# Opposition Brief — Mobil Oil Corp. v. FPC

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1974
- **Citation:** 417 U.S. 283

## Text

(i)
TABLE OF CONTENTS

Page
ee es) a ar 2
JOMMDEOTION on ks 5 octet cease cnt eseseeweevcenees 2
SraTUTE INVOLVED .........- ccc cece cece cece ceceees 2
Tue United DistrIBUTION COMPANIES .............--. 2
CoUNTER-STATEMENT OF THE CASE ..............2005- 3
ARGUMENT .... 2... ccc ccc cece cece cece ee eeees 7

There Are No Issues Raised in the Petitions for
Certiorari Which Warrant Review of the Decision
of the Court Below .......... 0.0.2... cece wee eee 7

I. The Decision Below Does Not Conflict with the
Decision of the District of Columbia Circuit in
the Texas Gulf Coast Area Rate Case. ........ 8

II. The Commission’s Action Was.Supported by
Substantial Evidence. ....................... 11

III. Allegations of Discrimination Are Strained, Re-
late to Matters Within the Commission’s Ex-
pertise and Under the Circumstances Do Not
Present Substantive Issues Worthy of Consid-
eration by This Court. ....................... 15

. There Is No Good Reason for Reviewing the
Court’s Affirmance of the Commission’s Ap-
proval of the Settlement Provisions Establish-
ing Minimum Rates For Transportation of
Liquids and Liquefiable Hydrocarbons. ....... 18

. The Authority of the Commission to Place
Moratoria on New Rate Filings Was Pre-
viously Upheld by This Court in Permian, Was
Reviewed in This Proceeding by the Court
Below and No Issues of Substance Worthy of
Consideration by This Court Are Raised. ..... 21

. No Good Reason Has Been Shown For Review-
ing the Court of Appeals Affirmance of the
Commission’s Refund Discretion. ............ 21

ConcLusIon

(ii)
TABLE OF AUTHORITIES

CasEs: Page
ANDERSON v. YUNGKAU,

$29 U.S. 482 (1946) 2... ccccsccecccceghccccccsees 23
FeperaL Power Commission v. Hore Nat. Gas Company,

330 U.S. 591 C1968): cv nese nscnde rca cRbecessosns 24

Farmers AND MERCHANTS Bank or Monroe v. FEDERAL
REsERvE Bank,

262 US. GAD (1982) ci ncccssscacestsscescsesiveses 23
FreperaL LAnp Bank v. Hansen,
113 F.2d 82 (2nd Cir. 1940) ...........ccececccees 23

Mosit Or Corporation v. FEDERAL PowER CoMMISSION,
F.2d (No. 72-1471, D.C. Cir., July 11, 1973)

19, 20
PrerMiAn Basin Anza Rate Cases,
390 U.S. 747 .
20 L.ed 2d 312 (1968) ........ 10, 11, 15, 21, 22, 23, 24, 25

SoutHern Lovuistana AREA RaTE Cases,
(Austra Ori Company ET AL. v. FPC)
428 F.2d 407 (5th Cir.) aff’d on rehearing,
444 F.2d 125 certiorari denied, 400 U.S. 950 (1970)

,* 9

Strate Corporation Comm’N or Kansas v. FPC,
206 F.2d 690 (8th Cir. 1953) ....... 0... eee eee ees 16

State or Wisconsin v. FPC,
303 F.2d 380 (D.C. Cir.)
Affirmed, 373 U.S. 294 (1963) ........cc..ccccccee 22

Texas Gutr Coast Area Naturat Gas Rate Case,
(Pustic Service CoMMISSION FOR THE STATE oF NEW
York v. FPC, £T At.)
F.2d (No. 71-1828, CADC, August 24, 1972)
8, 9, 10, 11, 17, 22

Unitep States v. THOMAN,
106 Uo O08 C1805) concen dtp seeeecase ian sisoaes 23

ADMINISTRATIVE DECISIONS:

Area Rate Proceedings (Southern Louisiana Area),
M5 BEC O08 (ICG) on oces sceneries skeasteenss

Area Rate Proceedings (Southern Louisiana Area),
MO PU G00 (AS0G) oes nee ecsseey se siceses 12, 13, 14

—

(iii)
Page
Area Rate Proceedings (Southern Louisiana Area),
46 FPC 86 (1971) ...............0000. 4, 6, 12, 14, 25

Area Rate Proceedings (Texas Gulf Coast Area)
Docket No. AR64-2, —— FPC —— (Opinion No.
595, May 6, 1971), rev’d. sub nom. Texas Gulf
Coast Area Natural Gas Rate Cases (Public
Service Commission for the State of New York v.
FPC, et al.), —— F.2d —— Nos. 71-1828, et al.,
D.C. Cir., August 24, 1973) ...............0005. 9

STATUTES:

Natural Gas Act, 52 Stat. 821 (1938), 15 U.S.C. § 717
et seq.:

Section 4, 15 U.S.C. §717¢e ................ 15, 21, 23
Section 7, 15 U.S.C. §717f .................... 15
Section 19, 15 U.S.C. §717r ................2.. 4,12
Administrative Procedures Act, 80 Stat. 383 (1966)
5 U.S.C. §553, et seq. 2.0.0... c cece eens 12
TREATISES :

Horack, Sutherland Statutory Construction 3rd ed... 23

a

IN THE
Supreme Court of the United States

d OctToBER TERM, 1973

No. 73-437
Mostix Or CorporaTIoN, Petitioner

Vv.
FEDERAL PowER COMMISSION

No. 73-457

Pus.iic SERVICE COMMISSION OF NEW YoRK,
, Petitioner

Vv.
FEDERAL PowER CoMMISSION

No. 73-464
MuniciPaL DistrisuTors Group, Petitioner

Vv.
FEDERAL PowER COMMISSION

On Petitions for Writs of Certiorari to the United States
Court of Appeals for the Fifth Circuit

