Opposition Brief — United Gas Improvement Co. v. Callery Properties, Inc.

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ie

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INDEX

Page

I cise vceseccdcscerccoh te 2

I For hope eis oe Sc ccuiisssccs pe 2

Questions Presented ........................0.5.... 2

RR RE are pS mudi aiteas th 3

I 0084040 chu reskcde ccakelec ic 3

NE Ce lees se iveccciceccccves cc Sis Sue 8

atid hte ee TOE pe OMe ee Met perr s 16

RE FRAY Rs oo UD Rey sty Ck a ae 17

CITATIONS

Court Caszs

flantic Refining Co. v. Public Service Commission of

New York, 360 U.S. 378 (1959) .............. 4,9,10

lery Properties, Inc. v. Federal Power Commission,

5th Cir. No. 19563, dismissed September 20,1963... 5

deral Power Commission vy. Hunt, 376 U.S. 515

RIE ae a rs tame Ar ed 8, 14

deral Power Commission v. Tennessee Gas Trans-

mission Co., 371 U.S. 145 LL | EM nee nh nearer 14, 15

blic Service Commission of New York v. Federal

Power Commission, 287 F. 2d 146 (D.C. Cir. 1961),

cert. denied sub nom. Shell Oil Co. v. Public Sery-

ice Commissior of New York, 365 U.S. 882 pare A

, 11,1

lic Service Commission of New York v. Federal

Power Commission, 329 F’. 2d 242 (D.C. Cir. 1964),

cert. denied sub nom. Prado Oil & Gas Co. v. Fed-

eral Power Commission, 377 U.S. 963 (1964) 5 8 mn

4 9 AG,

ted Gas Improvement Co. v. Federal Power Com-

- mission, 283 F. 2d 817 (9th Cir. 1960), cert. denied

sub nom. The California Co. v. United Gas Im-

Provement Co., 365 U.S. 881 ( WUE iiscide ccG 10

ii Index Continued

FreperaL Power Commission Caszs:

Placid Oil Company, et al., 30 F.P.C. 283 (1963) ...... 6,7

Texas Gas Transmission Corporation, et al., 22 F.P.C.

B78 (1959) .. 2... eee eee ee cece eee e cece ees 4,10, 11, 12

STATUTES: .

Natural Gas Act, June 21, 1938, c. 556, 52 Stat. 821-833,

as amended, 15 U.S.C. gg 717-717 w:

Section 4, 52 Stat. 822 (1938), as amended, 15

US.C. § 717 POT P pe Oe RET ETT eee 3, 7, 11, 15

Section 4(d), 52 Stat. 822 (1938), 15 U.S.C. § 717¢

cia a ce hsb cele oh sve piaes deneces 7, 8, 11, 14

Section 4(e), 52 Stat. 822 (1938), as amended, 15

Mere AE TRPMIOD i vi aes cee e Fhe Kanes dus otis be 15

Section. 5, 52 Stat. 823 (1938), 15 U.S.C. Soe

, 7, 11

Section 7, 52 Stat. 824 (1938), as amended, 15

BOMRR RTAEE oi ois cs hole hss ese tee 2, 3, 4, 8, 11, 12, 15

er 7(e), 56 Stat. 84 (1942), 15 U.S.C. as

AP SESS Pg CRE ES, REE SCS SERRE WAN Op 10, 14

Section 19(a), 52 Stat. 831 (1938), as amended, 15

Re eT 6 hoses on. chet « 4dbo bee 4090s

Section 19(b), 52 Stat. 831 (1938), as amended, 15

MAA ORS ERED. 5s hceice sb ween bec 6 hep de take 2,3

a se 19(c), 52 Stat. 831 (1938), 15 U.S.C. § 717r

c)

United States Code, Title 28, Section 1254(1), June 25,

1948, c. 646, 62 Stat. 928, 28 U.S.C. §1254(1) ......

