Reply Brief for the Federal Power Commission — FPC v. Transcontinental Gas Pipe Line Corp.

INDEX

I. Wholly unregulated interstate sales to- industry will ae

inflate natural gas prices to all consumers-_-_------

II. The transportation of X-20 gas for use in the Con

Edison plant would.be a first step to endangering the

available supply of natural gas for the future. -__-_-

1. The deliverability life of our Nation’ 8 gas

supply is continuously dwindling. ---_------

2: The Commission’s efforts to get Transco to

’. provide for underground storage - - - -- - --- .

III. The legislative history of the Natural Gas Act, as

amended, and conternporaneous Commission state-

ments: indicaté that the Commission has the power

4o consider end-use in certificate proceedings under

TU hia cichinr a aldiacinian nia hinda nutes akon

_IV. It was not error for the Commission to weigh all the

factors evidencing air pollution at Waterside against

the other considerations militating against the X-20

service and conclude by denying the certificate. -_.

1. The smoke stack could have been built higher_.

. 2. The boilers could have been reijoved from the

system and the _ transferred to other

— 4. Non-X-20 gas already, used in other stations

could have been transferred to Waterside for

use in the offending boilers.__-.---.--- os

iii. 2 i i ee ee

e ‘CITATIONS

9

Atlantic Refining on v. Public Service Commis-

sion, 360 U.S. 378. RPE Ee EIT il BFA

CEG. inh eecendiancemnrea teen

10

13

Casee—Continued

~ Fiahandle Mastire Pige fine Vo: 3 v. Public Service .

Commission of Indiana, 332 US. 507---.--------- "a

Peoples Gulf Coast Natural Gas Pipe Line Company,

*. 98 PPG, 106. occncncvecccaccccocencoseqeses os

Phillipe Petroleum Company v. State of Wisconsin, 347

2) ee 2, 14

. Phillipe Petroleum Company, F.P.C. Opinion No. 338,

- iasued September 28, 1960, Docket Nos. G-1148,

2 ee re 2

Tennessee Gas Tranemission.Co., 13 P.P.C. 311....... 8

Transcontinental Gas Pipe Line Corp., 7 F.P.C. 24... 10, 12

Transcontinental Gas Pipe Line Corp.,7 F.P.C. 139... 12

Transcontinental Gas Pipe Line Corp., 9 F.P.C. 32_ 10, 12, 13

Transcontinental Gas Pipe Corp., 9 F.P.C. 1269... 13.

Transcontinental Gas Pipe Corp., 9 F.P.C. 1327.. 13

acme yt al bY 10 F.P.C. 469,. — 10

Transcontinental Gas Pipe Line Corp., A F.P.C.005.. 13

Transcontinental Gas Pipe Line Corp., 11 F.P.C. 500. 13

_ Transcontinental Gas Pipe Line Corp., F.P.C. Opinion

279, issued December 28, 1954----------..-------- 10.

Transcontinental Gas Pipe Line Corp., 14 F.P.C. 1... 10,.13

Transcontinental Gas Pipe Line Corp., 17 F.P.C. 333. 10, 13 |

Transcontinental Gas Pipe Line Corp.,18 F.P.C.710. 10

Transcontinental Gas Pipe Line Corp., 20 F.P.C. A. 13

Statutes: .

Natural Gas Act, 52 Stat. 821, as amended, 15 U.S.C.

. FETs .

it Mt. . cccnenquscenbibaskeredeeuseee 19, 20, 21

tae RIL none in ea 16, 17

Bet. FO cccencccowcccccascscaccecescoccese 13, %4

Miscellaneous :

. American Gas Association, Gas Facts (1960), p. 5... 8

ACT EET <li 30

jt Locunedetsnmuannbeoermanengonnce ay

California Public Utilities Commission, Hearing on

Application No. 40588, testimony of Ww

Witmer (Senior Vice-President of Gas

Transmission Company).. - --------------------- 5

ng 1

Miscellaneous—Continued

93 Cong. Rec.: . Pegs

EEE Oe eee ee Rl, ee 19

TRE RR TE A ee PMNS 19

Si uiiesnchernnsimatitebeademainuadila Cotte) 19

Consolidated Edison Co. of N.Y., F.P.C. Form No. 1,

Ds FS tntiiecncncnccicoscnantcvalioneeusisabae 38

Domestic Gas Reserves’ Fature Gleoma} Unies Baplore- ‘

tion Is Increased, Oil & Gas Journal, March 14, 1960,

Di FEilcidnaccetndincap sibeceeiastbentndseeecs 9

El Paso Natural Gas Pipeline Company et al., F.P.C. |

Devket Ne. OP 60-161... onc cccctecsccccccesss 7

El Paso Natural Gas Pipeline Company et al., F.P.C.

; Docket No. CP 60-003... ...;..............-.--.- 7

El Paso Natural Gas Pipeline Company et al., P.P.C. .-

—s tg RR nen 7

F.P.C. Form 2, Annual Report. _........:.....___- 5,6

F.P.C. Natural Gas Investigation (i948), Docket ;

G-580, Smith-Wimberly Report, pp: 353-354. ___- . 8,17

-F.P.C., Natural Gas Investigation (1948), Docket

G=580, Olds-Draper Report:

Pp, 19-13.........- dba wcakiaeniedeaseseeas. ae

Ny SR Atitinuishenbeveuissbnewmniiyonuéeicsen 18

F.P.C: Order, issued December 15, 1956, in Docket

No. G-1873..-1.-c---o2--nensnnne2a-eonenncene «3B

F.P.C. Regulations under the Natal Gas Act, 18

iE a ee et ee ae a

F.P.C. Statement of General Policy No. 61-1, 25 Fed.

EER aie Alter ree wee en 3

Federal Power Commission, Direct Sales by Producers

of Natural Gas to Interstate Natural Gas. Pipeline

RE ee Se eee 6

Federal Power Commission; Direct Sales by Producers .

of Natural Gas to Interstate Pigetins’ Companice—

1959 (1960). _.... NREL oie aet A-eAee 36

Federal Power Commission, Statistice of Natural Gas

Companies 1959 (1960) :

ee LES OT OE DI Ee ‘ 6

laa cae 6

Federal Power Commission, Twenty-Sizth Annual

Report (1946), pp. 66-69........__......._.._._. 16

" Fiewt. Fioe Yoare Under the Natural Gos, Act, Th,

January, 1944, p. 15... ee =e 23, 24

Miscell _—

_ HBLR, 2185, 80th Cong., Ist Seas__- --- mammal 19, 20, 21

- LR. 2235, 80th Cong., Ist Seas_..........:-...2---

H.R. 2292, 80th Cong., Ist Sess.........-.----..--- 19,

H.R. 2569, 80th Cong., let Seas_...........------ ae

H.R. 2956, 80th Cong., let Sess___._,-.-- . pede “we

H.R. 4051, 80th Cong., Ist Seas__..............---. 21

. H.R. 982, 81st Cong., ist Sess... ................-.- i )

H. Rept. No. 899, 83d Cong., Ist Sess_--.. ...---- w—

Hearings before the House Committee on Interstate

and Foreign Commerce, on H.R. 2185, H.R. 2235, .

H.R. 2292, 2569, and’ H.R. 2956, 80th Cong., Ist

I wauwadnweckueitacsencesues 20, 23

TSE SA PETER LE EI 0:

Pi atindadhsemsceeussedndecddcdoetuudancte 20

Re ie i a el or a ek, 21

ee cna 21

Hearings before a subcommittee of the Senate Com-

mittee on Interstate and Foreign Commerce on

H.R. 4501, 80th Cong., 2d Sess. (1948):

Pp, 190-191 ...............----<---- 9-2-5 ---0---- 22

, Hearings before a subcommittee of the House Com-

mittee on Interstate and Foreign Commerce on

H.R. 982, H.R. 79, H.R. 1758, 81st Cong., Ist.Sess.

(1949):

Pp. 0 EAL DO aC a

TERRES ee ee er en a 24

* Hearings before the Senate Committee on Interstate

and Foreign Commerce on S. 734 and S. 1028, 80th ,

Cong., 1st Seas., pp. 36-38... ..-.-.-.-2 2... 20

L’Hote, Coal os. Gas os. Oil for Heating Schools, School .

Planning, Oct.-Nov. Ss See »

Oil & Gas Journal, August 15, 1960, p. 96.......___- 5

Oil & Gas Journal, October 17, 1960, p. 61... .__...- 5

Onder Instituting Netural Geo Investigation, 4F.PC.

LE TEAR AL EO LTE: =| SEEN 16

' Orning, /ndustrial Sources of Air Pollution——Electric

Power Plants (Coal Fuel), in Proceedings, National

_ Conference on Air Pollution, Public Health Service

Miscellaneous—Continued

S. Rept. No. 1234, 78th Cong., 2d Sess.: . Page

SERS AIT AOD ORT AT ples 17

A Ae aed beoudibewdecses 16, 17

is Mica ucanticmpaienddtinisaealedeendmnudinacsecs 16,17

_ fl Re ene / er a 16

S. Rept. No. 817, 83d Cong., Ist Sess lesiesiaiaaeliidiaiiatacann _ 26

Terry & Winger, Future Growth of the Natural Gas

Industry (Chase Manhattan Bank, 1957)... ____. 9.