BRIEF FOR THE UNITED DISTRIBUTION
: COMPANIES IN OPPOSITION

United Distribution Companies (UDC hereby state
their opposition to the petitions for a writ of certiorari
to review the judgment and opinion of the United
States Court of Appeals for the Fifth Circuit entered
in this case on April 16, 1973.

sat oe. *

2

OPINIONS BELOW

The initial opinion of the Court of Appeals (Mobil
App. 5-64) and its opinion on rehearing (Mobil App.
34) are not yet reported. The opinion (No. 598 of the
Federal Power Commission (Jt. App. 559-668) and its
opinion on rehearing (No. 598-A, Jt. App. 866-879) are
reported at 46 F.P.C. 86 and 46 F.P.C. 633."

JURISDICTION

The judgment of the Court of Appeals was entered
On April 16, 1973 (Mobil App. A, pp. 1-2). Timely
petition for rehearing was denied by order entered
June 11, 1973 (Mobil App. B, pp. 3-4). This Court’s
jurisdiction is invoked by Petitioners under 28 U.S.C.
§ 1254(1) and Section 19(b) of the Natural Gas Act,
15 U.S.C. § 717r(b).

STATUTE INVOLVED

The relevant provisions of Sections 4, 7 and 19(b) of
the Natural Gas Act, 52 Stat. 821-833, as amended, 15
U.S.C. §§ 717-717w are set out as Appendix D to the
petition in Case No. 73-437 (Mobil App. 65-69).

THE UNITED DISTRIBUTION COMPANIES

The United Distribution Companies is an ad hoc, vol-
untary group of 32 gas distribution companies serving
approximately 48 million people, and comprising ap-
proximately 25 percent of the gas distribution opera-

1 Copies of the judgment, opinions and orders of the Court of
Appeals appear as appendices to Mobil Oil Corporation’s petition,
which appendices are incorporated herein by reference. The
opinions and orders of the Federal Power Commission appear
in the printed Joint Appendix in the Court of Appeals of which
forty copies of the pertinent volume have been filed with the Mobil
petition.

| tions throughout the United States.? It was originally
formed for the purpose of participating in these pro-
ceedings before the Federal Power Commission because
these companies were no longer able to obtain the gas
supplies required by growing demands of the consum-
ers they serve.

COUNTER-STATEMENT OF THE CASE

On May 10, 1961, the Commission initiated the first
Southern Louisiana Area Rate Case in Docket
/ AR61-2 (25 F.P.C. 942). On September 25, 1968, it is-
sued its Opinion No. 546 in that proceeding. On March
20, 1969, it issued Opinion 546A on rehearing and at the
same time initiated a second Southern Louisiana pro-
— eeeding in Docket AR69-1. Opinion Nos. 546 and 546A
) in the first proceeding were appealed to the United
- §$tates Court of Appeals for the Fifth Circuit and a
decision affirming the Commission’s order was issued
on March 19, 1970. Austral, et al. v. FPC, 428 F.2d 407
(1970)*

The Court stated, however:

The mandate of this Court should not, however, be
interpreted to interfere with Commission action
that would change the rates we have approved
here. We specifically and emphatically reject the
contention advanced by the MDG that the Commis-
sion has no power to set aside rates once deter-
mined by it to be just and reasonable when it has
reason to believe its determinations may have been
erroneous. (428 F.2d at 444-45)

? Petitioners Municipal Distributors Group (MDG) contend that
they have some special credibility because they are municipally
owned whereas other parties are owned by stockholders. One of
the UDC member companies, Citizens Gas and Coke Utility, is a
municipally owned distribution company, in Indianapolis. It
serves more residential customers than Memphis, the principal
MDG member.

8 Also referred to as Southern Louisiana I.

77

U

4

Subsequently, after several applications for rehear-
ing were filed the Court asked the Commission to re-
spond to the question whether the Court in the exercise
of its equitable powers could affirm an order of the
Commission while preserving the authority of the Com- {
mission to stay, modify or rescind the order if the cir-
cumstances seem to make such action advisable. After
the issue was briefed by all parties and the Commis-
sion requested a remand, the Court stated:

We wish to make crystal clear the authority of the }
‘Commission in this case to reopen any part of its
order that circumstances require be reopened. Un- [|
der section 19 (b) of the Natural Gas Act, this
Court has the broad remedial powers that inhere
in a court of equity, and pursuant to our equitable _
powers we make it part of the remedy in this case }
that the authority of the Commission to reopen any |
part of its orders, including those affecting reve-
nues from gas already delivered, is left intact. The
Commission can make retrospective as well as pro-
spective adjustments in this case tf it finds that it
is in the public interest to do so. (444 F.2d at 127 |
(1971) ) [Emphasis added] ;

Petitions for certiorari were filed by the Municipal
Distributors Group (MDG), the Public Service Com- |
mission of New York (PSCNY) and others challeng- |
ing the authority of the court below to authorize the |
Commission to reopen an opinion which had been af-
firmed and to make retrospective adjustments to the
rates therein prescribed. Certiorari was denied. 400
U.S. 950 (1970)

Thereafter, the Commission reopened the proceeding
in AR61-2, and in its Opinion No. 598 issued July 16,
1971, held that its previous action was mistaken and
disposed of the issues in the first Southern Louisiana

7

5

Case, AR61-2, and the second Southern Louisiana Rate
Case, AR69-1.

In the proceeding below, there were extensive hear-
ings, comprising 57 volumes of transcript and including
111 exhibits, in addition to the record compiled prior to
the Southern Louisiana I decision.