REGULATIONS:

Federal Power Commission Rules of Practice and Pro-

cedure, 18 C.F.R., Chapter I, Subchapter A, Sec-

tion 2.56, 18 C.F. R. § 2.56, Statement of General

Policy No. 61-1, 24 F.P.C. 818 (1960) ...... 11, 12, 13

MISCELLANEOUS:

Federal Power Commission Press Release No. 13156,

issued February 26, 1964 .................eeees

—

IN THE

Supreme Court of the United States

OctoBErR TERM, 1964

No. 671

THE Unirep Gas Improvement CoMPANY, ET AL.,

Petitioners,

v.

CALLERY Properties, INc., eT aL., Respondents.

No. 678

Pusiic SzRvICE COMMISSION OF THE STATE OF

New York, Petitioner,

v.

CALLERY PROPERTIES, INC., ET AL., Respondents.

No. 756

FrperaAL PowEr Commission, Petitioner,

v.

CaLLERY Properttss, INc., ev aL., Respondents.

On Petitions for Writs of Certiorari to the United States Court

of Appeals for the Fifth Circuit

BRIEF FOR CALLERY PROPERTIES, INC.,

IN OPPOSITION

2

OPINION BELOW

The opiaion of the Court of Appeals for the Fifth

Circuit (U.G.I. Pet., pp. 9a-37a)* is reported at 335

F, 2d 1004.

JURISDICTION

The judgment of the court of appeals reversing the

orders of the Federal Power Commission and remand-

ing the proceedings was entered on August 14, 1964

(U.G.I. Pet., pp. 38a-40a). Petitioners would invoke

the jurisdiction of the Court to review the judgment

below under 28 U.S.C. § 1254(1) and Section 19(b)

of the Natural Gas Act, 15 U.S.C. § 717r(b).

QUESTIONS PRESENTED

1. Whether the court of appeals was correct in

holding that, while the Commission need not convert a

producer certificate hearing under Section 7(e) of the

Natural Gas Act into a full-blown rate case, the Com-

mission is under a duty to hear and evaluate all

relevant evidence bearing on the public convenience

and necessity when it is urged, or held, that a

producer’s proposed price is out of line.

2. Whether the court of appeals was correct in

holding that the Commission may not properly condi-

tion the grant of a permanent certificate under

Section 7 of the Natural Gas Act upon a requirement

that the applicant thereafter waive the rate filing pro-

1““U.G.I. Pet.’’ refers to the petition for a writ of certiorari filed

by The United Gas Improvement Company, Long Island Lighting

Company and Philadelphia Electric Company in No. 671. As here-

inafter used, ‘‘P.S.C. Pet.’’ and ‘‘F.P.C. Pet.’’ refer to the com-

panion petitions filed by the Public Service Commission of New

York and the Federal Power Commission in Nos. 678 and 756.

3

cedures reserved to natural gas companies under

Section 4 of the Act.

3. Whether, having held that the Commission had

the power to reduce rates retroactively and to order

refunds in the unique circumstances of the instant case,

the court of appeals was correct in further holding

(a) that the producers were entitled to just and reason-

able rates under the Natural Gas Act, and (b) that a

balancing of the equities required that refunds not be

ordered pending a determination of the justness and

reasonableness of the contract rates collected by the

producers over a period of years under unconditioned

permanent certificates.

STATUTE INVOLVED

Pertinent provisions of the Natural Gas Act

(Sections 4, 5, 7 and 19(b), 52 Stat. 821, as amended,

15 U.S.C. §§ 717-717w) appear in Appendix A to the

petition in No. 671 (U.G.I. Pet., pp. 1a-8a). The pro-

visions of Sections 19(a) and (c) of the Act, as

amended, are set forth in the Appendix, infra, p. 17.

STATEMENT

Respondent Callery Properties, Inc., is a nominee

corporation engaged in the business of selling natural

gas and oil produced from various fields in the States

of Louisiana and Texas.? Since a substantial portion

of the gas which it sells as agent for others is resold by

pipelines in interstate commerce, Callery is subject to

*Callery is one of three related entities engaged in the business

of exploring for and developing oil and gas reserves on behalf of

indivi investor-participants. As nominee and agent for ap-

proximately 300 individuals, estates, trusts and corporations for

whom it holds record title in produci properties, Callery owns

none of the gas which it sells (R. 326-27). It is unique among the

other producer respondents in this respect.