Transcontinental Gas Pipe Line Corp., F.P.C. Docket

SED; GEE cnccecwsdiadicendenntdillinstnessse 4

Williamson, Extent to Which Available Control Tech-

niques Have Been Utilized by Industry—Electric

Power, in Proceedings, National Conference on Air

Pollution, Public ane Seeties (1958), p.347_... 31

_— 3

; 3 the Supreme Gon ofthe Bnited States

Ocroser TERM, 1960

No. 45

Yepena PowER COMMISSION, PETITIONER

, v. ,

TRANSCONTINENTAL Pree Live CoRPORATION, Con-

SOLIDATED EDISON ANY OF New York, INO., AND

THE Crry oF New YorK

ON WRIT OF OBRTIORARI TO THB UNITED STATES COURT OF .

APPEALS FOR THE THIRD CIROUIT -

REPLY BRIEF FOR THE FEDERAL POWER COMMISSION

gl ay = fe

WHOLLY UNREGULATED INTERSTATE SALES TO INDUSTRY

WILL INFLATE NATURAL GAS PRICES TO ALL CON-

SUMERS . .

Throughout their briefs, respondents contrive‘ to

skirt the mischief of unregulated interstate sales by

independent producers of natural gas. If, however,

the “novel and unique’’* X-20 service is certificated

and made available as a pattern to industrial con- -

‘Con Edison characterized the X-20 arrangement as “s

novel and unique departure from the traditional concept of gas

supply” in its brief before the Commission, May 12, 1968, p. 1.

(1)

2

sumers, in accordance with the holding below, producer

efforts to escape the dictates of Phillips Petroleum

Company v. State of Wisconsin, 347 U.S. 672, and

Atlantic Refining Company v. Public Service Com

"mission, 360 U.S. 378, will finally be realized.

1. The sales to Con Edison by The Atlantic Refining

Company, Skelly Oil Company, Tidewater Oil Com-

‘pany, Trinity Gas Corporation and others cannot be

consummated without the construction and operation

. of interstate transportation facilities. Should inter-

state transportation to New York be authorized, how-

ever, no regulatory agency, federal or state, would

‘ever scrutinize or review the Texas price of 194 _

cents per Mcf with an eye to reducing it, if excessive.

Yet in the very same producing areas of Texas’ the

Commission, in the exercise of .its certificate powers

over jurisdictional sales (t.e., sales for resale), has, on

a case-to-case basis, attempted since Atlantic Refining,

supra, to “‘hold the line,’’ by conditioning initial pro-

ducer prices down to 18 cents per Mcf (see Peoples

Gulf Coast Natural Gas Pipe Line Company, 24 F.P.C.

106).’ More recently, the Commissiori, in conjunction

' with its final order -in Phillips Petroleum Company, —

’ issued its Statement of General Policy No. 61-1 an-

Duval Counties in Texas Railroad Commission Districts 2 and 4

*See Brief of Southern California Gas Company and South

ern Counties Gas Company of California, p. 14.

*F.P.C. Opinion No. 338 (not yet reported), issued September

98, 1960, in Docket Nos. G-1148, ef al, on the remand ®

Phillipe Petroloum Company v. State of\ Wisconsin, 347 US

672. | ‘a

’ nouncing area price levels for independent producer

*The “X-20” gas, here in question, is produced in Bee and

| ; 3

sales (25- Fed. Reg. 9578), in whieh the indicated price

for Railroad Districts 2 and 4, where the ee

produced, is 18 cents per Mef.

Such dn 18-cent line cannot be held if producers a are

offered the alternative of new large-volume unregu-

lated sales at 1914 cents per Mef. And it is precisely

the fear that this X-20 arrangement will disrupt all

regulation of natural gas‘ and. undermine contrel of

jurisdictional prices in the field which explains, by

and large, the appearances of the States of Wisconsin

and California and the Public Service Commission of

the State of Michigan as antici curiae. .

2. Respondents minimize the. unregulated gap cre-

ated by a certificated X-20 service by arguing that it

will be small and also criticize the Commission for an-

ticipating “many requests of the same general charac-

ter” (R. 178a). Transco’s attack (Transco Br., p.

27) conveniently assumes that the words, “same gen-

eral character,’’ in the Commission’s opinion mean

exactly paralleling the particuiar facts of the present

ease. But the Commission obviously directed its con-

‘cern to any use of interstate facilities enabling direct,

- unregulated sales by producers to large-volume con-

sumers—not merely to direct sales for the avowed

purpose of alleviating air pollution. It is the possi-

bility of a proliferation of such sales, sanctioned by

the court below, which creates the danger of undue

increases in gas prices. :

Respondents also attempt to prove that industrial

customers will not buy directly from producers be-

cause such service is too expensive (Transco Br., pp.

29-32; Con Edison Br., pp. 60-64). This argument,

574574 ¢0—_3 .

4

of course, is based on the cost of the X-20 gas (42.4 §

per Mef delivered in New York, of which 19.25¢ was [

the sale price in Texas) as compared to the cost of

the regular CD-3 gas or “60-day” gas (34.2¢ per Mef

delivered in New York) (see R. 12a, 31a), at the time

of this proceeding. By November 18, 1959, however,

the rate of CD-3 gas for Transco was up to 38.2¢ per

Mef subject to refund (F.P.C. Docket No. G-18783),” }

which was later reduced to 37.6¢ per Mcf by settle

ment order of the Commission, dated October 19,

1960. On October 17, 1960, Transco again filed for an

increased rate of 40.4¢ per Mcf (of which 17.3¢ per

Mef represented the cost of the purchased gas). It is

clear, then, that the CD-3 rate has gradually increased FF

_since the present proceeding. When Transco’s aver-

age cost of purchased CD-3 gas goés over 19.25¢ per [i

-Mef, then X-20 gas will become a bargain.’ And in f

deed Con Edison admitted that it was counting on the ff

fact that, over the life of the 20-year contract, the }

_ cost of X-20 gas would be less than the escalated rate [

for CD-3 gas (R. 99a; see infra, p. 27).. |

The ultimate attractiveness of direct field purchases

by industrial consumers (see our Main Br., pp. 63-65)

was implied by Con Edison when it acknowledged }

that, although the X-20 gas was restricted to fuel

purposes and eduld not be used for resale, its hope

was that the X-20 service was only a “start” (B

99a-100a). ‘Moreover, the record shows that Transco

encouraged its customers to buy gas directly from

producers in the field, with Transco limiting its serv

ice to transportation (R. 70a, Tila). The Long Island

Lighting Company actively negotiated in the field

5

sithough it indicated no plan to confine its purchases

‘to boiler fuel (R. 63a-65a). Public Service Electric

and Gas Company reluctantly indicated on cross ex-

amination, ever Transco’s objections, that, not only

had Transco suggested transportation service, but also

it insisted that, if the Commission authorized X-20

transportation, Public Service would have to consider

a similar program (R. 65a-70a). Transco itself testi-

fied to the interest of a major boiler fuel user, the

Duke Power Company (R. 71a). j

. Events: since the administrative hearing only“ con-

firm the Commission’s judgment. The negotiations _

of the Southern California Edison Company with -

producers in the field have progressed beyond the

situation which influenced prices in the Aneth field

in Utah (see our Main Br., pp. 66-67). Hearings

before the California Public Utilities Commission re-

veal that Southern California Edison plans to buy

335,000 Mef per day of Gulf Coast gas, to be trans-

ported through Mexico for use as boiler fuel.' ‘

‘ 3, Finally, we need look no further than the inter-

- state natural gas pipeline companies, which are them-

selves large ultimate consumers of gas. In 1959, they

consumed 481 billion cubic feet of gas for compressor

fuel and other company uses,‘ at a cost of $72-mil- |

"California Public Utilities Couunission, Hearing on Appli-

cation No, 40588, testimony of William W. Witmer (Senior

Vice-President of Tennessee Gas Transmission Company), Tr.

$287, 3298; see also Oil & Gas Journal, August 15, 1960, p.

96; see also Oil & Gas Journal, October 17, 1960, p. 61.

*Computed from data furnished by individual companies in

F.P.C. Form 2, Annual Report, fiiea by the companies as re-

quired by the Commission’s regulations under the Natural Gas Act,

18 C.F.R. § 260.1, and published in Federal Power Commission

= ; 6 ,

lion.” In almost every instanée they presumably

~ ,bought such -gas inf ordinary jurisdictional transae-

tions, subject t comprehensive rate regulation, as

- part of. their overall gas supply; without distinction

_» between company use and resale. This volume of’ gas

consumed by the pipeline companies is almost as large

ee ee

producers."