UDC offered evidence showing: (1) the causes and
magnitude of the gas shortage, (2) the exploratory ef-
fort and capital expenditures necessary to meet future
requirements, (3) the cost of producing gas, (4) the
inadequacy of past rates to meet costs and (5) the
significant lagging of gas prices behind inflationary
trends. UDC also presented evidence showing that the
annual increments of new gas supply required by its
member companies, but not available for purchase for
the years 1970 through 1975, total 3.3 trillion cubic feet.
(R. 886G-886N, Ex. No. 1)

Executives of UDC member companies testified as to
their inability to purchase the required volumes of nat-
ural gas. (R. 887-898, 900-910, 912-918, 920-923, 925-
936, 938-954, 2410-2512)

On April 1, 1970, the Administrative Law Judge con-
vened a settlement conference in accordance with Com-
mission rules and negotiations were conducted, concur-
rently with the taking of evidence, looking toward a
settlement of the issues.

As a result of these settlement negotiations, UDC
filed with the Commission an offer of settlement which
had the support of most but not all of the parties. (R.
13652, 13665) All parties were given an opportunity to
respond. In addition to UDC, the settlement was sup-
ported by the Staff of the Commission, the Associated

4

Gas Distribution Companies, which serve about 10 mil-
lion customers at retail, by all interstate pipelines pur-
chasing gas from the Southern Louisiana Area and by
46 natural gas producers comprising 80% of the total
gas production flowing from the area. (R. 13575-6)

6

The Commission made the Settlement Proposal a
part of the record and set the matter for further hear-
ing. (R. 13575) All parties were given full opportunity
to submit additional evidence specifically addressed to
that proposal.

UDC submitted evidence of the witness Baker Clay
showing, among other things, the inadequacy of prior
rates. (R. 10636) Mobil and MDG introduced evidence
{ in opposition to the settlement. Briefs and reply briefs
were filed by parties supporting and by parties oppos- /
ing the settlement.

F The Commission issued its Opinion No. 598 on July
’ i 16, 1971, approving the settlement on its merits and,
; after applications for rehearing were filed, issued Opin-
: ion No. 598-A on September 9, 1971, modifying and
; affirming Opinion No. 598.

The crux of the settlement approved on its merits by
: the Commission’s decision was a three-pronged ap-
proach designed to serve as an incentive to greater ex-
; ploration and development of gas in the Southern
; Louisiana area. First, rates were set for contracts dated
prior to October 1, 1968, at 22.375¢ per Mef onshore and
j 21.375¢ per Mef offshore and at 26¢ per Mcf for all
4 contracts after October 1, 1968.

Second, a contingent escalation was provided on con-
5] tracts dated prior to October 1, 1968, of 0.5¢ per Mef
when new reserves dedicated to the interstate market

. —

from the Southern Louisiana area total 71% trillion
cubic feet prior to October 1, 1977. Further successive
0.5¢ per Mcf increases were allowed when new reserves
total 1114 trillion cubic feet and again when 15 trillion
cubic feet are committed prior to that date.

7

Third, producers in Southern Louisiana were re-
quired to refund $150,000,000 of amounts previously
collected, provided, however, that a producer could re-
duce the refund obligation by 1¢ for each Mef of new
gas reserves committed to the interstate market from
the Southern Louisiana area. New gas used for reduc-
ing refunds would not be counted in computing the
volumes for purposes of contingent escalations.

The case was appealed to the United States Court of
Appeals for the Fifth Circuit which, after reviewing
the issues and the extensive record, found no error.

ARGUMENT

THERE ARE NO ISSUES RAISED IN THE PETITIONS FOR
CERTIORARI WHICH WARRANT REVIEW OF THE
DECISION OF THE COURT BELOW

The Federal Power Commission is an expert body
which was confronted by difficult problems relating to
area prices for natural gas in Southern Louisiana,
which produces one-third of the nation’s gas supply. It
held extensive hearings and on the basis of the com-
plete record adopted a multi-faceted solution to the
very real problems of supply and rate making policy.

It used price and other incentives in an attempt to

stimulate the exploration for and production of natu-

ral gas while keeping its rates at the lowest practicable
level. The various elements to the solution are inter-
related and no element can be judged without looking

=e ERE NEERRONMNEHT

a

8

at the whole package. The Commission’s solution was
supported by detailed findings and conclusions, all of
which were reviewed in detail by the court below, which
concluded that the Commission had acted within its
statutory authority on the basis of substantial evidence.

The substantive issues raised in the Petitions for Cer-
tiorari have been carefully considered by the Commis-
sion and the court below and do not warrant further _
review. |

The Decision Below Does Not Conflict With the Decision of
the District of Columbia Circuit in the Texas Gulf Coast _
Area Rate Case

Petitioners contend that the approval of the incen-
tive provisions by the decision below is in conflict with
the opinion of the District of Columbia Circuit in the

Texas Gulf Coast Area Rate Case.* This contention

does not withstand analysis. Texas Gulf was remanded

to the Commission for further consideration of the in-
centive provisions because the decision (1) was not sup-
ported by evidence in the record and (2) did not pro-
vide an explanation of how the Commission reached its

conclusions (Tezas Gulf slip op. 10, 53, 55, 60, 65-66,

69). This holding is completely consistent with the

result reached by the Fifth Circuit in the instant case

where the Commission acted on the basis of a complete
record and extensive findings.

After the Fifth Circuit’s initial Southern Louisiana
decision, the Commission convened additional hearings.
When those hearings led to a settlement proposal, the

I.