4

regulation by the Federal Power Commission ag a

‘‘natural-gas company”’ under the Natural Gas Act.

The case below began for Callery in December 1958

when it filed two applications with the Commission for

certificate authority under Section 7 of the Act cover-

ing proposed sales of gas to Hope Natural Gas Com-

pany from fields in Acadia and Iberia Parishes,

Louisiana. The proposed initial price in each case was

21.5 cents per Mcf, plus 2.05 cents per Mef tax re-

imbursement. A hearing was held on Callery’s

applications in conjunction with related pipeline and

producer applications, and on August 10, 1959 the

Commission issued its Opinion No. 327, 22 F.P.O. 378

(R. 116), granting Callery and other producers pro-

posing sales to Hope permanent unconditioned

certificates of public convenience and necessity in

accordance with their applications.

The Public Service Commission of New York sought

rehearing of Opinion No, 327 and later judicial review

on the ground that Callery and the other producers

had failed to demonstrate why their sales were required

by the public convenience and necessity at prices

higher than the 18-cent price ‘‘line’’ contemplated by

this Court in Catco® (R. 144).‘ Basing its decision on

Catco, the Court of Appeals for the District of

Columbia reversed Opinion No. 327 and remanded the

5 Atlantic Refining Co. v. Public Service Commission of New

York, 360 U.S. 378 (1959).

* While urging that the certificates of the producers be condi-

tioned at a price no higher than that demonstrated by the record

to be in the publ’c convenience and necessity, the New York Com-

mission did not seek a stay of the certificate authority granted as

it might have done under Section 19(c) of the Act. Being under

a dual obligation to the pipeline purchaser and to royalty owners

to commence production at the earliest date, Callery began de-

liveries of gas to Hope in December 1959.

5

case to the Commission for further proceedings in

which the producer applicants might, if they so chose,

“either augment the record so as to support a certifica-

tion without price condition, or seek a certification

appropriately conditioned.”” Public Service Commis-

sion of New York v, Federal Power Commission, 287

F, 2d 146, 150 (D.C. Cir. 1961).

On May 10, 1961 the Commission moved to carry out

the judgment of the D.C. Circuit by consolidating the

remanded proceedings involving Callery’s sales with

the area rate proceeding instituted on that date in

Docket No. AR61-2 ‘‘to determine the rate, or rates, at

which the public convenience and necessity requires,

and a just and reasonable rate, or rates, for sales of

natural gas’? in the geographical area defined as

Southern Louisiana, 25 F.P.C. 942, 944, Eight months

later, without a hearing having been held in either the

Southern Louisiana area proceeding or in Callery’s

remanded dockets, the Commission issued an order on

January 10, 1962 advising Callery for the first time

that the Commisison might subsequently require as a

condition of amended certificate authorization that

Callery refund revenues received from Hope Natural

Gas Company from the date of first delivery of gas

(R. 395).° Thereafter, on March 7, 1962, Callery’s two

' "Under its agency agreement with the owners of the gas which

it sells, Callery is legally bound to distribute all income when

received and may not withhold income from a current owner save

in those instances where it has received prior notice of a potential

refund liability. Since the ownership in the properties involved

had changed radically in the period following the commencement

of deliveries of gas to Hope and many of the original owners and

recipients of income were no longer available, Callery sought re-

view of the Commission’s January 10, 1962 order. Its petition

for review was dismissed by the Fifth Circuit without prejudice.

Callery Properties, Inc. v. Federal Power Commission, 5th Cir. No.

19563 (September 20, 1963).

a

6

dockets were severed from the Southern Louisiana

proceeding and consolidated with other remanded

dockets for separate hearing and disposition, 27 F.P.0,

482 (R. 409).

In the hearing that followed, which lasted a total of

four days and in the course of which virtually all

evidence offered by Callery and the other producers

in support of their initial contract prices was excluded

as irrelevant, the presiding examiner ruled that the

sole criterion for determining the initial price at which

the producers’ sales would serve the public convenience

and necessity was the general price level prevailing

in Southern Louisiana in 1957 and 1958 under con-

tracts free from the infirmities which led the courts

to reverse the Commission’s original unconditional

certifications. On December 7, 1962 the examiner

issued a decision in which he determined the ‘‘in line’’

price for gas sold in Southern Louisiana under 1957

and 1958 contracts to be 20.0 cents per Mef, including

tax reimbursement of 1.5 cents per Mef, and ordered

Callery and the other producers to refund to their

respective purchasers all amounts collected in excess

of a base price of 18.5 cents from the date of initial

delivery of gas (R. 490).