The obvious next step, if the decision below stands,

will be for producers to insist that the Commission

may only permit, but not regulate, “direct’’ sales for

pipeline compressor -use.” Purchases earmarked for

Statistics of Natural Gas Companies 1959 (1960), PP. 401A-

412A, line 126. Utility use by the pipeline companies them-

. selves represents 6.4% of the 7,520 billion cubic feet they di-

rectly purchased from producers.

* Federal Power Commission, Statistics of Neturel Gas Com

“panies 1959 (1960), p. xvii. “,

*The F.P.C. Form 2 reports show the following volumes »

sold by producers to pipelines:

{Millions of cable feet) ae

; : Increment

Year Volume over previous

WED. .ceveersecccecaswerecocee ' eeeccnenaeee] 7, 518 62, a

RSA Ce AE AERA APNE Re AA ae IT aI 6, 857, 316, 0

RM, eer ..| 6,640,071 wo

A IE, SR STH EE PR eee Re 6, 145, 505 618,

| PRET OTT rE ceecceee-} 8,808,917 a, a

ce + peunanaonenbeededeens wheoowoutel 5, 134, 281 ccccccceccccss

Data for years prior to 1959 has already been published in Federal _

Power Commission, Direct Sales by Producers of Natural Gas te

Interstate Natural Gas Pipeline Companies—1958, p. 5.

* We express no view as to whether such scheme would ia

fact and law avoid the rate coverage of the Act. Similarly, we

7

pipeline fuel use would displace and make available -

for resale volumes being purchased under earlier con-

tracts, and so ',would increase pipeline supplies

“through wholly unregulated sales up to the amount -

required by pipeline companies. In fact, El Paso

Natural Gas Company is now attempting to take

- partial sféf®. toward such nonregulation by app’, ing

for a certifieate authorizing it to transport: 170,000

Mef per day of “non-jurisdictional’’ gas, which it

says. will be earmarked exclusively for compressor ~

fuel use." | .

II

' THE TRANSPORTATION. OF X—20 GAS FOR USE IN THE CON

EDISUN PLANT WOULD BE A FIRST STEP TO ENDANGER-

ING THE AVAILABLE SUPPLY OF NATURAL GAS FOR THE

FUTURE

1. The deliverability life of owr Nation’s gas supply

' 18 continuously dwindling. Transco attempts .to paint

a highly optimistic picture of the gas reserves in this

country to minimize ‘the significance of the ‘number

of years supply available’” (Transco: Br., App. A,

p. A-1),-and thus demonstrate that there canbe little

or no danger’ to the available supply by using the gas"

car (R. 170a-171a) ; liquification of natural gas is still in the

developmental stage and the jurisdictional question therefore

remains open. ;.

The recent El Paso’ and related applications are in F.P.C.

Docket Nos. CP .60-101, CP 60-693, and CP 61-26. They

involve purchases of gas produced. in the -Gulf Coast of Texas

totalling 170,000 Mcf per day which E} Paso says it will use as

fuel.“ All the producer sales are sales for resale by an inter-

mediate pipeline company to El Paso. For one reason or

, nother, the sales to El Paso are claimed to be immune from

rate regulation; the same claim is made as to some, but not all,

of the producer sales to the intermediary.

8

for industrial purposes. The Smith-Wimberly Re

port of the Federal Power Commission on Natural |

‘Gas Investigation (1948), Docket G-580, however,

was not so optimistic. There it was reported (pp.

353-354) that “natural gas could not, for more than

a few years at most, supply all of the increasing

industrial demands for it which would be forthcoming

on the basis of existing price relationships with coal

and oil in many large and expanding markets.”

There has also been a notable decjining life index of

total proven natural gas in the United States—from

321% years in 1946, and 27 years in 1951, to only

2414 years’in 1953, and only 21449 years in 1959. See

' Tennessee Gas Transmission Co., 12 F.P.C. 311, 335

(disgent) ; American Gas Association, Gas Facts

(1960), p. 5.

Life indices, however, only partially reflect the re-

serve situation as it affects consumers and investors.

The crucial issue concerns maintenance of the deliver-

ability life of our reserves. Long before reserves are

pletely exhausted, reservoir pressures and the re-

sultant rates of possible annual production decline.

The t, as everyone agrees, is that a point will

-some day be reached at which gas-use fust be cur-

tailed, and pipeline capacities no longer fully uti-

lized. The date of this “breaking point\’ depends not

on the gross reserves, known and undiscovered, which

exist within the continent, but rather upon: the ir

dustry’s success in finding them. Forecasts turn on

_ such factors as anticipated rates of consumption, ex- ©

- ploration, and development drilling. On the basis of

o

troleum Company, for example, has predicted that.

1973 will mark the breaking point. ‘“‘Domestic Gas

Reserves’ Future Gloomy Unless Exploration Is In-

creased,” Oil & Gas Journal, March 14, 1960, p. 160."

Terry and Winger,: on the other hand, tentatively

predict the end of full-pipeline deliverability life in

the 1980’s. Terry & Winger, Future Growth of the

Natural Gas Industry (Chase Manhattan Bank, 1957).

All such forecasts are, of course, subject to the uncer-

-tainties inherent in the numerous underlying oe

which can only be estimated. |

Even measurements of reserves already discovered

are open to large doubts. Thus, in the original

CATCO hearing, Tennessee Gas Transmission Com-.

‘pany’s geologists testified to reserves of 1.7 trillion -

' eubie feet (see also Transco Br., App. A, p. A-1).

. On the remand, in conformity with the judgment in

Atlantic Refining Co. v. Public Service Commission,

360 U.S. 378, the parties claim that further drilling ©

requires a spbstantial reduction in the estimate—the

producers say dow: to 0.7: trillion, Tennessee to 1.35

trillion cubic feet! These circumstances make evi-

' dent the appropriateness of continuing public concern.

Despite these problems of maintaining delivera- -

-biliy, Transeo implies to this Court that it has in the

past and will continue to expand and grow “‘to meet

the normal growth of the natural gas market which 7

it serves” (Transeo Br., p. 33). It is true that

Transco’s history has been punctuated by dramatic

“We, of course, do not endorse Phillips’ argument that

higher producer prices are called for as the only way to secure .

increased ee life.

10.

expansions,” but it also has been punctuated by a

continuous dwindling of the deliyerability life of its

gas supply. Thus, as is pointed out in our Main

Brief, p. 70, n. 65, while in its earliest éertificate cases

Transeo could an: an overall system gas supply of |

20 years, in the instant proceeding it showed only 18

years, and in its next succeeding expansion program,

11 years. Most recently, in secking authority foryet .

- another major expansion, Transco failed to satisfy

the Commission as to the adequacy of its gas supply.

2. The Commission’s efforts to get Transco to: ~pro-

vide for underground storage. Transco’s history has

also been punctuated by the Commission’s efforts to

encourage Transco to develop its underground storage

facilities. ‘Since a higher ‘‘capacity factor’’ ratio be-

tween the actual annual flow of gas to the designed

annual capacity of a pipeline i is more economical and

‘decreases the unit cost of delivered gas on a year-

round basis, the Commission has attempted to prod

‘Transeo to increase its load factor ratio by under-

taking an underground storage program, rather than

' by exclusively selling ‘‘valley interruptible” gas for

_ inf@fior industrial use. In this manner, gas could be

42 Transco’s major certificate cases prior to the instant —

cation, and peak daily‘capacity authorized, were: |

(840,000 Mcf__________ 7 F-P.C. 24, 139 (1948 initial cuttieatel”

505,000 Mcf__ 9 F.P.C. 82 (1950).

555,000 Mcf_.___-____ dato 460, 522 (1951):

602,000 Mcf__..._____ Opinion 279, issued December 28, 1954.

408,000 Mcf.___._.___ 7 Cc. L ;

_ 833,000 Mcf__.._..___ 17 F-P.C. 333, 860 (1967).

948,000 Mcf____._.___ 18 F.P.C. 710 (1957).

See also Transco Br., p. 33, n. 1.

ll .

reserved to augment the number of years of full de-

liverability to meet essential needs.”

When Transco’s initial certificate for a pipeline of —

340,000 Mcf peak-day capacity was granted, the Com-

_ mission noted that Transco intended to sell large

volumes of interruptible gas for underfiring boilers in

electric generating plants, principally for the purpose.

of maintaining a high load factor; that. the Commis-

sion had reopened the proceedings to receive evidence -

as to a storage plan which would “assure utilization

of the.fult capacity of the project in such manner as

will best serve the broader public interest’; that.