4 Public Service Commission v. Federal Power Commission, No.
71-1828, August 24, 1972, — F.2d — (Di, Cir. 1972).

nee eee

9

Commission solicited and received evidence specifically
addressed to the merits of that proposal. Thus, at the
time it adopted the incentive provisions, it had a full
and complete. record upon which to rule.

This was not the case in Texas Gulf. That case had
been pending for years, and the record had been closed
for three years at the time the Southern Louisiana Set-
tlement proposal was submitted. The Commission ob-
viously seized upon the three-pronged approach of the
Southern Louisiana Settlement as a solution to the
Texas Gulf Coast issues. In an effort to expeditiously
resolve issues which had been pending too long, it did
not set the proposal for hearing in Texas Gulf as it did
in Southern Louisiana. No evidence was submitted or
invited on the incentive provisions which were adopted
ab initio by the Commission. After the fact, in response
to petitions for rehearing, the Commission apparently
recognized this defect and sought to rely upon the rec-
ord developed in the instant Southern Louisiana pro-
ceedings.

The District of Columbia Circuit held that the Com-
mission could not rely by reference upon the Southern
Louisiana case for three reasons. First, Southern Loui-
siana II was not a proceeding setting a national rate,
but only a separate rate for a different area. The par-
ties were not necessarily identical and were not on
notice that the Southern Louisiana evidence would be
used in the Texas Gulf proceeding. Second, the Com-
mission’s Southern Louisiana ITI opinion was actually
issued one month after the Texas Gulf opinion. Third,
Southern Louisiana IT was based upon a settlement
proposal under which, as the court recognized, there
might well be a compromise of issues which might oth-
erwise have been litigated. At 51-52.

10

Thus, the Court of Appeals for the District of Co-
lumbia held only that the Commission could not rely
upon the instant Southern Louisiana II proceeding to
justify the adoption of incentive procedures in Tezas
Gulf and without that reliance the record was not suffi-
cient to support the Commission’s conclusions.°

This result does not conflict with the ruling of the
court below where the record was sufficient to justify
the utilization of incentive procedures to stimulate
greater natural gas production and where the issues
raised by these procedures were fully addressed by the
parties to the proceeding and considered by the Com-
mission.

In addition to the absence of necessary conflict be-
tween the results reached by the Fifth Circuit and the
District of Columbia Circuit, there is likewise no con-
flict as to approach. Both courts applied the standards
of review set by this Court in the Permian Basin Area
Rate Case, 390 U.S. 747 (1968).° Both expressly fol-
lowed the three-pronged test for reviewing area rate

5 Judge Leventhal’s opinion in Texas Gulf expresses some con-
cern over the appropriateness and legitimacy of the incentive pro-
visions in that case. However he did not regard the incentive
provisions as invalid per se, but felt instead that the record and the
Commission’s opinion did not support the need for these measures.
For example, Judge Leventhal stated:

In view of the absence of Commission analysis, we observe that
our comments do not constitute an implacable prohibition on
the use of flowing gas to raise required revenues. We have,
however, identified substantial problems that the FPC will
have to consider on remand. At 60.

See also Tezas Gulf at 53, 55, 60-61, 64, 65-66, and 69.

® Southern Louisiana II, 11-13; Texas Gulf, 17-19.

11

determinations enunciated by Mr. Justice Harlan in
Permian:

It follows that the responsibilities of a reviewing
court are essentially three. First, it must deter-
mine whether the Commission’s order, viewed in
light of the relevant facts and of the Commission’s
broad regulatory duties, abused or exceeded its
authority. Second, the court must examine the
manner in which the Commission has employed the
methods of regulation which it has itself selected,
and must decide whether each of the order’s essen-
tial elements is supported by substantial evidence.
Third, the court must determine whether the order
may reasonably be expected to maintain financial
integrity, attract necessary capital, and fairly com-
pensate investors for the risks they have assumed,
and yet provide appropriate protection to the rele-
vant public interest, both existing and foreseeable.
390 U.S. at 791-92.

In the Texas Gulf case, the court found that the sub-
stantial evidence test was not met and that, in fact,
there was no evidence in the record to support the
adoption of production incentives. In the instant case,
however, these issues were specifically addressed by
the parties and the Commission’s ruling was based
upon that record. Thus, the asserted conflict does not
exist and does not form a basis for review by this
Court.

II

The Commission’s Action Was Supported by Substantial
Evidence

The function of the FPC as an administrative
agency is to develop a body of expertise within its area
of administration. The exercise of this expertise by the
FPC should not be disturbed so long as it conforms

12

to the requisites of due process and statutory authority
including the substantial evidence requirements of
§ 706 of the Administrative Procedure Act, 5 U.S.C.
§ 706, and Section 19(b) of the Natural Gas Act, 15
U.S.C. § 717.

The record in this case is replete with well docu-
mented testimony and evidence placed into the record
in open hearing and subject to cross-examination,
which adequately satisfy the Commission’s need for
substantial evidence on which to base its determina-
tions. It is well settled that a presumption of validity
attaches to each exercise of the Commission’s exper-
tise.”

The evidence before the Commission in the reopened
record showed that there is a supply crisis* (findings
40 through 106, R. 13587-13615) ; that there has been a
decline of more than one billion dollars per year in
funds devoted to exploration for hydrocarbons (R.
1456) ; that substantial amounts of money will be re-
quired to reverse the downward trend in the discovery
and production of natural gas; that the rates prescribed
in Opinion No. 546 (Southern Louisiana I) were un-
reasonably low; that the crude oil incentive is no longer
adequate to bring about the exploration needed to
find gas reserves and that gas must stand on its own
feet. (R. 1457-1460)

The evidence showed that the cost findings in
Opinion No. 546 (issued in 1968) were unreasonably
low and that it is technically possible to find costs only
within a range. In Opinion No. 598 (issued in 1971)

7Permian Basin Area Rate Cases, 390 U.S. 747 at 767 (1968).