On July 17, 1963, by Opinion No. 398 and order

issued in Placid Oil Company, et al., 30 F.P.C. 283

(R. 549), the Commission affirmed the examiner’s

decision in all material respects. The examiner’s con-

clusion that economic and cost evidence were irrelevant

to the determination of a proper ‘‘in line’’ price was

affirmed in particular, as was his finding that the

producers be required to refund amounts previously

collected under unconditioned permanent certificates.

In addition to the other requirements of the examiner’s

7

order, which the producers were given no option to

reject, the Commission added a further condition im-

posing a moratorium on all rate increase filings in

excess of 23.55 cents per Mcf, including tax reimburse-

ment, until July 1, 1967, or the final decision in the

Southern Louisiana area rate proceeding, whichever

is earlier (R. 582).

On review of Opinion No. 398, the court below held

that the Commission erred in three respects, The

court found first that the Commission had failed in its

statutory duty to determine the present and future

public convenience and necessity when it restricted the

scope of its inquiry in the remanded proceedings to

pre-existing prices in Southern Louisiana, While

agreeing that the question of whether a producer’s pro-

posed price is in line or not is an important and some-

times decisive factor in the certification of his sale,

the court held that factors other than price exist which

must he taken into consideration and that when, as in

this case, it is urged and held that the proposed price

is out of line, the Commission is under a duty to hear

and evaluate all relevant evidence bearing on the public

convenience and necessity.

Secondly, the court held that the moratorium on rate

filings, imposed as a condition of permanent certificate

authorization, was unlawful and tantamount to the

Commission’s repeal of a right reserved to natural

gas companies by Congress under Section 4(d) of the

Act. Finally, while upholding in the unique circum-

stances of the case the Commisison’s power to require

refunds, the court held that refunds should not be

ordered pending a determination of the justness and

reasonableness of the producers’ rates under Sections

4and 5 of the Act.

ARGUMENT

Petitioners assert in terms of important issues war-

ranting review three grounds for the issuance of a writ

of certiorari: (1) that the decision of the court below

is in conflict with the decision of the D. C. Circuit

in Public Service Commission of New York v. Federal

Power Commission, 329 F. 2d 242 (“‘Skelly’’), and de-

cisions of other circuits which have held that the Com-

mission may rely exclusively on an ‘in line’’ determi-

nation in fixing the initial price at which it will au-

thorize sales by producers; (2) that the court below

ruled incorrectly on an important question left open

by the Court in Federal Power Commission v. Hunt,

376 U.S. 515, namely, the power of the Commission to

prohibit rate increase filings under Section 4(d) of

the Act as a condition of permanent certification under

Section 7 of the Act; and (3) that the court below mis-

conceived the distinction between an ‘‘in line”’ price

and a just and reasonable rate when it deferred the

ordering of refunds in this case pending a determina-

tion of the justness and reasonableness of the pro-

ducers’ rates in an appropriate proceeding.

None of the grounds asserted by Petitioners war-

rants the granting of certiorari. The supposed con-

flict with Skelly is more apparent than real and, de-

spite the efforts of Petitioners to create one, there is

no substantial issue relating to the Commisison’s con-

ditioning power or the scope of its authority under the

Natural Gas Act which has not already been determined

by this Court or which was not correctly decided by

the court below. -

1. The Exclusion of Evidence. The first issue raised

by Petitioners is succinctly stated by the Commission

9

(F.P.C. Pet., p. 7) to be whether the Commission may

rely solely on an ‘‘in line’’ determination in fixing the

initial price at which it will permanently certificate a

producer’s sale, or whether it is obliged to receive and

consider a voluminous body of cost and other economic

evidence offered by the applicant in support of an

out-of-line price. The decision of the court below,

holding that in this case the Commission was required

to hear and evaluate evidence of other than a strictly

“in line’’ type, is alleged to be squarely in conflict

with the decision of the D.C. Circuit in the Skelly case,

supra, The further contention is made that the court’s

ruling, if permitted to stand, will seriously im-

pair the Commission’s efforts to bring producers

under effective regulation.