Transco. had introduced evidence- but claimed “that

such a project was not economically ‘feasible’; that,

nonetheless, the Commission felt Transco’s explora-

tion of the storage possibility to be insufficient, and so

directed Transco to undertake a thorough study of —

off-peak storage programs. The _Commission sug-

* Underground storage programs ‘veld the dissipation of

_ Teserves in inferior uses. This is accomplished by transport-

ing. extra gas during the summer valley periods 6VaPwmost of

the distance to market, storing the gas in underground reser- .

voirs, which are impervious geological structures (usually ex- .

hausted gas fields) near t the centers of consumption, and then

piping the gas the rest of the way_during the relatively brief

i peak capacity facilities are then

from ‘storage field to the consumption

a system such as. 1 ’s, spanning as it doés

some 1,700 miles from. southern Texas to New York, the sav-

. ings could be considerable. The seasona] fluctuation between

the summer valleys and the winter ‘peaks were graphically

to be about 60,000 Mcf per day and its December “peak” ’ in

12. hie +

gested that it would expect the result of such a study

be reflected in any, Transco expansion proposals. 7

F.P.C. 24, 40-42, 47. The Commission. also condi-

“tioned the certificate on filing of a tariff which would

’ not discourage summer eoeee as against boiler fuel

sales, 7 F.P.C. at 38-40, 47. °

Transeo’s next major eertificate cass-reaulted in an

increase of authorized capacity to 505,000 Mcf.* The —

Commission recalled its earlier concern for develop-

ment of a storage plan and stated @ F.P.C. 47-

48): aS

_. The testimony adduced in this proceeding |

quite definitely indicates that the storage of

gas during off-peak summer periods for sub-

sequent withdrawals during winter periods of

peak demand, is still desirable that the

storage of such gas at such times if preferable

- ‘to burning gas for boiler fuel purposes. . Testi-

mony of Mr. Forbes, executive vice president

of Consolidated Edison Co. of-New York, Inc.,

indicated the willingness of his company to pay

a premium for storage gas because of increased

reliability of service. ~

The Commission approved Transco’s efforts and

urged the bringing of a storage project to fruition.

The Commission again directed a tariff which would

deter over-extensive use of gas as boiler fuel, and

assure the priority of any storage program, once fa-

; cilities were developed for it, over boiler fuel uses. |

* The triginél pipeline was designed for such on expensice.

7 F.P.C. 139, 141, fn. 2.

13

9 F.P.C. at pp. 48-50, 55, 64. The tariff was ap-

proved at 9 F.P.C. 1269."

The Commission did grant Transco additional cer-

tificates for interruptible boiler fuel services when

the system had excess capacity, but it continued to

. press for development of the storage alternative (e.g.;

11 F.P.C? 605, 615; Order, issued December 15, 1955,

‘in Docket No. G-1873). It certificated gas service

to industrial customers for whose operations natural

gas was a uniquely desirable fuel (9 F.P.C. 1327; 11

F.P.C. 590; 14 F.P.C. I; 17 F.P.C. 333, 346), and

it also certificated gas Cammpepintion service (9 F.P.C.

32, 54).

‘Transeo did not finally aia, a gtorage program

until the proceeding here under review. That pro-

posal, to provide 191,000 Mcf per day for winter peak —

needs from the Leidy storage field in Pennsylvania,

was.cortiiedted in 2908 at 20 F-P-C. 6. =~

Il

THE LEGISLATIVE HISTORY OF THE NATURAL GAS ACT, AS

' AMENDED, AND CONTEMPORANEOUS COMMISSION STATE-

MENTS INDICATE THAT THE CO N HAS THE

POWER TO CONSIDER END.USE IN CATE PROCEED-

INGS UNDER SECTION 7(c)

To support their contention that the Federal Power

Commission lacks power under any circumstances to

' consider the use to which natural gas is put, respond-

ents rely heavily on a purported concession by the

* Such @ provision secthinn tn elledt. The Court will find

“amie of Transco rate schedules CD-3

and G-1 (R. 154a-157a).

14

Commission that it lacks such power™ (Con Edison

- Br., Points I and II, pp. 26-57;. Transco Br., Point

III, pp. 47-67). Respondents also contend that con-:

gressional inaction respecting certain Commission re-

quests for comprehe:-ive conservation authority

means that Congress does not intend that the Commis-

sion have such authority (Con Edison Br., p. 53). ;

| Congressional inaction with yespect to the broad,

powers of conservation, however, does not imply

of more limited powers to. the Commission to

consider end-use; the broad powers of conservation

which respondents disciss, and which the Cominission ~

admittedly has sought, are not the equivalent of the ©

limited power to consider end-use which the Commis-

. sion asserted in the present case and which alone is at

issue here.

So far as the Limited power to consider end-use is

concerned, the Commission’s reports to Congress on

proposed legislation, as well as the testimony of in- .

dividual Commisioners, clearly reflect its view that it

already had, and was exercising, such a power in

certificate cases. Moreover, legislative attempts, which

would have prevented the Commission from consid-

ering the use for which natural gas may be sold (see

* Any argument as to whether the Commission ‘did or did ,

not, afer 1942: amendment, make concessions concerning

its power '# of limited utility. Only an examination of the

Act and its history will reflect the power Congress gave the

Commission. If Congress granted the power, the inquiry

should end there. Even if one assumes a concession er- -

* poneously. made by the Commission, it would not be controlling.

_- Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 677-678, -

and note 5.

18.

infra, pp’ 19-23), and which also were met with Con-

gressional inaction, are much closer to a descrip-

tion of the power asserted by the Commission in the

present case than are any of the legislative requests

for broad conservation power which respondents

choosé to discuss. Thus, the tendency of the post-

1942 record of legislative proceedings and Commis-

sion statements reflects, if anything, a Congressional

awareness that the Commission was actively asserting

‘sits power to consider end-use, and a Congressional

design to permit the Commission to continue to do so.

1. The legislative histories of the 1938 Act and its

1942 amendment, which demonstrate that the Com-

mission is empowered in certificate cases to consider

_ the end-use to which natural gas is put, has already ~

been discussed in our main brief (Point II, pp. 24-

44). What little must be added arises from the ap-

parently studied confusion which respondents make

between two vastly different statements of Commis-

sion power, by which they equate the Commission’s

consideration of end-use in the present case with the

more . comprehensive powers of allocation and con-

servation ‘of natural gas which the Commission has’

continually sought from Congress (see, e.9., Con Edi- .

son Br., p.41,n.*)7 ;

The language of the Commission’s 1940 and 1944

annual reports, relied on by the court of appeals below

(R. 315, n. 20, 316, n. 24) and by respondents here,

is fully consistent with the position that the Commis- -

sion ‘never conceded that it lacked all power to deal

with conservation, but merely that it lacked full, com-

prehensive and specific power (see our Main Br., p.

16

43, n. 34). Moreover, the Commission in another re-

port in 1944 to the Chairman of the Senate. Commit-

tee'on Interstate Commerce with respect to 8. J. Res.

92" made crystal clear its understanding of its power

_ to consider end-use as a result of the 1942 amendment

of Section 7. In that report, the Commission noted

the need for wise conservation practices in. the pro-

duction and use of natural gas if premature exhaus-

tion of this great natural resource was to be avoided

(see S. Rept. No. 1234, 78th Cong., 2d Sess., pp. 3-6).

With, respect to its post-1942 treatment of competing

fuel interests under Section 7 of the Act, and its con-

cern as to whether the displacement of less valuable

fuels by natural gas merely ignored “social costs

which must eventually be paid’, the Commission’s re-

port noted that “the work which the Commission is

- doing under [the Natural Gas Act] * * * should be

"considered as a first ‘step in dealing with the conserva-

tion of one of the country’s exhaustible resources”

(id., at p. 5, emphasis added). As for the 1942

amendment itself, the report stated (td., at p. 6):

The amendment to section 7 of the Natural

Ges Act [in 1942] removed the statutory im-

pediment to consideration by the Commission

of the social ‘and economic effects of the use of

natural gas and competing fuels in certificate

_ ™ This resolution proposed a comprehensive study to be ‘con-

ducted by the Commission to secure for Congress information

. to guide it in further legislation for the conservation of natu-

ral gas. need for directing such an investigation erapo-

rated when the Commission issued its own order instituting the

Natural Gas Investigation. 4 F.P.C. 725-727. See also F’P.C.

Twenty-Sixth Annual Report (1946), pp. 66-69.

—~

17

eases, which existed prior to the amendment;

but the consideration of such interests in par-

_ ticular cases only makes more necessary a gen-

eral investigation inquiring into the subject

matter on a national basis such as that pro-

- posed by the joint resolution. -

+ He:te Shan deer fouen thin. sepiet thet the Goumnis-

sion made no coneession as to its existing power to

consider end-use under Section 7, and further added

its support to the broad investigation proposed by

8. J. Res. 92 in order to clarify the direction in which

the: powers the Commission already had should be

“broadened”’ (id., at pp. 5-6). Indeed, the Senate .

Committee on Interstate Commerce itself recognized

that ‘‘[i]n administering the Natural Gas Act,

particularly section 7(¢c) thereof, as amen iS

the Commission és directly concerned with the prob-

blem. of conservation of natural gas’’ (id., at p. 2;

emphasis added). The Committee, however, also in-

dicated its concern in S.J. Res. 92 with the need for

possible “further legislation to ‘restrict unnecessary

waste or depletion of natural gas reserves or the utili-

zation of natural gas for inferior or otherwise un-

desirable purposes in competition with- other fuels”

(id., at p. 3; emphasis added).