8R. 886G-886N, 900-910, 2410-2512, 887-898, 912-918, 920-923,
925-936, 928-954, 1454, 4787, R. 1414, 1437-1440, 1454, 1462.

-_

13

the Commission properly found that Opinion No. 546
rates were not just and reasonable and did not produce
sufficient return, that such opinion should be set aside,
and that the refunds required therein should not be
made. (R. 13615-13632 ; 13635-13638)

In Opinion No. 546, the Commission found the na-
tional average cost of new gas (including the Louisiana
Severance Tax) to be 18.80¢ per Mef. 40 F.P.C. 530,
589 (1968). It found the cost of flowing gas to be
18.36¢ per Mcf. 40 F.P.C. at 603. Evidence in the re-
opened record shows that costs substantially exceeded
these findings and in its discussion in Paragraphs 107
through 158 (R. 13615 through 13632) the Commission
has now found that the reasonable range of costs is at
a materially higher level for both new and flowing gas.

In support of these findings, there is a wealth of new
cost evidence in the new record—presented by experts
for the Staff, UDC and the producers. This evidence
clearly supports the need for modifying the unrealistic
costing methodology of Opinion No. 546.

The Commission fixed rates within a zone of reason-
ableness coupled with fixed escalations and provided
further incentives for the discovery and dedication of
natural gas to the interstate market. It allowed a work
off of refunds at one cent per Mef for new dedications
of gas to the interstate market and provided further
escalations in the ceiling prices contingent upon the
dedication of certain specified volumes to the interstate
market. These incentives are desperately needed. The
Commission concluded, on the basis of substantial
evidence, that there is a strong positive relationship
between price and supply, and between price and ex-
ploratory effort. (R. 13605) The record is clear that

14

there is a need for the incentives, and the producers of
most of the natural gas in Southern Louisiana stated
that the settlement, which the Comniission approved,
would provide incentives for further exploration and
further dedications of natural gas to the interstate
market.

The Commission’s Opinion No. 598 deals with re-
funds in paragraphs 169 through 172 (R. 13635
through 13638) and, in the light of the inadequacies of
Opinion No. 546, and the evidence in the new record,
it adopted the compromise worked out by the pro-
ponents of the Settlement Proposal on the basis of
its merits.

On the basis of the substantial evidence in the
record, this action was entirely justified.

In support of the Settlement, UDC introduced the
testimony of witness Baker Clay showing that rev-
enues at the Opinion No. 546 rates fell far below in-
dustry costs during the refund period. (R. 6833-6853)
Since no one is entitled to refunds unless revenues ex-
ceed costs, cancellation of all refunds could have been
justified.

The Settlement Proposal recognized this situation,
but rather than eliminate refunds entirely the Settle-
ment reduced refund obligations from $375,000,000 to
$150,000,000; and it then allowed the producers owing
these remaining refunds to work them off through
dedications of new reserves to interstate commerce. _

Mobil, New York, and MDG oppose this whole as-
pect of the Settlement Proposal on the ground that the
basic refund obligations imposed by Opinion No. 546
should not have been reduced at all.

f 15

‘
fi!

2
be

;

Assuming as we have shown, that Opinion No. 546
refunds must be revised downward, the remaining
$150,000,000 retained by the Settlement Proposal, as
a result of negotiation, can hardly be adverse to either
Mobil, New York, or MDG in the light of the evidence
in the record—introduced by UDC through Baker
Clay—that all refunds might be excused. Significantly
neither Mobil, New York, nor MDG introduced any
evidence at all comparing revenues to costs in the
refund period.

As this Court observed in Permian, agencies must
be permitted, consistent with the obligations of due
process, to adapt their rules and policies to the de-
mands of changing circumstances. 360 U.S. at 784.
Clearly, therefore, the Commission acted lawfully in
changing its course on the basis of the reopened
record.

Ill
Allegations of Discrimination Are Strained, Relate to Matters
Within the Commission’s Expertise and Under the Cir-
cumstances Do Not Present Substantive Issues Worthy
of Consideration by This Court

All of the Petitioners join in chorus to allege that
the court below has affirmed a discriminatory opinion
in this case. (Pet.: N.Y. Public Service Commission
p. 11-12, 18; Mobil Oil Corp. p. 9, 20; MDG p. 25)

The chief ground of alleged discrimination’ arises
from the fact that some producers (including Mobil)
have executed voluntary settlements, and made refunds
so as to reduce their revenues to the general level of «
the Commission’s Section 7 guidelines. (R. 13585-
13586) Other producers have, in the meantime, col-
lected the higher contested Section 4 and Section 7
rates. Mobil’s suggestion to cure this ‘‘defect’’ en-

16

compassed ‘‘higher prices for new gas, coupled with
a procedure for retrospective achievement of equity
among the Southern Louisiana producers’’. (R. 13,586)
This remedy does not appear to be supported by either
the New York Public Service Commission nor the
Municipal Distributors Group. However, these Pe-
titioners have been quick to seize upon this alleged
discrimination as a convenient vehicle to support
their petition.

Mobil’s brief before the Court of Appeals leaves
one with the impression that they are seeking high
rates for the future to offset the low settlements which
some producers agreed to (improvidently as it
transpired) in the past. The Commission has no
authority to fix rates on that basis. State Corporation
Comm’n of Kansas v. F.P.C., 206 F.2d 690 (8th Cir.
1953) There is no question but that the Commission
is supported by the evidence in refusing to approve the
high level of rates advocated by isolated producers.