When the two cases are viewed in proper perspec-

tive and context, the claimed conflict between the de-

cision below and the D.C. Circuit’s decision in Skelly

plainly does not exist. Unlike Skelly and the other

cases relied upon by Petitioners (P.8.C. Pet., pp. 12-

14), which involved initial certifications, the case be-

low was unique in that it involved the residuum and

by-product of a large number of earlier permanent

certifications which had been remanded to the Com-

mission in the light of Catco, supra, for the failure of

the producers to show the “reason why’? their sales

were required by the public convenience and necessity

at prices which would otherwise be considered out of

line. By the time the Commission issued its decision

in the remanded proceedings on July 17, 1963, most

of the producers’ sales were ancient history in the

sense that known changes in the national economy had

occurred in the period following their initial certifica-

10

tion. Under the circumstances, consistent with its

duty under Section 7(e) of the Act to determine the

‘¢present or future’’ and not the past public conven-

ience and necessity, the Commission was required on

remand to re-examine and evaluate all aspects of the

producers’ sales, including the initial price issue, in

light of current conditions in the industry. United

Gas Improvement Co. v. Federal Power Commission,

283 F. 2d 817, 823 (9th Cir. 1960).

The Fifth Circuit’s ruling that it do so in this case

and that it not limit its inquiry solely to the ‘‘in line”

price in prior years was nowise inconsistent or in con-

flict with the D.C. Circuit’s endorsement of the Com-

mission’s ‘‘in line’? determination in Skelly where, as

the Commission itself acknowledges (F.P.C. Pet., p.

10), the evidence proffered and rejected was of a much

more limited nature. Moreover, while holding in

Skelly that consideration of the proffered evidence was

not essential to the Commission’s decision in that case,

the court was careful to point out that:

«“* * * Tn so deciding we need not hold that the

Commission may never consider such evidence if

the circumstances in a particular case move it

to do so consistently with its obligations under

Catco.” (329 F. 2d at 247).

Bearing in mind that it was the Commission’s failure

to carry out its obligations under Catco that prompted

the same panel of the D.C. Circuit to reverse and re-

mand Opinion No. 327 for further proceedings to per-

* This fact alone would explain why the Commission chose ini-

tially to consolidate Respondents’ remanded proceedings with the

Southern Louisiana area rate proceeding in Docket No. AR61-2.

Nothing in the Fifth Circuit’s decision would preclude the Com-

mission from following that course today. :

ll

mit the producers either to ‘‘augment the record” or

to seek ‘‘appropriately conditioned”’ certificates (287

F. 2d 146, 150), it is illogical to assume that any real

conflict exists between the court’s subsequent decision

in Skelly and the holding below. In remanding Opinion

No. 327 to the Commission with instructions to ‘“‘aug-

ment the record,’’ the D.C. Circuit obviously contem-

plated a hearing in which the producers would be af-

forded the opportunity of showing by substantial evi-

dence the ‘‘reason why’’ their sales were required at

the prices proposed in their contracts. Such a showing

was obviously impossible when the Commission sum-

marily excluded as irrelevant all evidence other than

that relating to previously certificated prices in South-

ern Louisiana.

Petitioners all express the fear that the holding be-

low will hereafter turn every producer certificate case

under Section 7 into a ‘‘full blown rate case.’’ They

unanimously predict that, if allowed to stand, the Fifth

Circuit’s decision will open the floodgates overnight to a

veritable deluge of cost and economic data more ap-

propriate to a rate proceeding under Section 4 or 5

of the Act, thereby seriously impairing the Commis-

sion’s current program for achieving effective pro-

ducer regulation. Petitioners’ fears in this regard are

somewhat exaggerated.

