industry’s interest in such transportation |

. schemes as X-20 has forcefully impressed itself upon

- the Commission both before and after the hearing in ~

this case. The. Houston proposal authorized in 16

- F.P.C. 118 (1956), because of the unique public inter-

est in bringing natural gas to Florida, had included a_

transportation of directly-purchased boiler, fuel.”

Transco had applied in F.P.C. Docket No. G-12059

* To a lesser extent, these factors are also true oe oil storage

. and its attendant inconvenience.

*' Karlier, in Tennessee Gas Tranzmiasion Co., 12 F.P.C. 311

(1953), the Commission authorized a transportation service of —

‘small. volumes for export to Canada. The Commission viewed

‘ the proposal as a drop imthe bucket and felt any dangers it

represented could be ignored unless such programis’ reached

larger proportions. (But see Commissioner Smith’s dissent, 12

F:P.C. 334. Also compare /roguois Gas Corp., F.P.C. Opinion

No. 279 (mimeo., pp. 19-21, 13 F.P.C. 492, 504-505).

With proliferation of transportation proposals and the aggra-

vated problems of producers pricing, the Commission is now _

alert to the considerations it thought outweighed. j in Tennessee.

i ere

for. a certificate to transport boiler fuel on an inter-

ruptible basis for the account of Virginia Electric &

Power Company. (The Commission had heard oral

argument on that proposal the day before argument

herein.) Respondents themselves spread on this rec-

ord their plans for increasing the X-20 service from

50,000 to 120,000 Mcf per day over the period of two

years (¢.g., R. 5a, 98a-100a, 142a, 147a, 149a-152a).

And there is further evidence in this record of nego-

tiations and interest by other.customers in transporta-

tion ¢f directly-purchased gas, as well as a suggestion.

that Transco was. encouraging ‘such programs .(R. ~

63i-T1a, 145a). 7

In. reporting the decision of the court below, the

industry journals, which often enjoy an insight into

the plans of. gas producers and transporters, were .

quick to grasp its import and predicted that similar

schemes to avoid the regulation of gas prices would

probably be forthcoming if the decision were allowed

to ‘on Even more recently, testimony given in

hearings before the Commission reveals that produc-

ers and large industrial consumers are engaged in a race

to control large gas reserves in new fields for X-20

type arrangements unregulated as to price.” Varia-

tions on the X-20 theme seem to be approaching the

application stage at-this time.” |

* See Oil & Gas Journal, November 9, 1959, p. 113; Petroleum

Week, November 13, 1959, p. 22. eee

See Petitioner’s Brief in No. 46, p. 40, note 41.

“See Oil & Gas Journal, July 25, 1960, p. 131. The New

York Herald Tribune, September 19, 1960, p. 28, announces

that Tennessee Gas Transmission Co. had signed an agreement

with Southern California Edison Co. for a twenty-year trans-

action involving natural gas for fuel purposes.

2. The inflationary effect of such vast industrial bid-

“ding is not difficult to foretell,” and some actual re-

sults are already known. In the Aneth field. in Utah,

EL Paso Natural Gas Company bought new gas at gas at high

prices from various producers, and. the parties applied

for certificates in K.P.C. Docket Nos. G—12580 ‘and

G-13862. The examiner’s decision,pin the following

account, leaves no doubt that the high price paid by _

. the pipeline was strongly influenced by the existence

in the field of a single, large, additional bidder which

‘formerly bought gas from that pipeline’ 8 customer

(23 F.P.C. at 399): PS

In substance, the picture presented by the ne- -

gotiators for the. producers was a picture of

experienced business men trying to get the best

possible deal for the companies they were rep-

resenting. The same may be said of the wit-

nesses representing El] Paso who negotiated

' these contracts. Such differences in bargaining

position as may be said to exist come into being

by ‘reason of the sure knowledge of the produc-

ers of the tremendous demand for gas in the

United States and particularly in California

and their awareness of the published critical

comment of the Commission concerning the

ability of El Paso to meet demands on its sys-

. tem in the light of its reserve situation and the

knowledge of the statements of the Commission

regarding the advisability of El Paso improv-

involved in this case represented « very high contract price for

Téxas hailroad Commission District No. 4 ( the 15

southern-most counties of Texas and including the fields

most distant from the great northeastern consuming centers).

e 67

ing its reserves. In this eonnection there was the

further fact that the producers had the. option

_ of dealing with either El Paso or Transwestern,

| ' both of. which appeared to be very anxious to

acquire this gas and they further: had under

consideration use of the gas in their own re-

fining plants in California and the possibility

"of selling the gas to Southern California Edison

Company or selling the gas through a pipeline

which they could construct themselves. .