2. Following the exhaustive Natural Gas Investiga-

tion in F.P.C. Docket No. G-580, Commissioners

Smith and Wimberly issued a report in 1948 in which

they urged the gas industry to limit inferior indus-

trial consumption ; * Commissioners Olds and Draper

‘ 1 These Commissioners did not comment on whether or not

J

8s

in their separate report specifically discussed the end-

use conservation and fuel-competition problems, but -

concluded that the “Natural Gas Act, as amended in —

1942, should not be further amended in any funda-

mental way’’. (Olds-Draper Report, pp. - 12-13).

Even without amendment to the Act, however, Com- .

missioners Olds and Draper believed that the

Commission could and “should give increased consid-

eration to the conservation aspects involved in the

delivery of natural gas from the major natural-gas-

producing states * * * to the great coal-producing

States * * *’’ (ibid.).'. This recommendation, they

emphasized, ‘‘assumes definite but flexible considera-

tion of ‘the end-uses to which natural imported gas

from the Southwest may be put ** *” (ibid.) _ Later

in their.report, they pointed explicitly to the 1942

amendment of the Act as unequivocal congressional

recognition that certain aspects of conservation are a

federal responsibility which the Commission is to dis-

charge in certificate cases by considering the relation-

ship between gas sales and the fuel ‘economy of the

area in which gas is sold.”

_ interest of conservation, or to foster relatively’superior end-use

of natural gas, but, significantly, neither di they suggest that —

‘ the Act needed amendment in this regard.

: ¥. .P.C., Natural Gas Investigationy Olds-Draper ‘Report,

Pp.

“Before discussing this aspect of the record before us, it~

should be recognized that the Congress of the United States

the

: Gaede ees @ oan of Go Bae Ge:

Act, indicated in section I, shows clearly that Congress in-

——

19

3. In the First Session of the 80th Congress, several

virtually identical bills were proposed which would

have prevented the Commission from concerning itself

with end-use under any circumstances (8S. 734, H.R.

2185, H.R. 2235, ELR. 2292, 80th Cong., Ist Sess.).

- The operative language of each of these bills included

the following provision as a part of a major revision

_ of Section 1(b) of the Act:

and nothing in this chapter shall be construed as

authorizing the Commission. to prohibit or re-.,

strict the transportation or sale in interstate

_ commerce of gas for utilization for any purpose

for which such gas may lawfully be used.

In introducing H.R. 2235, which contained: this lan-

guage, Congressman Carson ‘stated that the design of

this provision was “‘to prevent the FPC from control-

ling, directly or indirectly, the end use of natural gas”’

(93 Cong. Rec. A1166 (1947)). Congressman Rizley,

sponsor of H.R. 2185, speaking in support of his bill

(93 Cong. Ree. A1826, A1832 (1947) ) noted that since:

tended the Federal Power Commissiot., * im Connection with ap-

plications for certificates of convenience and necessity for new

interstate pipeline facilities, to give consideration to conserva-

‘ tion, including the relationship bet wesu the proposed additional .

, sales of gas and the fuel economy of the area in which —

sales would be made. ;

“This amendment to the original Natural Gas Act oasis

congressional recognition of the fact that the relatively recens

development involving the transportation of steadily increasing

volumes of natural gas from the great reserve States of the

Southwest to the northern industrial belt extending from the

Mississippi basin to the Atlantic seaboard, created conservation

problems which had not theretofore been dealt with adequately

either by individual States or by the Interstate Oil Compact

Commission.”

“0

“the Commission has asserted the power to condition

certificates of public convenience and necessity accord: _

ing to the purpose for which the gas is to be used,” the

design of H.R. 2185 was to “prevent the Commission

from controlling the use for which natural gas may be

sold.” After describing several cases in which the

Commission had asserted its flexible boiler fuel policy,,

Congressman Rizley concluded by noting that. a court

of appeals had even ‘agreed that the Commission may

consider as one of the factors entering into the grant-

ing or denying of certificates the purpose for which

.. the gas is to be used” (1id.).

In Hearings on H.R. 2185, H.R. 2235, HR, 2292,

and H.R. 2956 before ibe House Committee on Inter-

state and Foreign Commerce, 80th Cong., Ist Sess.,.

_ pp. 10-13 (1947), the Commission maintained that the .

bills were premature because of the pendency of the

Natural Gas Investigation (see also Hearings on S.

734 and S. 1028, before the Senate Committee on In-

terstate and. Foreign Commerce, 80th Cong., Ist Sess.,

pp. 36-38). During the House Committee Hearings,

Chairman Smith of the Commission questioned. the

meaning of the proposed amendment to Section 1(b)

of the Act as to its application in certificate cases, 3nd

was openly incredulous that anyone could expect the

Commission to determine the public convenience and

necessity without any consideration ef the market and

the nature of the demand for the gas—matters which

the bill would obviously have placed beyond Commis-

sion considefation (House Hearings, p. 683). He then

described the necessity for the Commission under the

Natural Gas Ast to consider the economie impact of

eo &

21

the use of gas upon competing fuels, and in response

to direct questioning noted that such end-use was one

_. of the factors to be taken into account in the determi- ©

nation of: public ience and necessity: (id., at pp.

685, 686)—which 'is, of course, all that the Commission

‘has done here in the present case. Commissioners

Draper, Olds and Wimberly thereafter — a

they had nothing to add to Chairman Smith’s

ment (id., at.p. 685).

4. ALR. Oe i atlas’ uit by thn

‘House Committee became H.R. 4051, and was intro-

duced as ‘‘a clean bill’’ by Congressman Rizley in the

House of Representatives on July 1, 1947. The House

Committee had made it clear that it did not favor

denying the Commission power to consider end-use by

_ deleting the provision concerning Section 1(b) of the

Act which prevented the Commission from prohibit-

ing or restricting the use of natural gas. H.R. 4051

was referred to the House Interstate and Foreign

Commerce Committee and reported on July 7, 1947.

After some debate, it passed the House on July 11,

1947,

Viearings on HR. 4051 were held before a subcom-

mittee of the Senate Committee on Interstate and |

Foreign Commerce, 80th Cong., 2d Sess. (1948). In.

the course of these Hearings, Commissioner Olds,

speaking for Commissioner Draper and himeelf, testi-

fied in part as follows:

tht sii [‘T]he thing I was discussing was pro-

vided for by the Congress in 1942 in the amend-

ment to section 7 of the Natural Gas Act. And

__ the legislative record makes tt so clear that no-

“>

body can escape it that the conservation aspects,

’ the competitive fuel aspects, of the natural gas

industry, were to be considered by the Commis-

sion in handling its certificates of convenience

° and necessity cases [p. 173}. 7

« e e *. ° .

Mr. Woopwarp. Does the Commission have

. that authority now, under the Natural Gas Act,

to regulate the use of gas?

} Mr. Ops. I. think the Commission has the _

r authority to determine what the public interest . ©

requires when it issues a certificate of conven-

ience and necessity. |

_ Mr. Woopwarp. And for what use? +

Mr. Ops. That is right, I think it can condi-

tion it. |

Representative Carson. Is that not exactly

contrary to the intent of Congress in section

1(b) of the Natural Gas Act, that you shall not

control the end use of gas or the processing and

athering in the fields? ,

Mr. Ops. I think if you will examine the

isidtive history of the.amendment * * *, I

the thing I am talking about is fully pro-

ded in the amendment of February 1942, to

e act, and the legislative history indicates

j that one of the concerns of Congress in adapt-

tng that amendment was to provide a basis on

which the Commission could consider that ques-

tion of wise use in coal areas [pp. 190-191; em- .

phasis added].

Nothing more is iivolved in the present case than the

Commission’s response to the “question of wise use”’

in a particular area where coal is being used. The

wisdom of its response is measurable directly by the

23

reasonableness of its decision involving o way of

. complex factors. |

5. At the same session of Congress in which the four

bills which would. have prevented the Commission

from restricting end-uses of gas were introduced,

there was also introduced H.R. 2569, which sought to.

estublish a national policy with respect to the trans-

portation of natural gas in interstate commerce. This

bill would have authorized the Commission to “[.c]on-

serve the reserves of natural gas for utilization which

affords the highest social. benefits to the public, con-

sistent with reasonable rates and adequate service.” |

This bill was considered in the same hearings which

were held on H.R. 2185, H.R. 2235, H.R. 2292, and

H.R. 2956, discussed supra, pp. 19-21. :

A bill with a provision identical to H.R. 2569 was

subsequently introduced as H.R. 982, 81st Cong., 1st

Sess. (1949). In the hearings on this bill and others

(H.R. 79, H.R. 1758, and H.R. 982) before a subcom-

mittee of the House Committee on Interstate and For-

eign Commerce, 81st Cong., Ist Sess. (1949), the Fed-

eral Power Commission recommended against its pas-

sage. Its report explains that the great bulk of gas _

sold for inferior industrial uses is in the intrastate

market excluded from Commission jurisdiction, and

that, for the bill to be fully effective, Commission ju-

risdiction would have to be extended” (House Hear-

* This comment is an obvious reference to the exclusion from

Commission jurisdiction of (1) rate regulation over natural gas

sold directly to industrial consumers, and (2) rate suspension

over indirect sales of natural gas for industrial purposes. See

The First Five Years Under the Natural Gas Act, p. 15, Janu-

ary, 1944; Panhandle Eastern Pipe Line Co. v. Public Service

ings, pp. 164-166). With respect. to the bill’s pro-

posed authority to limit the purposes for which gas

may be used, however, the Commission’ ~ — states

(id., at p. 165, emphasis added) :

‘The Commission, however, is’ aware of the

problem ‘and in certificate cases it does give con-

sideration to the proposed uses of the gas in

question. The Commission believes that, under

the present Act, it may give proper considera-

tion to this matter in certificate proceedings.