In the first place, the vast majority of new gas sales

contracts being entered into today are not only in the

form prescribed by the Commission’s rules but at the

prices prescribed for the particular producing area

shown in the Commission’s Statement of General Pol-

iey No. 61-1, 18 C.F.R. §2.56. Under streamlined

certificating procedures now in effect, literally hun-

dreds of new sales have been and are now being per-

12

manently certificated at the Policy Statement ‘‘guide-

line’’ prices in record time.’ In those few cases where

the proposed initial price exceeds the Commission’s

guideline price, or where its urged by an intervenor

that the initial price is out of line, the producer may

request temporary authorization or accept permanent

certification at 2 lower price. It follows necessarily

that in the present climate of producer regulation the

number of cases in which the Commission would be re-

quired te hear and evaluate evidence proffered by tae

applicant in support of an out-of-line price would be

relatively few.

Beyond that, and more important, the court below

did not purport to indicate either the quantum or the

nature of the proof required to sustain the certification

of a sale at a higher than ‘‘in line’’ or out-of-line initial

price. While indicating that the economic and cost

evidence excluded by the Commission was clearly rele-

vant in that it bore on broad questions of public con-

venience and necessity, the court recognized the ad-

ministrative burden involved and the necessity for ex-

pedition in the discharge of the Commission’s duties

and responsibilities under the Act. The court therefore

pointed to a specific, workable solution, which Peti-

tioners have chosen to ignore, i.e., that the Commis-

sion avoid the delays which would necessarily attend the

trial of a full-dress rate case in a Section 7 certificate

ease by announcing the types of evidence deemed rele-

vant and the nature of the proof required to support

T On February 26, 1964, the Commission announced that during

the first 6% months of experience under its new streamlined pro-

eedure for handling independent producer certificate cases it dis-

posed of 806 filings in an average time of 42.3 days for each item,

compared with approximately 100 days under the old process. See

FPC Press Release No. 13156, issued February 26, 1964.

13

certification at an initial price deemed or urged to be

out of line (U.G.I. Pet., pp. 24a-26a, n31).

Despite the assurance given producers by the Com-

mission in its Statement of General Policy No. 61-1

that: ‘‘[w]here a proposed price exceeds the indicated

rate level and is therefore conditioned . . . we will, in

determining whether the higher price is justified, not

necessarily consider only the financial requirements of

the individual producer proposing the price but will

consider all of the above elements relevant to the indus-

try generally in the area concerned,” * the Commission

has to date applied no standard other than historical

price structure, or the ‘‘in line”’ price concept, where

the producer’s proposed price is alleged to be out of line.

The Commission’s final decision in the several area

rate proceedings cannot be expected to provide a pan-

acea for the recurrent problem facing the Commission

in determining the initial price at which new gas is

required by the present and future public convenience

and necessity since, as is now the case in Docket No.

AR61-2 where just and reasonable rates for the South-

ern Louisiana area are being determined on 1960 data,

the final determination will always be outmoded by

the time it is made. It is therefore vital, as the court

below held, that the Commission receive and consider

all relevant evidence bearing on the public convenience

and necessity when it is urged or held that the proposed

price is out of line and that the Commission not limit

-_

* The ‘‘above elements relevant to the industry generally’’ were

stated to be ‘‘cost information from all decided and pending cases,

existing and historical price structures, volumes of production,

trends in production, price trends in the various areas over a num-

ber of years, trends in exploration and development, trends in de-

mand, and the available markets for the gas.’”’ (18 C.F.R. § 2.56).

14

its whole inquiry and determination to a price line

having no current relevance.

2. The Moratorium Issue. In its decision in Fed-

eral Power Commission v. Hunt, 376 U.S. 515, decided

last Term, the Court held that:

Pe Noor the a of es sat it is at the

point of permanent or unconditional tempor

certification that the provisions of § 4 ve. ws

plicable. The gas has been permanently certifi-

cated into interstate commerce and the independ-

ent producer is then free to pursue the rate filing

procedure of that section.”” (376 U.S. at 523).

While it is true, as Petitioners point out, that the

Court did not have before it, and specifically left open,

the question of the extent of the Commission’s power

to condition a permanent certificate of public conven-

ience and necessity (as opposed to temporary authori-

zation) upon the applicant’s agreement to waive the

right to file for increased rates under Section 4(d)

of the Act, we believe the court below was correct in

holding that all rights granted and reserved to natural

gas companies by Congress under the Act become fully

operative at the time of permanent certification.