It was clear from the testimony that the man-.

agement of E] Paso believed that if it did not

agree to meet the price finaliy reached with the

producers, it might not obtain the th sup-

ply. All of these factors led El Paso to make ~

_ price level proposed in this proceeding. [Em-

‘phasis added ; footnote omitted.) __-

The Commission’s opinion that in a sellers’ market

more industrial bidders mean upward price pressures .

_ is surely a reasonable judgment which faces the reali-

ties of the situation in the gas industry." See Atlantic

Refining Co. v. Pub. Serv. Comm., 360 U.S. 378, 390-

3. On the othef hand, the need of the pipelines for

adequate amounts of gas at non-inflationary prices, for

" ultimate distribution to the ordinary consumer, is of

paramount importance. The machinery of the Natu-

ral Gas Act has protected the public only because its _

administration has encouraged producers to sell new

gas in interstate commerce, through the pipelines, for

resale to ultimate consumers. The prevailing industry

pattern of sales by producers to. interstate pipelines

like’ Transco, rather than directly to industrial con- -

_ Bumers in other states, is an integral part of that pro-

tection (which is undisturbed by the relatively limited

diversion‘of gas supply to intrastate markets). Until

the decision below, this pattern guaranteed‘a measure

of price protection and adequacy of supply for con- —

sumers, since the limits upon the unregulated intra-

state market meant that most new gas would have to

President Stanwood so testified, at R. 62-63.) Theory has —

"Bot yet taken full account of the changing psychology of busi-

neesmen yor their reactions such as panic buying under threat .

of future inflation or shortage. Historical accidents determine

where gas is found, its proximity to existing pipelines, and as —

- @ result the sum of buyers and sellers whore interests are in-

volved in s particular Even the timing of bids and

negotiation, and the inc: litigation, can upset the classi-

cal equilibriums. Approval of the X-20 arrangement, as the —

Commission was aware, could easily trigger significant reactions

by businesamen free to “disobey” the “laws” of Adam Smith

and David Ricardo. Cf. Zimmermann, Conservation in the

\, Production of Petroleum (1987), p. 242: “Some one might argue -

\that in a competitive market a premium fuel suchas gas must

sel] at a price accurately reflecting its superiority in

uses. Theoretically that should be the case under con-

ditions of perfect competition, in the absence of disturbing or

counteracting forces. ee a

be dedicated to interstate sales under regulated prices.

-If the unregulated market*is’ broadly expanded to in-

___ clude X-20 type arrangements, a very substantial por-

tion of new gas will’ doubtless be dedicated to direct

industrial use, rather than for resale to the ultimate

consumer. At the same time, the increase in gas prices

‘Tesulting from the advent of large industrial pur- |

chasers into the gas market will tend to drive up the

prices the pipelines will have to pay for the reduced

portion of the new gas they will be able to buy.

-That the pipelines continue to need new gas to main-

tain an appropriate relationship between supply and.

- requirements is a common-place, as is the tremendous

competitive drive for such new gas. In El Paso Nat-

ural Gas Company, 22 F.P.C, 900, 950-951, the exam-

iner notes that El] Paso has a substantial number of

employees who devote their time to acquiring addi-

tional reserves, and that one part of this task involves

“the obtaining of information concerning gas dis-

coveries in every gas producing area from Louisiana

to and including Western Canada, and the exercise of

all its ability in an effort to acquire substantial addi-

ional quantities of gas.” The examiner indicates

that “all or nearly all of the large pipeline companies”

_ have to engage: in comparable activities and have to

bid against each other for gas.