At page 22 of its petition, Mobil cites cases which
held that those similarly situated should be treated
with equality. These arguments are without merit be-
cause, inter alia, Mobil, which settled its rate cases
years ago, is not similarly situated to those companies
which refused to settle, and which proved, on this
record, that the rates Mobil accepted would be con-
fiscatory if applied area wide.

It would be unconstitutional for the Commission to
fix confiscatory rates in order to treat all producers
the way Mobil agreed to be treated.

The Commission properly observed:

‘‘Parties who enter into settlements or those
who refuse to do so, always run the risk that the

RS eae

tl

17

ultimate Commission determination may be
higher or lower than the settlement levels.”’ (R.
13628)

MDG, by its petition, would have the Court believe ——
that the D.C. Court of Appeals, in the Texas Gulf
Coast Case, found that the Commission’s refund pro-
visions (similar to those in the instant case) promote
discrimination and are anti-competitive in effect.
(MDG Pet. 13) The implication is that this was the
reason for its remand. In fact, while the D.C. Court
of Appeals did discuss possible discriminatory effects
of the Texas Gulf Coast Opinion, it also stated that

‘‘To some extent discrimination is inherent in
the contingent escalation because it works on an
industry basis, rather than on an individual pro-
ducer basis.’’ (Ship Op. p. 67)

This is, of course, fundamental to area rate making.
The primary reason for remand there was not the
alleged discriminatory potential of the Opinion, but
the lack of sound explanation as to why the Com-
mission held as it did. (Slip Op. p. 69)

The refund provisions in the instant case were
found by the court below to have been subjected to
“cross examination and additional evidentiary
scrutiny.’’ (Slip Op. p. 52) The Court, therefore, had a
strong foundation of substantial evidence on which to
premise its finding that the ‘‘... FPC was acting with-
in the bounds of its discretion when it adopted the re-
fund credit work-off program.”’ (Slip Op. p. 53)

Clearly, there can be no area rate-making without
some degree of discrimination or difference in impact
on individuals. Only unreasonable discrimination is
unlawful and the expert body which reviewed the

=

evidence, after cross-examination, concluded that the
refund credit workoff was reasonable. The Court below
properly found this action within the bounds of the
Commission’s discretion.

The treatment of refunds was only one facet of an
opinion in which the Commission utilized a combination
of formulae and pragmatic adjustments in an attempt
to protect the interest of future as well as past con-
sumers. It applied its expertise to intensely practical
problems in the area of its discretion in time of a
supply crisis.

18

IV

There Is No Good Reason for Reviewing the Court's Affirmance
of the Commission's Approval of the Settlement Provisions
Establishing Minimum Rates for Transportation of Liquids
and Liquefiable Hydrocarbons —

The Commission, on the basis of substantial evidence
and on its merits, approved the settlement provisions
fixing minimum rates which the producers must pay
to pipeline purchasers for the transportation of
liquids and liquefiables owned by the producers. This
was necessary to preserve and protect the Commis-
sion’s action on the price of the natural gas.

Mobil contends that the Commission exceeded its
authority, that is, that producers should be completely
free to negotiate with pipeline purchasers for the
transportation of liquids and liquefiables at less than
cost, and thus possibly to obtain an effective price for
gas in excess of the ceiling price for the gas fixed by
the Commission. }

Liquids and liquefiables are often mixed with gas
at the wellhead and must be transported from the
platform to the processing plant in a mixed stream.

Ea ee eS |

19

The Commission had determined that 26 cents was a
just and reasonable price for the gas. If the producer
could negotiate for transportation of commingled
liquids by the pipeline purchaser at less than the
proven cost to such purchaser, clearly the Commis-
sion’s action on the price for the gas could be circum-
vented. In such event, the real price received for the
gas would be greater than the lawful rate. If, based on
substantial evidence, the Commission could not as a
part of the approved gas rate settlement fix a mini-
mum rate for the transportation of liquids and
liquefiables by the pipeline purchaser, its regulation
of the wellhead price of natural gas could be rendered
ineffective.

The minimum charges established for the transpor-
tation of liquids and liquefiable hydrocarbons were
found by the Court below to have been determined by
the FPC on a “substantial evidentiary basis’’. (R.
13634, 13645) (Slip Op. p. 63) This finding is ade-
quately supported by the testimony of W. P. Anderson
(R. 6395-6410, 6692-6725) and of John L. Moye (R.
6400-6408, 6734-6747).

Mobil Oil Corporation advances the argument that
the decision by the U.S. Court of Appeals for the Dis-
trict of Columbia in Mobil Oil Corporation v. Federal
Power Commission, No. 72-1471, CADC, July 11, 1973,
F.2d. , ‘is at odds’’ with the Court’s de-
cision in this case.

It is true that in the last cited Mobil Oil case, the
D.C. Circuit reversed the action of the Commission in
fixing minimum rates.for the transportation of liquids
and liquefiables in a general rule-making proceeding
which the Court found completely inadequate from

20

the standpoint of necessary notice”, necessary evi-
dence", and necessary findings’. In the process of
such reversal, the D.C. Cireuit did hold against the
Commission’s jurisdiction over transportation of
liquids. At the same time, it recognized, as did Mobil,
the Commission’s minimum rate authority over the
transportation of liquefiable hydrocarbons.* However,
in the process of so doing, the Court there stated :"*

We are not confronted with a case where the
Commission has demonstrated that rate jurisdic-
tion over liquids is necessary to preserve its rate
jurisdiction over natural gas.