It can thus be seen that neither the Commission nor

the individual Commissioners have ever conceded a

- lack of power to consider end-use.”

6. In our main brief (pp. 39-40) we have described

the Court’s interpretation, i in Federal Power Commis-

sion Vv. East Ohio Gas Company, 338 US. 464, 468-469,

of the 1942 amendment’s broadening of the Commis-

sion’s power under Section 7(c) to control pipe line .

construction “with a view to conserving one of the

Commission of Indiana, 332 U.S. 507, 516-517. The court of

sppeals’ chief error in finding = “concession” in the Commis

sion’s statement in its First Five Years report resulted from its

ignoring the Commission’s footnote, to the report which pointed

out that, precisely because it lacked this power over direct in-

dustrial sales, it-therefore did not have “complete” and “com-

prehensive” power to deal with conservation. This point is more

fully developed in the National Coal Association brief, in No.

46, at pp. 20-22.

; i gale wemecenihey Ue trite the Mistery of this Cominic-

sion’s legislative recommendations and the bills it has drafted

from 1951 through 1959 (see Con Edison Br., pp. 52-53), since

the broader power to “allocate the available sipply of natural

gas,” at apparently any time after issuance ‘ofa certificate, is’

markedly different in both content and breadth from the power

‘to consider end-use in a certificate- , which is all that

is involved inthe present case.

~

aia,

25

country’s valuable but ‘euiitil energy resources.”

"The Congress had a readily available opportunity to

_know of this’ interpretation: since the Court’s opinions

in East Ohio were reproduced in-full as appendices to

the virtually identical committee reports on the bill

which became the 1954 amendment to the Act, the .

Hinshaw amendment (S. Rept. No. 817, H. Rept. No.

. 899,83d Cong., Ist Sess. (1953) ). Both committee re- .

ports expressly reaffirmed “the original intent of the

Congress in enacting the Natural Gas Act; namely,

that the Act was to supplement, and not supplant

State regulation”’ (#d., at p. 1). ;

In reporting to the committees its approval of the

Hinshaw amendment, the Commission pointed out that

previous legislative attempts in the same direction

had gone too far.and would have created regulatory .

gaps—which it described as the removal of federal

jurisdiction without at the same time providing for ~

effective state regulation (id., at p. 4). The Commis-

Sion then stated (sbid.) :. |

Manifestly, either Federal or State regulation °

is essential if this important monopolistic ‘in-

’ dustry is to be properly supervised and- the

broad interests of the general public—including

the interests of consumers and investors—are

to be adequately protected. . |

el he Hinshaw amendment, which left undisturbed

the-rationale in East Ohio that the Act must be. read

as supplementing: and not supplanting state regula-

tion, although it reversed the particular result.in Kast

Ohio, is ially significant here, since X-20 type

transactions cannot effectively be regulated by the

26

states (see our Main Br., pp. 78-79, note 71), and

approval of such transactions will create a gap in

recalation which may ‘undertyine the effectiveness of

‘ Federal Power Commission regulation of the industry.

No warrant exists anywhere in the legislative his-

tory of the Act, the proposed legislation affecting it,

or in Commission statements, for creating a regulatory

gap by denying to the Commission the limited power

to consider end-use—denial which, as we have stressed,

_ forbodes results directly contrary to explicit Congres-

sional design. o

| IV. ;

. IT WAS NOT ERROR FOR THE COMMISSION TO WEIGH ALI.

THE FACTORS EVIDENCING AIR POLLUTION AT WATERSIDE

AGAINST THE OTHER CONSIDERATIONS - MILITATING

AGAINST THE X-20 SERVICE AND CONCLUDE BY DENYING

THE CERTIFICATE. .

In order to prove that the proposed use of the X-20

gas is in the public interest, Transco would have this

Court believe that Con Edison’s major concern in con-

tracting for the gas was “suppressing the acute air

pollution problem caused by two of the boilers in its

Waterside Station * * *” (Transco Br., p. 2; see also

id., p. 27). And, at the certificate hearing, Con Edi-

son maintained that its purpose was to reduce the

stack emissions from its Waterside plant in order to.

'~ eyt.the air pollution (see, ¢.g., R. 166a-167a ; our Main

Br., p.5). Yet during the hearing it became clear that

of the 50000 Mef of X-20 service per day which Con

Edison originally contracted for and the 120,000 Mef

of X-20 service per day which Con Edison was to ob-

tain within a two-year period (see, ¢.g., R. 5a, 98a- .

—<

° i

27

100a, 142a, 147a, 149a-152a), only 25,000 Mef per day

were to be used throughout the year for Boilers 71 and

72” at the Waterside plant to cut down the air pollu-

tion (R. 98a).

This revelation caused Mr. Manz of Con Edisori to

admit that “the primary purpose of the X-20 service

is to-get the capacity for our gas system during the

winter peak period” (R. 98a). On the basis of this

admission, Mr. Manz was then pushed to explain why ~

Y €on Edison had just not entered “into a contract. with

Transco for CD-3 gas up to 50,000 Mef. per day in

the beginning” (R. 98a). In answer, Mr. Manz fur-

ther revealed that the basic reason for having entered

into the X-20 arrangement was to “buy gas without

escalation over a long period of time * * * in addi-

tion to getting the pipeline capacity so that we could

carry our system in the peak” (R. 99a). Subse-

quently, Mr. Thomas of Con Edison divulged that the

producers had entered: into the particular contract

_with Con Edison in order to avoid “regulation and the

necessity of long proceedings before the Commission”

(R, 108a). . |

In view of the circumstances surrounding the pro-

posals for the X-20 service,“Transco’s and Con Edi-

-son’s concern for.the problem of air pollution in the

vicinity of the Waterside plant comes out in sharper -

perspective. This is not to say, of course, that the

Commission did not consider the air pollution prob-

lem important. Contrary to, Transco’s allegations

- that the. Commission failed “to consider fully the un- -

™ These two boilers’: are the real source of air pollutién con-

cern at Waterside (R. 41a).

'

—

28

contradicted evidence concerning the air pollution

problem’”’ (Transco Br., p. 46), but rather “brush[ed] —

it aside with only superficial comment”’ (td., at p. 45),

the Commission gave ful] and complete attention to all

of the following factors: (1) “evidence of the general

and extensjve importance of air pollution in .New

York City and not just in the vicinity of the United:

‘Nations Secretariat,’’ (2) “expert opinion of the

harmful and costly effects of air pollution on health

-and property in that City,’’ (3) “the expense and

trouble to which Consolidated Edison has gone. to

remedy the situation * * *,” (4) “the fact that air

is ‘a natural resource which deserves conserva-

tion * * *,’’ and (5) “the ‘policy considerations’ em-

bodied in Public Law 159 * * * which was designed

to encourage research respecting the control of air

pollution by local. authorities, and Executive order

10779 in pursuance thereof” (R. 191a-192a). The

Commission then weighed these considerations against

such considerations as the need for effective regula-

tion, price impact, ‘preemption of gas supply, preemp- ‘

tion of pipeline capacity, and end-use (see supra, pp.

1~13;-our Main Br., pp. 55-82), and coneluded that

“the balance, swings against the- grant of the X-20.

_ service” (R. 192a; see R. 178a). -Even the Court of

Appeals for the Third Circuit admitted below that

“the weighing of factors of this kind, if within the

jurisdiction of a ‘body, is a matter in which a reviet-

ing tribunal will not interfere if a rational conclusion

has been reached” (R. 323).

On the basis of this criterion laid down by the

Third Circuit, the Commission. did. reach a rational

29

conclusion. It has already been shown in our main

brief that the record was inadequate to establish that

the proposed X-20 service was.required for air pollu-

tion purposes (Main. Br., pp. 6-8, 7480). The pre-

siding examiner himself was impressed by the

inadequacies of the record, and even’ went so far as

to state that, if adequate:proof of injury to health,

economic loss, etc., had been made, then the boiler fuel

‘use under those circumstances would have been.

“markedly more necessary and valuable than for home

space heating, cooking or water heating’’ and “with-

out doubt’’ in the public interest (R. 172a-173a; see

' Main Br., p. 78). More than being just inadequate,

however, the record also clearly shows that there were

other valid methods by which the air pollution. prob-

lem could have been solved, or at least effectively

alleviated,. without the X-20 service, and that, al-

though the alternative methods available might not

have been so efficient’ or so. comprehensive as the

natural gas method, the balancing of the other con-

siderations which militated against the X-20 service

‘ proved decisive in the Commission’s denial of certifi- —

cation.” tears .