Were it otherwise, there would be little reason for

the Commission to carry its regulation of producers

beyond the point of permanent certification since, based

on a finding of public convenience and necessity under

Section 7(e) of the Act, the Commission could, without

more, effectively require that a producer sell his gas

at one fixed price and one price only over the entire

life of the dedicated reserve, i.e., declare 2 permanent

moratorium at the time of permanent certification.

3. The Refund Issue. Based largely on the Court’s

decision in Federal Power Commission v. Tennessee

15

Gas Transmission Co., 371 U.S. 145, and the D.C. Cir-

cuit’s decision in the Skelly case, supra, Petitioners

contend that the court below, while correctly holding

that Callery and the other producers should be required

to refund all excess amounts collected under their

original certificates, nevertheless erred in misconstru-

ing Sections 7 and 4 of the Act when it held that the

producers were entitled to just and reasonable rates

under the Natural Gas Act and that the refunds should

be deferred pending the outcome of an appropriate

proceeding under the rate sections of the Act. There

is no merit to Petitioners’ contention on this point and

little weight to their arguments.

In Tennessee, supra, refunds were ordered only after

a determination under Section 4(e) that the increased

rates involved were unjust and unreasonable and, while

the Court noted that refunds did not constitute a perfect

remedy, it did not suggest that refunds were inappro-

priate. Nor were refunds ordered in Skelly, the court

finding in that case that the existence of the power to

order restitution did not mean that its exercise was

inandatory. In Skelly, the court remanded on a find-

ing that ‘‘further development and fuller consideration

of the equitable factors other than those thought to flow

from the mere absence of an explicit refund condition

in the temporary certificates.’ (329 F. 2d at 250).

Noting that the producers in this case had sold their

gas under unconditioned permanent certificates over a

period of years and, further, that the Act requires that

all rates ‘‘shall be just and reasonable” both to con-

sumers and to natural gas companies, the court below

held that a balancing of the equities required a deferral

of refunds pending a determination of justness and

reasonableness. Callery believes the court below was

eminently correct in so holding.

16

While Callery did not and does not agree with the

decision below insofar as it holds that the Commission

may order retroactive refunds as a matter of law,

Callery is willing to abide a proper determination of

the justness and reasonableness of its contract rates in

accordance with the court’s decision.

CONCLUSION

For the foregoing reasons, it is respectfully sub-

mitted that the petitions for certiorari should be denied

on all points and issues raised by Petitioners.

Respectfully submitted,

RicHARD F’, GENERELLY

May, Shannon and Morley

1700 K Street, N. W.

Washington, D. C. 20006

Attorney for Respondent,

Callery Properties, Inc.

January 11, 1965

APPENDIX

Rehearing: Court Review of Orders

Seo. 19(a) Any person, State municipality, or State

commission aggrieved by the order issued by the Com-

mission in a proceeding under this act to which such

person, State, municipality, or State commission is a

party may apply for a rehearing within thirty days

after the issuance of snch order. The application for re-

hearing shall set forth specifically the ground or grounds

upon which such application is based. Upon such appli-

cation the Commission shall have power to grant or deny

rehearing or to abrogate or modify its order without

further hearing. Unless the Commission acts upon the

application for rehearing within thirty days after it is filed,

such application may be deemed to have been denied. No

proceeding to review any order of the Commission shall be

brought by any person unless such person shall have made

application to the Commission for a rehearing thereon.

Until the record in a proceeding shall have been filed in a

court of appeals, as provided in subsection (b), the Com-

mission may at any time, upon reasonable notice and in

such manner as it shall deem proper, modify or set aside,

in whole or in part, any finding or order made or issued by

it under the provisions of this Act,

Szc. 19(c) The filing of an application for rehearing

under subsection (a) shall not, unless specifically ordered

by the Commission, operate as a stay of the Commission’s

order. The commencement of proceedings under sub-

section (b) of this section shall not, unless specifically

ordered by the court, operate as a stay of the Commission’s

order. [52 Stat. 831 (1938); 15 U. S. C. § 717r}