The instant case, however, stands in an entirely
different posture. The record is complete with sub-
stantial evidence adequately supporting all of the

.. Commission’s findings. In thus exercising jurisdiction
over the minimum rates for transportation of liquids
as well as liquefiables, the Commission has determined
that such exercise is necessary to preserve its rate
jurisdiction over natural gas. This determination is
-well supported by the testimony and evidence pre-
sented by W. P. Anderson and John L. Moye as re-
ferenced above. By its terms", the Commission’s action
on this question in this case applies only to this case,
and the Commission has not acted in the general rule-
making proceeding on the same subject on remand
from the decision of the D.C. Circuit in Mobil Ou.
Thus, there is no occasion for any general review of
this question at this time.

>

10 Slip Op. p. 9.

11 Slip Op. p. 21.

12 Slip. Op. p. 50-51.
13 Slip. Op. p. 20.

14 Thid.

18 46 F.P.C. 86, 139.

21

Vv
The Authority of the Commission To Place Moratoria on New
Rate Filings Was Previously Upheld by this Court in
Permian, Was Reviewed in this Proceeding by the Court
Below and No Issues of Substance Worthy of Considera-
tion by This Court Are Raised

Mobil complains that the Commission placed a five-
year moratorium on deviation from the area rates
fixed in this proceeding.. A moratorium was upheld
by this court in the Permian” case where costs
were found to be stable. In this case costs were not
found to be stable and the Commission provided
fixed escalations in the price of gas. It also fixed con-
tingent escalations. Kurthermore, it has provided in
its rules a method by which a producer may petition
for authority to deviate from the area rate ceilings.
Surely, as this court held in Permian, the Commission
cannot be required to start a new rate case every time
an old one is concluded.

VI

No Good Reason Has Been Shown for Reviewing the Court of
Appeals Affirmance of the Commission’s Refund Discre-
tion

Petitioners urge that the Court of Appeals erred in
affirming the Commission’s decision to permit the write
off. of refunds by the dedication of new volumes of
natural gas to the interstate market. MDG asserts
that under Section 4(e) of the Natural Gas Act the

Commission is required to order refunds. The Court

of Appeals rejected this contention, holding that

Section 4(e) provides only that the Commission

“may’’ require refunds but is not required to do so.

© Permian Basin Area Rate Cases, 390 U.S. 747 (1968) (Here-
after referred to as Permian)

22

This is not an all or nothing case in which the Com-
mission was called upon to refuse refunds or grant
them 100 percent. Instead, it is a case in which the
Cemmission’s refund discretion had already been ex-
pressly recognized by the Court of Appeals in its re-
mand of Southern Louisiana I, from which decision
this Court denied certiorari. Pursuant to that remand
and after full evidentiary hearing, the Commission
found that certain refund reductions, tied to the in-
ereased price of flowing gas and to work off credits
for new production, all in the interest of a much needed
increase in supply, would be in order. $

This is not an issue meriting review by this Court.
There is no conflict among the Courts of Appeal and
the Fifth Circuit’s holding is consistent with
of this Court. In fact, the District of Columbia
in the Texas Gulf case, expressly agreed that the ques-
tion of whether or not to order refunds is a matter for
the Commission’s discretion. Texas Gulf 68-69. |

In Wisconsin v. F.P.C., 303 F.2d 380, 386 (D. C. Cir.,
1961), Judge Prettyman stated that under Section
4(e) the Commission ‘‘may”’ order a refund and that
this is not mandatory. While the Supreme Court in
reviewing that case did not specifically deal with the
Commission’s discretion to order a refund under Sec-
tion 4(e), Mr. Justice Clark in a separate opinion
speaking for four justices stated that under certain
conditions the Commission might have to forgive
refunds. Wisconsin v. F.P.C., 373 U.S. 294, 324 (1963)
footnote 8. Subsequently, in Permian Basin Area Rate
Cases, 390 U.S. 747, 827 (1968) this court stated that
the court did not have authority to interfere with the
Commission’s ‘discretion’? with respect to refunds.

23

The substance of MDG’s argument is that ‘‘may”’
as used in Section 4(e) of the Natural Gas Act means
‘‘shall’’. It cites two cases both of which are older than
the Interstate Commerce Commission, the first federal
administrative agency.

This court stated in Farmers and Merchants Bank
of Monroe v. Federal Reserve Bank, 262 U.S. 649,
662-3 (1922), that

“Tt is true that in statutes the word ‘may’ is
sometimes construed as ‘shall.’ But that is where
the context or the subject matter compels such
construction.”’

That ‘‘may’’ as used in Section 4(e) of the Natural
Gas Act is intended to confer discretion, is also sup-
ported by the fact that ‘‘may”’ is used in juxtaposition
to “‘shall’’ throughout the Natural Gas Act. In Section
4(e) where the ‘“‘may”’ in question appears, ‘‘shall’’
is used four times. Under some circumstances certain
things must be done, but the requirement of refunds
is discretionary. United States v. Thoman, 156 U.S.
303 (1895), Anderson v. Yungkau, 329 U.S. 482, 485
(1947), Horack, Sutherland Statutory Construction,
3rd ed. Sec. 5821, Federal Land Bank v. H ansen, 113
F.2d 82, 84 (2nd Cir. 1940)

No good reason has been shown for reviewing this
point of law, which is well settled. / :

CONCLUSION

This Court observed in Permian 390 U.S. 747 at
756, that since 1954 the Commission has labored with
obvious difficulty to regulate a diverse and growing
producing industry under terms of an ill-suited
statute. Now the industry has stopped growing.

24

When the Commission attempted to regulate rates
on a company-by-company basis, the administrative
process broke down. (390 U.S. at 758) Since 1960 it
has been attempting to regulate producers on an area
basis, but area rate cases take a long time and condi-
tions change.

As observed by Justice Jackson in a separate
opinion in Federal Power Commission Vv. Hope Nat.
Gas Company, 320 U.S. 591, 647 (1943), the explora-
tion for and the production of natural gas are more
erratic and irregular and unpredictable in relation to
investment than any phase of any other utility business.