*Even in these circumstances; however, the Commission’

might have been justified in not granting the certificate in view

' of the other factors involved because, in the Commission’s view,

“end-use,” with which the problem of air pollution is involved,

“is but one factor, and that not of determinative importance,

which we consider in the exercise of our judgment on all the

facts” (R. 189a). - . : ,

“Although “air. is a natural resource which deserves con-

servation as much as any other resource” (R. 192a), the Com-

mission, believed that fuel conservation should be given equal

consideration.‘ At the Proceedings of the National Conference

__ building (R. - 159a).

1. The smoke stack could have been built higher.

One of the major problems in the Waterside plant area

is that the area is “one of the most densely built-up

areas of New York City, and probably of the world,”’

with “more than 66 buildings over 18 storeys in height”

(R. 42a). The United Nations Building is 542 feet

high and the Tudor City buildings, across the street

from the Waterside plant, are “approximately the same

height” as the Waterside smoke stacks, which are 474

feet high (R. 86a-87a; but compare photograph, R.

137a, which shows the dark-brick Tudor City build- -

ings to be considerably lower than the stacks).

Under these circumstances, Dr. Greenburg testified -

that, since the smoke stacks of Waterside are sur-—

rounded by tall buildings, “the stack contents enter

these adjoining building[s], or deposit right on the ad-

joining buildings” (R. 112a).” If, however, the area —

on Air Pollution sponsored by the Public Health Peovies ‘in

1958, Mr. Harry Ballman in his paper on Economic Aspects of

Engineering Control—Fuels Industries, stated that “[f]uel is a

coramodity given to our economy in a quantity and quality

which it is our responsibility to use properly. Equipment de-

sign and application are the tools to reduce air pellution from

boiler fuels to a minimum” (p. 320). Mr. Ballman also quoted

(p. 319) John D. L’Hote in his article on Coal vs. Gas vs. Oil

for ey Schools, School Planning, Oct.—Nov. 1956, as stating

that “[t]}he answer to tleanliness in a building and to the elimi-

nation of smoke lies in good design and good operation rather

than the fuel.” -

* Presumably all atmospheric contaminants are removed by,

; eee Se ceitaing ants of te

United Nations Secretariat Building (see R. 1622).

complaints with respect to the U.N. building, which are’ re-

rr nn ot

2a er —— 31 ar '

were uncluttered by buildings, the stack contents

would travel a certain distance in a “plume” and

would then be “dissipated in the atmosphere, and the

solids in genetal [would] fall out on the ground”

(R. 1lla). At the hearing it was disclosed that the

same effect for maximum dispersal of the plume and

final dissipation of the pollution contents into the at-

mosphere could be achieved by building a higher smoke ~

stack connected to Boilers 71 and 72 (see:R. 87a).

Mr. Manz of Con Edison admitted that the emission

problems could be greatly reduced with a stack 700 feet

tall, and that a 600-foot stack. would also “probably”

be sufficient (R. 8%a). He insisted, however, that

the building of such a stack “was not economically

justifiable,” although he could give no figure: for the

cost of constructing a 700-foot stack and admitted

that the building of a 600-foot stack would probably

“reduce the cost considerably” (R. 87a-88a). Mr. ©

Manz further insisted that “there was a restriction

on the height of our stacks” because of “the aesthetic -

character of the neighborhood surrounding the United

Nations’. community”? (R. 88a), but gave no indica-

tion that Con Edison had even inquired. whether it

might be possible to get permission to have a non-

conforming use in the neighborhood. Under these °

circumstances, the presiding examiner and the Com-

* According to recent studies, the use of high velocity by

restrictive nozzles at the stack top or the building of stacks

with heights up to 750 feet have been used to obtain optimum

_ plume discharge. See Williamson, Extent to Which Available

Control Techniques Have Been Utilized by Industry-—Electric

Power; in Proceedings, National Conference on Air Pollution,

. Public Health Service ( 1958), p. 347,

ee

.

92°

mission were not required to come ‘to the conclusion,

as does the City of New York in-its brief (p. 7),

that increasing the stack height would have been

technically impractical.

. 2. The boilers could have been removed from the

_ system .and the load transferred to other stations.

Another suggestion made during the certificate pro- -

ceedings was to have Boilers 71 and 72 completely re-

moved from the system and to transfer the load they

carried to other stations. within the system (e. g.,

R. 80a). This method could effectively reduce the

flyash emission by at least 60 percent and the sulphur

dioxide gas by some 22 percent (cf. R. 50a). In this

regard, it was pointed out that the electrical system |

of Con Edison had been designed so that it could

carry “the largest unit load loss of * * * any given

plant” (R. 81a). Thus, since the largest units at

Waterside were Boilers 80 and 90, the other plants .

could carry the load loss by Boilers 71 and 72 (tbid.). .

Mr. Manz disagreed with this conclusion, however,

because, he insisted, the design of the electrical sys-

tem to carry the largest unit load loss only contem-

plated “emergency outage,” and that therefore “[a]

plant outage such as would be required for this would

have to be above or beside or mayene | the loss of the

next largest unit” (tbid.).

It was then determined that the acting of the.

total system which Boilers:71 and 72 carried was 2

“percent (ibid.). Despite the fact that, as the presid-

ing examiner observed, 2 percent was “well within

what most utilities, have as reserve capacity” (R._

172a), Mr. Manz insisted that the Con Edison sys

\

33

tem could not take up a 2 percent loss in system ca-

pacity by transferring the load over, since the Water-

side area was very tight, with little means of expan-

_ sion, so that “[a]s the [normal] load builds up in the |

Waterside area * * * and gets to a point where it is

unsafe or unreliable to try to carry it * * * [at the

Waterside station], plans are made well in advance

to shift some of that load to other statious * * *”

> (R. 83a).

When pressed, however, Mr. Manz had to admit that

Con Edison was “transferring some of the electric gen-

eration over to the steam,”’ and that therefore, to the

extent that some of the load was being taken “away

from the electric generation,” the electria generation

has to be made up—at least in “moderate amounts”—

“by transferring the load | over to another station”

(R. 85a—Sfa ). When asked how much. “a moderate

amount” was, Mr. Manz averred that it was “probably

less” than 2 percent, but did not know whether it

was “between ' 1 and 2” (R. 86a). Dater, i in comment-

ing on Mr. Manz’ equivocal answers, the’ presiding =

examiner observed that Consolidated Edison had

avoided “ the claim that the steam heating load can-

not be carried by inoffensive equipment by shifting .

that equipment’s loading to the exclusive production

of steam for heating, if riecessary” (R. 172a).

Probably the most difficult problem with transfer-

ring the load from Boilers 71 and 72, however, was the

amount of time necessary to carry out the plans for _

retiring the boilers, Mr. Manz estimated that it

would take “four years of so-called lead-time from

the time you make the decision and get approval to

- 34

install generating capacity until it goes into service”

and ‘18 months to two years to get transmission facil-

ities into service from the time you make the decision

to take such a step * * * and it might take as much

as 6 to 10 years * * * after the decision had been

“made” (R. 101a). What Mr. Manz neglected to say,

however, and what Mr. Thomas of-Con Edison added,

was that, despite the fact that Con Edison had long

been concerned with the emissions frofn the Water-

side plant, the company had developed no plans to ,

shift the load to other stations (R. 107a).

3. The boilers could have been rebuilt. Another

‘alternative suggested at the proceeding was to: re-

” build the boilers to hold the smoke within satisfactory

limits while still using coal as a fnel (R, 15a—16).”

_ Con Edison, however, estimated that ‘‘the rebuilding

job would take-two years for each boiler’? (R. 16a)

although the boilers would not be out of: service for

the entire time period (see R..50a) as opposed to

“within a 12-month period’ for the conversion to

natural gas (R. 52a-53a). Rebuilding one boiler at

a time, however, would only mean a system loss of at

most 1 percent (see R. 81a), whereas Mr. Manz testi-

fied that the constant transfer of electric generation

to steam meant a normal lodd transfer to other sta-

27In our main brief (p. 77), we ote Orning, Industriel

- Sources of: Air Pollution—Electric Power Plants (Coal Fuel),

in Proceedings, National Conference on Air Pollution, Public

Health Service (1958), p. 155, as stating that the emission of

smoke and organi¢ gases from smoke stacks is the “result of ©

- faulty design or poor operation,” and that “no significant

quantities of these products are emitted from well-designed

and properly operated coal-fired electric powerplants.”

35 ,

tions of “probably less’ than 2 percent (see R. 85a-

86a) ; thus, the system loss of only one boiler at a time

would be at least within the system’s normal load

_ transfer and certainly “well within what most utili-

ties have as reserve capacity” (R.1724).

Another impediment to rebuilding the boilers, ac-

cording ta Con Edison, was the estimated cost of $12

million for rebuilding (¢.g., R. 16a, 33a, 50a) as op-

posed to ‘$1,850,000 ‘ta convert eight boilers to gas

burners”’ and $1 million to extend “the high pressure

‘main. down First Avenue * * *, half of which is -

chargeable * * * to the Waterside installation” (R.