In this scramble for new gas the pipeline company -

has distinctive problems. At must replace the gas

. Which its existing customers use; out of pruderice it

must obtain-new gas to increase its system’s deliver-

“The present-day scramble to secure new gas is described by

Transoo’s Vice President Stanwood ‘at R. 58a-62a.

;

ability life; and it must provide gas for the growth

which occurs in currently served areas, and for ex-

. pansion to and growth within new areas. Transco’s

own history. is a typical vignette in the! full table:u.

The deliverability life of its gas supply has shrunk —

over the years." ‘For Transco, turning its energy to

transporting Con Edison’s gas for a charge may seem

to avoid part of the troublesome search ‘for ‘new pro-

ducer gas. But this-solution exacerbates the problem.

. The natural gas currently offered for sale is quite

limited in relation to total demand. That which Con

Edison buys .and: fires’ undér its boilers ean never be

dedicated to Transco or any other. pipeline to facilitate

**Gas reserves ‘may be measured in two ways. The cruder

‘ approach is to make a geologist’s estimate of the total volume

of recoverable gas underground, to divide it by the system’s

annual requirements, and thus to derive a “life index” of the gas

supply. The more significant method also takes ‘into account

the rate at’ which gas can be removed from the. reservoir, and

develops the “deliverability life’ of the gas supply, which is

the number of years for which the reservoirs dedicated to the

pipeline’s system-can produce enough gas to continue to meet

the system’s existing requirements. As a pipeline’s developed

reserves age, the rate of gas flow from the reserves originally

ded@ated to its service declines. As « result, deliverability lift

will fall sharply unless new reserves are secured.

_ 8 While in its earliest certificate casts Transco could show an

overall system ‘gas supply of 20 years (see 9 F.P.C. 82, 38),

in the instant proceeding it shows only 18 years (Exhibit 13,

Sec, 8, p. 4, lines 24, 25, 26, R. 119a). The decline has since

continued. In its next succeeding expansion program, which

the Commission authorized, Transco showed an’ 11 year deliver-

ability life. 22 F.P.C. 836, 850 (1950). Most receatly, in seek-

ing authority for yet another major expansion, Transco has

failed to satisfy the Commission as tothe adequacy of its gas

supply and its application has been remanded to the examiner

for a further showing by Transco. Order issued August 26,

1960, if F. P. C. Docket Nos. G-20107 et al. (not yet reported).

the gas industry’s regulated development. The Com-.

mission’s denial of authority to transport such gas will

at least tend to result in its being utilized for more

. ‘urgent service, there being no reason to presume that

Con Edison will obtain like volumes of boiler fuel by

other means; Transco itself admits that under its

tariffs it cannot guarantee firm boiler-fuel deliveries.

4. Moreover, the Commission fears’ that the ex-

panded X-20 type of service will preempt not only the

. supply of new gas, but also pipeline capacity which -

would otherwise be available for smaller consumers

(see fn. 45, supra, pp. 56-57)... Transco feplies to this

forecast by urging that its depreciation situation ‘‘is

such that it must keep on expanding facilities” (R. |

322, 326)—in other words, that devotion of its pipeline .

capacity to X-20 service will make no difference in

the'long run -since it will expand ceaselessly. The

Court of Appeals, which seems to have accepted

Transco’s answer, has misapprehended this problem.

of ‘‘preemption’’.” *, | :

“Transco did agree to seek a certificate to sell Con Edison

equal daily volumes of firm gas if authority for the transporta-

tion service were denied (R. 151a). Although that approach —

would obviate many of the objections to X-20, Transco has

not seen fit to make such an application. And in any event,

the agreement to do so fails ta demonstrate that the Commission, -

is also preempted over use for other gas. The disputed and

uncertain area regards preemption as to future capacity. For

® presentation of the need, in the face of declining deliverabil-

. Transco’s assurances of continued and unlimited ex-

pansion ignore the difference between desire and <abil-

ity to expand. Many factors limit a pipeline ecom-

pany’s ability. “Perhaps most crucial of these are its

‘ gas supply and the related availability of debt capital.

(Even temporary shortages of steel pipe can produce

severe restraint.) Furthermore, business self-interest,

be its origin managerial or foreed by the preferences

of lending institutions, does not necessarily follow the

course of increasingly supplying general utility needs.