Producers are not required to invest in the high-
risk, speculative adventure of searching for natural
gas. They may do so and it is the Commission’s re-
sponsibility to fix rates that will encourage them to
do so.

It is necessary therefore that pragmatism be accom-
panied by innovative approaches if the Commission is
to succeed in its task of steering between the Scylla of
excessive rates and the Charybdis of not enough gas
for the consumer.

As this Court pointed out in Permian, supra, at p.
698, the Commission’s responsibilities extend to future
customers as well as present customers. It has an obli-
gation to provide a useful incentive to the exploration
for natural gas as well as to prevent excessive pro-
ducer profits. We believe it cannot be gainsaid that if
past profits had been excessive there would have been
no decline in exploration activity. Since the first
Southern Louisiana Area Rate Case, evidence has
proved to the Commission that its past regulatory

25

techniques have been unsuccessful in protecting the
public interest in an adequate supply of gas.

In the second Southern Louisiana Case here in-
volved, the Commission adopted a new, many-faceted
approach designed to stimulate production and to en-
courage producers to dedicate new reserves of natural
gas to the interstate markets. The Commission has
attempted to harness cost and noncost factors side by
side. (Permian, supra, at 815) And it has employed a
combination of formulae in an attempt to cope with
its intensely practical problems. (Permian, supra, at
777 and 800)

Nearly all of the parties to the proceeding below
recommended this approach but a few object. NYPSC
and MDG want the refunds that would have been made
under the old approach. Mobil wants higher rates for
the future to offset the lower rates it voluntarily ac-
cepted in past settlements. Each of the Petitioners
attack individual segments of Opinion No. 598 as if
each segment stood alone. No Petitioner evaluates
Opinion No. 598 as a totality.

The record shows that this nation is dependent upon
Southern Louisiana for one-third of its natural gas
requirements, that the amount of money devoted to
exploration and development has declined sharply
resulting in a decline in the discovery of new gas re-
serves, and that enormous amounts of money will be
required to reverse such decline.

The FPC has met its responsibilities by determining
cost-based rates within the zone of reasonableness for
both vintages of gas, by providing for the work off of
refunds by the dedication of new reserves, and by fur-
ther providing price escalations based upon new dedi-

26

cations, coupled with fixed escalations to offset inflation.
The court below properly held that the Commission’s
order was supported by the record and that it was
within its statutory authority.

Wuererore, the United Distribution Companies
respectfully urge that certiorari be denied.

C. WILLIAM CooPER
161 Moorland Road

Falmouth, Massachusetts 02540

TruForD A. JONES
Epwarb H. GERSTENFIELD
Suite 212
7316 Wisconsin Avenue

Bethesda, Maryland 20014

Attorneys for
United Distribution Companies

Of Counsel:
JULIAN DE BRUYN KOPS
WILLIAM E. HERRON
25 North Main Street
Dayton, Ohia 45402

ROBERT CORP
1717 East Ninth Street
Cleveland, Ohio 44114

JAMES B. FALAHEE
212 West Michigan Avenue
Jackson, Michigan 49201

PETER V. FAZIO, JR.
Schiff, Hardin, Waite, Dorschel
& Britton
231 South LaSalle Street
Chicago, Illinois 60604

GEORGE H. FISCHER
P.O. Box 764
Columbia, South Carolina 29202

NORMAN A. FLANINGAM
CHARLES R. BROWN
Suite 400
1101 16th Street, N.W.
Washington, D.C. 20036

HENRY A. JACKSON
Two Gateway Center
Pittsburgh, Pennsylvania 15222

LAUMAN MARTIN
300 Erie Boulevard West
Syracuse, N.Y. 13202

JAMES R. McCLARNON
Smith, Morgan & Ryan
Suite 1900, Indiana Towers
One Indiana Square
Indianapolis, Indiana 46204

RICHARD M. MERRIMAN
Reid & Priest

1701 K Street, N.W.
Washington, D.C. 20006

DONALD I. MORITZ
420 Boulevard of the Allies
Pittsburgh, Pennsylvania 15219

ELMER NAFZIGER
Nafziger & Otten

900 Illinois Building
Springfield, Illinois 62701

JON D. NOLAND

Barnes, Hickam, Pantzer & Boyd
1313 Merchants Bank Building
Indianapolis, Indiana 46204

JAMES O'MALLEY, JR.
HALCYON G. SKINNER
RONALD D. JONES

LeBoeuf, Lamb, Leiby & MacRae
One Chase Manhattan Plaza
New York, New York 10005

RICHARD A. ROSAN
20 Montchanin Road
Wilmington, Delaware 19807

October 30, 1973

27

WILLIAM W. ROSS

THOMAS C. MATTHEWS
Wald, Harkrader, Nicholson & Ross
1820-19th Street, N.W.
Washington, D.C. 20036

ARTHUR R. SEDER, JR.
One Woodward Avenue
Detroit, Michigan 48226

CHARLES V. SHANNON
1700 K Street, N.W.
Washington, D.C. 20006

JUSTIN A. STANLEY
WENDELL H. ADAIR, JR.
Mayer, Brown & Platt
231 South LaSalle Street
Chicago, Illinois 60604

J. STANLEY STROUD
Mayer, Brown & Platt
1101 17th Street, N.W.
Washington, D.C. 20036

HENRY P. SULLIVAN
4 Gateway Center
Pittsburgh, Pennsylvania 15222

DAVID E. WEATHERWAX
445 West Main Street
Clarksburg, W. Virginia 26301

JOSEPH M. WELLS
122 S. Michigan Avenue
Chicago, Illinois 60603

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0301%3A11. Public record. Not legal advice.