33a.). But the alternative of/rebuilding the boilers, as

against converting to. gas, — reasonably be ex- |

ts

NN

pected to raise Con Edison’s by no more than .

_ $1,641,000 in the first year.* The annual costs would |

, ™The base figure in our computation is $9,650,000 (the dif-

ference between the cost of the boilers and the cost of convert-

ing the eight boilers and the allocated cost to Waterside of

extending the high pressure main) (see R. 143a). Public utility

experience ‘indicates the reasonable range of annual cost to be 14

to 17 percent of net plant investment. We have used the maxi-

mum figure of 17%. ‘This covers return on net investment,

depreciation, income and other taxes. We do not include an

allowance for operating expenses (some 2%) since they would

be incurred in approximately the same amount whether the two

boilers are rebuilt or not. Nor is it appropriate to includathe —

operating savings claimed by Con Edison to result from the

X-20 service (R. 144a). The gas system savings do not result

from burning gas under boilers 71 and 72 for air pollution

purposes; they rather stem from the use of 60-day peaking gas

in lieu of ‘manufactured gas. The electric system savings

assumed gas would be a cheaper fuel than coal under boilers

71 and 72; Con Edison now says events have proved otherwise

(Con Edison Br. 62). .

36

: decline thereafter because of the Neaiulatias invest-.

: ment involved. This increase in annual cost due to

rebuilding the boilers would be ejquivaleni to about

.0093¢ per kilowatt-hour.”

If one compares the above cost ta Con Ediso with

~ the annual costs to ; gas consumers—both Con E ’g

and gas consumers generally—of. ingreased gas ‘prices

assuming only a 1¢ rise of pipeline rate per Mcf due

to the price impact of direct producer-industry sales

. (see supra, pp. 1-7), the result is highly illuminating.

Thus, on the basis of Con Edison’s estimated gas pur-

chases for 1960, exclusive of X-20 service, the cost. to

Con Edison’s gas consumers would be $465,600 for a 1¢

‘increment with an additional $153,940 allocated to —

Con Edison’s electric system, or a total of $619,540.”

Moreover, if the X-20 sales were to cause pipeline gas

purchase costs to rigg in the field by aa average of 1¢

per Mef, the total cost for Texas gas alone based on

the increment of gas sold in 1959 over the’ gas sold in

1958 would be $1, 899,£30," and for the United States,

These figures are based ‘on Con Edison’s 1959 Annual Re-

port in which the Electric Department reports sales of 17,653,"

913,344 Kwh for 1959. The figure also assumes that Con Edi-

son’s steam customers bear none of the cost.

"Con Edison’s estimated 1960. gas supply, derived from

- Transco CD-3, Tennessee CD-5, Transco storage, and Tennes-

see storage, is 61,954,000 Mcf (R. 147a, lines 3, 8). Con Edi-

son’s annual gas sales are, 46,560,000 Mcf (R. 147a, line 18)

or $465,600 for a 1¢ inerement. The difference. between, the

total supply and the gas sales is equivalent to the allocation of

gas to Con Edison's electric system, ie, 15,394,000 Mef, or

$153, 940 for a 1¢ ‘increment.

"The following data is based on F.P.C. Form 2 reports of

pipeline companies to be published in F.P.C., Direct Sales by

>

; 37

- $6,629,600." In these circumstances, respondents can

hardly claim that the Commission acted. arbitrarily

_when it decided that the vast potential inflationary

eftect that the certificating for transportation of the

X-20 type service could have outweighed such matters |

as costs associated with’ replacing the boilers (see R.

179a; our Main Br., pp..62-67; supra, pp. 1-7).

4. Non-X-20 gas already used in other stations

could have been tragsferred to Waterside. for use in

the offending boilers. Bit even granting that conver-

* sion to natural gas is less expensive and less time-con-

suming, X-20 service is hardly necessary to provide

sufficient gas to alleviate the pollution problem with

respect to'Boilers 71 and 72 at Waterside. The pre-

siding examiner observed that “substantial volumes of

- valley gas have been used in other stations on the sys-

tem ever since the company commenced takiag naturai.

gas from Transco in 1951,’’ but “no natural gas has

been’ burned .in the Waterside station’ (R. 167a-

168a). At-the hearing it was disclosed that, in 1957,

Con Edison used 28,669,000 Mef* of valley'gas (78,578.

Mef per day) for. boiler fuel use at its various stations

(R..74a, 89a). At the Hell Gate station alone, where

the boilers do not present the same’air pollution prob-

Producers of Natural as to Interstate Pipeline Companies—

« 1959 (1960), In Texas, 3,494,382,000 Mcf were sold in 1959,

and 3,304,429,000 Mecf in 1958, or a difference of 189,953,000

Mef. | hehe Wi as

In the United States, 7,519,990,000 Mof were sold in 1959

ang ,6,857,030,000 Mcf in 1958, or a difference of 662,960,000

Mef.

“In later testimony this figure was erroneously referred to as

28,559,000 Mcf (R. 89a).

©

GS « *. 38

re Con on used 17,789,000 Mef of valley gas for ©

1957 (R. 74a, 91a). . Yet Con Edison testified that only

25,000 Mcf per day (or 9,125,000 Mef per year) of

- natural gas were necessary to. convert Boilers 71 and

- 72 at the Waterside station (R. 91a, 98a). Thus, the

gas from Hell Gate alone could provide Con Edison -

with well in excess of what was venanarand year to

convert the boilers.

Con Edjson agreed that “nt could be done,” t but

pointed out that since this was valley- gas, it would

have to be eliminated or curtailed at the peak period

during the winter (R, 91a). ‘At most, however, there

would have been an interruption of about 95 to 100

days a year (R. 92a, 107a).* Despite this fact, Mr.

Manz, when asked why “‘a clean staék for nine months p

out.of the year [wouldn't] * * * be better than none

at ali,’? answered, “Because I do not believe that the

Air Pollution Control Commission of the City of New

York will accept three months pollution’? (R? 92a).

‘Despite the reluctance of Con Edison to admit the ease

by Which the air pollution at Waterside could be alle-

-viated by the valley gas, its most recent annual report

to. the Commission indicates that it finally has taken

the step—in 1959, without any X-20 gas, it managed |

‘to-burn 10,437,005 Mef at the Waterside station (F.P.C.

Form No. L, }. 86-1; see our Main Br., p. 8, n. 10),

Finatty, “it is impossible to find any suggestion in’.

“the record that the air pollution problem ean be allevi-

__» “But see the chart on the Use of Natural Gas, (R. 13a)

a

Which indicates that, even during the “peak” period, some gag

would be ay ailable for air pollution control.

3Y

ated by X-20 gas any better din i ep-3 gas

supply. Of the 50,000 Mef of X-20 service planned

for. the first year, only 25,000 Mef would be used

at the Waterside _piant for Boilers 71 and 72 on a

year-round basis. The other 25,000 Mef would be

used only on- an interruptible basis; during the

peak period of ‘95 to 100 days a year,” the 60-day

gas (and presumably some CD-3 gas) would be used

in the Con Edison gas distribution system, rather

_ than under boilers to alleviate air pollution (R. 98a).

If Con Edison finally were to obtain 120,000 Mef per

day of the X-20 service, it would still usé only 25,000

Mef at Waterside for Boilers 71 and 72 on a year-

round basis; it would use the other 95,000 Mef on an

interruptible basis. During the peak period, the plan

calls for the substitution of oil for gas, Con Edison

‘indicating plans for “spending $7,250,000 for alter-

nate oil burning equipment at East River” (R. 7a).°

Con Edison did not indicate, however, how it intends

to eliminate the fumes of high sulphur dioxide con-

tent from the burning of the oil, which would merely

~ substitute one form of air pollution for another during

the winter peak period.

In light of all the alternative ees of alley iating

the air pollution problem at Waterside, which the

record contains, it can hardly be considered arbitrary

for the Commission to have weighed thesé factors in

the balance with the other factors involved and to

have denied the certificate. Moreover, in light of

whet is now. actually being done at Waterside, the

x

»

‘

40 ,

lack of subibeigiennin in the’ Commission’ 8 action ap-

pears a fortiori.

CONCLUSION

For the foregoing reasons, and for the reasons

discussed in our main brief, it is respectfully sub-

mitted that the judgment of the court of appeals

should be reversed and the order of the Commission

should be affirmed. P

sae ° . - J. Lee Rankin,

Solicitor General.

GerorceE CocHran Dovs,

. Assistant Attorney General.

RIcHARD J. MEDAL, ~

- ALAN §. RosENTHAL,

ANTHONY L. MonpDELLO,

; | Attorneys...

'JoHN C. Mason, ,

| General Counsel,

Howarp E. WAHRENBROCK, . errs

Solicitor, 7

Rosert L. RUSSELL, . .

Assistant General Counsel,

Davip J. Barbi, sy

Attorney, . .

Poderal Power Commission.

NOVEMBER 1960.