If transportation service for industrial users such as

Con Edison is more profitable or less risky, and if

_ Transco is free to choose between the two, then it may

‘well bend its expanding efforts into the line of en-

deavor which private interest indicates. _

Pipeline companies have resisted the importunities

_ of small communities, and the Commission has had to

order service to them in exercising its certificate pow- —

ers. See Texas Eastern Transmission Corp., 8 F.P.C.

139. Even Transco originally proposed to serve only

‘ the big-city markets. The towns. along Transco’s

route were able to secure service because the Commis-

sion was sensitive to their needs and fedesigned

Transco’s rate structure. 9 F.P.C. 32. If, as the

Commission fears, transportation arrangements like

X-20 attract Transco and other pipelines more than

other forms of activity, then the people—of such

smaller towns will be the sufferers for neither they nor

ity of reserves, to condition exports of gas so as to avoid pre-

‘emption of capacity which should be reserved for future use by

mission Co., 12 F.P.C. 311, 334. See, also, concurring opinion '

in Gulf Interstate Gas Co., 12 F.P.C. 116, 131. .

their local distributors are in a position to bargain

with producers for an independent gas supply.

_Transco has admitted that it would have little inter-

est in transporting small ae “of gas for such

‘ people.” :

5. To the Commission’s evaluation of te conse-

_ quences of an expansion of X-20 arrangements,

Transco also offers the’“short answer” that Commis- |

sion powers to regulate rates and scrutinize initial pro-

ducer prices will protect the general utility consumer.

The argument overlooks the basic fact that power. to.

‘protect depends upon business conditions which lead

private iniu:au,, to bring gas into the flow of regu-

lated commere.’ The Court has observed in Atlantic —

' Refining Co. v. Public Service Commission, 360 U.S:

378, 394, that. where the bulk of all- commercial gas

moves into: the regulated market the only profitable

alternative is to sell in that market. If, on the’ other

hand, unregulated markets capable of: absorbing the

bulk of the new. gas should become ayailable to pro-

ducers, there is Surely a danger that they will strive

to withhold supplies from interstate utility sales; and..

a sufficiently large unregulated market may make it

impossible’ to control the price of new sales. ~The

processes for assuring reasonable: prices to the public

do not occur in a.vacuum. They involve the adjust-

ment of powerful economic forces, and depend in large

Measure on the proportion of the gas industry ‘which

an be affected or reached by Commission regulation.

~ Transco’s Vice. President Bruns testified that it would be

impractical to suggest a transportation service to a small cus-

tomer (R. 71a).

sirable consequences for the public and the consumer’”’

(emphasis added) angpenen as a most conservative: |

forecast.

tive showing of public need for this\particular boiler-

fuel use, ‘Con Edison could not claim any shortage

of other fuels in New York City, nor even any large

price differential between.gas and coal. And Transco

could not show any significant advantage to its load

_ factor, first, because its load factor is in any. event |

high, and, second, because the X-20 service does noth-

ing to fill system-wide valleys. Supra, pp. 5-6. Ac-

cordingly, respondents sought to make out a special

cease through their air pollution argument. The Com-

mission did consider petitioners’ contentions as tend-

_ ing to support the grant of a certificate (R. 178a),

but concluded, as it ee. ? in denying rehearing,

(R. 192a), that—

although air pollution exists in New York City,

as it does in many metropolitan areas, the evi-

_ dence falls short of establishing that burning

_ the volumes of gas here in question in Consoll-

dated Edison’s boilers would remedy the air

- pollution in New York City generally in suffi-

cient measure to offset the detriments of f’ the

X-20 service.

, Respondents’ evidence of the Waterside owike ad-

dition to New York City’s air pollution problem left

much to be desired. See the Statement, supra, pp.

6-8. The burning of natural gas at Waterside |

would not eliminate, but merely reduce, the burning

In this light, the Commission’s comment (R. 19la) -

that X~20 type of service would have “probably unde- |

No weet grail to AO

. 7%

of coal there (R. 32a). Much of whatever air pol-

lution problem the generating station presents would

remain; and this record as made -by respondents is

inadequate even to give sharp focus to what that

problem is.

No thorough-going analysis of Waterside’s impact

on the local_pollution problem was presented. Re-

- spondent’s expert read from the general findings (p.

6) of the Interstate Sanitation Commission (New

York, New Jersey, Connecticut) Study of Smoke and

Air Pollution in the New York Metropolitan Area

(R. 40a-41a), but he ignored a specific finding, made

' at the time of a test using the most modern analytical °

equipment, that ‘‘the primary source of air pollution

_in gaseous form in Manhattan was motor vehicle traf-

fic” (Ibid. 9). The same study reflects the host of

elements which affect the New York pollution prob-

lem, but which are ignored in respondents’ presenta-

tion, t.e., thousands oi apartment and municipal heat- '

ing furnaces and refuse incinerators, the burning of

200,000 scrapped automobiles annually, the daily dis-

charge into the air’ of 500,000 gallons of unburned

fuels from motor traffic, heavy industry’s burning of

coal and.oil, and windborne contaminants from nearby

> areas. No-figures or studies of the actual damages

caused by Waterside emissions were presented, so the

Refined instrumentation .for measurement of air pollutants,

and for tracing particulate and gaseous pollutants to their

source, is in rare use. For a discussion of available and po-

tential sampling and analysis techniques, see Jacobs, Are Sam-

pling and Analysis Techniques Adequate for Today's Needs?

found in Proceedings, National Conference on Air Pollution,

Public Health Service (1958), pp. 94-99.

664653—60—-7 ;

: @

76 °

standard type of analysis of particulates and. gaseous

emissions which pervades the findings of the experts

in this branch of public health study was not avail-

‘able.c See Proceedings, National Conference on Air

Pollution, Public Health Service (1958), pp. 81-114,:

132-174. The presence of unburned hydrocarbons

from automobile exhausts and carburetors, and from

the handling and distribution of gasoline, proved

after much study to be the key to ‘the air pollution

control problem in Los Angeles. Id. pp. 34-38, 167-

170. No similar analysis of the contaminants in the

air around Waterside was presented. It is possible

that, from a health standpoint, the major boulevards

coursing by Waterside and the U.N. building are

more dangerous and unpleasant to the community:

than the emissions from the Waterside stacks, al-

though the. latter are of course more obvious. (See

_R. 138, 136a, with gasoline filling station sign in

right foreground.)

No assessment was made either of the diminution

of contamination inthe immediate. area ‘surrounding

Waterside in view of the prevailing winds which bear

-the smoke, and quantities of dust and ash, out over

the East River. Respondents’ witness admitted that

the fact that'the river lies where it does with respect

to the Waterside plant and the prevailing wind direc-

tion actually rendered inadequate the rudimentary

sootfall sampling tests conducted by the city authori-

ties (R. 5la-52a). And there is no indication that

| tracer tests were run in the surrounding community

to determine whether Waterside was the true souree

of even the less harmful particulate concentrations in

ey LALLA 5, Jit .

——* ings

the neighborhood. As a result, no one was able to

testify to the: percentage of the total Waterside par-

ticulate emissions which fell in the vicinity, if indeed

the air currents permitted any of them to settle there.

‘While local citizens attribute to Waterside the source

of the flyash of which thpy sometimes complain, it is

impossible on this record really to fix - blame any-

where. |

The record is similarly inadequate as ‘to the at-

tempts of Con Edison to control Waterside’s emis-

- sions mechanically. One xpert | in. this field has de-

clared:

ion of obnoxious gases arid dust from

coal-fired electric powerplants depends upon

the coal and the design and operation of the

equipment. If products of incomplete | combus-

tion, such as smoke and. organic gases, are

emitted, they are the result of faulty design or

poor operation. Their amount will vary widely

with combustion conditions: We may assvme

that no significant quantities of these products

are emitted from well-designed and properly

operated coal-fired electric powerplants"

Although Con Edison insists the job cannot be done,

would cost too much, or would require special munici-

pal consent, no definitive proof was offered to support

these a&sertions. No doubt, mechanical precipitators

or collectors, specially designed to meet Waterside’s

specifications, would be costly. But the record con-

tains no detailed evidence which would permit com-

Power Plants (Coal Fuel), ‘found in Proceedings, National

Conference on Air wear, vue Health Service (1958,

.p. 155).

parison of the costs of the various pollution abatement

- alternatives available-to Con Edison. The gross cost

estimates for specific solutions contained in the record

thus have no firm significance.

Qn this record the presiding examiner was ‘free te

conclude, as he did, that petitioners had failed -to

establish that the proposed service was required for

air pollution purposes. His consideration of the evi-

dence concerning the elements of possible injury to

health, economic losses (lowering’of real estate values,

costs of cleaning buildings), the power of the city’s

health officials to act, the possible shifting of load by

‘Con Edison to ther stations, and the practicability of

mechanical abatement of the problem, resulted in a

general ‘finding of record inadequacy (R. 172a-173a).

The Commission’s affirmance of his findings was

clearly correct. See Universal Camera Corp. v.

N.L.R.B., 340 U.8. 474, 492-497. 4 “,

‘It is noteworthy that the presiding examiner was

prepared to rule, had adequate proof of injury to

‘health, economic loss, éte. been made, that boiler fuel

use under such circumstances would be ‘“‘markedly -

_ more necessary and valuable than for home space heat-.

- ing, cooking or water heating” and “without doubt”’

in the public interest (R.:172a-173a). There are no

indications in the Commission’s opinions in this case

that it would not rule the same way if the proof war-

ranted ; ‘its boiléy fuel policy has not been rigid or

unyielding. " Air pollution can be an issue of decisive |

' "In El Paso Natural Gas Co., 22 F.PC. 900, 902-003, pe-

tition for review pending sub nom. Southern California Edison

Company v. Federal Power Commission, No. 13178 (C.A. 3),

_— ~——

<s 2

——_— ee nF BS

— ——e

- 79

importance if the use of other fuels creates special

dangers for a community. But this merely proves the

inseparable tie between the competition among fuels,

and the appropriateness of the consideration of end-

use, as well as of the factors of price and supply.

Whether the immediate problem be the demise of: an

the ‘Commission accommodated ‘to the acute smog problem in

Los Angeles, and to California’s own boiler fuel policy, by

conditioning its cettificate to permit the distribution and use

of gas to be subject to the orders of the state authorities. This

‘was possible because a natural gas company owned the gas,

and its distribution to that company’s customers could be su-

pervised by the state commission to accord with state policies.

But in the X-20 situation, where the gas is owned by the boiler- *

fuel *, the Federal Power Commission has little opportunity

to ex its conditioning power, and the consuming state

commission has no choice. The hopelessness of the position of

the consuming state is demonstrated by the opinion of Chairman

Maltbie of the New York Public Service Commissivn in .a

“boiler-fuel case”. Re-Cabot Gas Corporation, 16 PUR (NS)

443, 445-446 (1936):

uses Our natural gas resources ought to be conserved and

there is probably no field where the Federal government act-

ing in the interests of the entire country and to protect the wel-

fare of the future could accomplish more than in the natural

gas industry. From s conservation viewpoint, I thoroughly

agree with Commissioner Burritt, and .if I could see how a de-

nial of the present petition would work to this end, I would .

vote to refuse the application; but will such denial produce the

desired results?

_ “The field from which gas is to be taken by the petitioner is

in northern Pennsylvania and southern New York. * * * It is

possible for Pennsylvania companies to take all of the gas. from

oe ree

- the field is exhausted.

. a * * -*

' “If restriction is imposed on the use of it in New York, it

may go to Pennsylvania * * *.

“Thus, the state must either permit inferior use, or lose the

gas entirely.”

oil barge business,” the curtailment of rail transporta-

’ tion,” the needs of.national defense," or the control of

air pollution, the Commission must consider the total

situation (including all appropriate factors) in order

-- adequately to adjust local private wantsto the national

-public’s needs. ) |

Weighing all of these factors on the scales of the -

particular -record before it and its general judg-

ment, the Commission reasonably concluded that the

". public convenience and necessity—particularly in the

light of the Gas Act’s primary concern with the smaller

ultimate consumer—would not be furthered by per-

mitting Transco to transport Con Edison’s gas under

the X-20 arrangement. That reasonable judgment,

which is for the Commission to make (see infra, pp.

82-83), must be respected by the courts. E.g., United

States v. Carolina chines Corp., 315 US. 475, 480-

482. ant

Aside from the legal argument “that the factors

of end-use, price impact, effect on gas supply and

pipeline capacity, could not be considered at all by

the Commission (which we have answered in Points

II and.ITI, supra), all that respondents can urge

_ against the Commission’s evaluation of these factors

is that individual witnesses did not appear to testify

to each of the general conclusions reached by the

"City of Pitteburgh v. Federal Power Commission, 237 F.

» 2d 741 (C.A.D.C.).

™ Charleston & W.C. Ry. v. Federal Power Commission, 234 '

** National Coal Ass'n v. Federal Power Commission, 191 F.

Qd 462 (CA.DO.).

Commission. But plainly the Commission relied, and

had a right to rely, on its “‘cumulative experience

with the regulation of the natural gas industry.

National Labor Relations Board v. Seven-U p Bottling

Co., oat U.S: 344, 349." > Transco’s application and

the new patterns it suggested called for a regula-

tory “look into the future and-determine * * * what

‘the possibilities are’ (Hearings, House: Interstate

' and Foreign Commerce Committee, on H.R. 5249, -

77th Cong., Ist Sess. p.. 33). Some future -events -

can be estimated with fair precision on. the basis ‘of:

testimony, but with such questions as the relative

social utility of burning gas to heat homes, or to

anneal metals, or to fire ordinary steam boilers—or

the precise price consequences of encouraging un-

regulated gas purchases in.southern Texas—the best

answers that experienced judgment can offer are

bound to be franght' with uncertainty. See United

Airlines v. C.A.B., 155 F. 2d. 169, 174 (C.A.D.C.).

Testimony of gas industry opinion witnesses in this

case could not require the Commission to act against

its informed judgment that the X-20 type of arrange-

ment bodes harm to the industry and the public

which it serves. Nor did the Commission need

specific opinion witnesses of its own to support the

general judgment it rested on its own “cumulative

“Cumulative experience’ begets understanding and insight

by which judgments not objectively demonstrable are vali-

dated or qualified or invalidated. The constant process of

trial and error, op a wider and fuller scale than 4 single

litigation permits, differentiates perhaps more than

else the administrative from the judicial process.”

experience.’’ It had the right to rely on its informed

judgment.” ,

THE COURT OF APPEALS SHOULD NOT HAVE ORDERED THE

COMMISSION TO ISSUE THE CERTIFICATE APPLIED FOR,

BUT SHOULD HAVE REMANDED FOR FURTHER CONSID-—

‘ERATION BY THE COMMISSION

The Court of Appeals also erred in remanding the

certificate applied ‘for’. Under the repeated de-

“to affirm, modify, or set aside” a Gommission order

“in whole or in part”, Natural Gas Act, Section 19

(b), 15 U.S.C. 717r(b), does not authorize it to exer-

cise an essentially administrative function. Judicial —

review ends when an error of law is laid bare; the

matter must then be returned to the agency for

reconsideration.”. Assuming that the court's ruling

~The Commission could of course seck experienced judg-

in, siete ldche Power Ca., 244 US.

. 17, 90-21; Federal Communications Commission v. Potteville

Broadcasting Co., 300 U.S. 134, 145; Scrippe-Howard Radio,

Inc. v. Federal Communications Commission, 316 U.S. 4, 10;

Addison v. Holly Hill Co., 322 US. 607, 618-619; Federal

on the issues of law was correct, it should have per-

mitted the Commission on remand to consider Trans-

‘ co’s application anew in the light of the governing

rules announced by the reviewing court. In addition

to the general principle of remanding overturned

agency proceedings of this kind for further adminis-

trative consideration, there are in this case special

reasons for following the normal course,

A. Transco proposed to. enlarge an existing inter.

- state line—not to build a new one; throughout most

of the distance Con Edison’s gas would be indistin-

' guishably co-mingled with Transco’s normal supplies.

‘Without Transco’s mainline facilities, the project

would have been economically unfeasible. Transco

propose

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