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Mobile Gas Service Corp. v. Federal Power Commission

decided: September 7, 1954.


Author: Mclaughlin

Before McLAUGHLIN, STALEY and HASTIE, Circuit Judges.

McLAUGHLIN, Circuit Judge.

In this proceeding to review an order of the Federal Power Commission the basic question is whether the Commission is correct in holding that under the Natural Gas Act*fn1 a natural gas company can in effect wipe out a filed rate contract simply by filing an increased rate schedule. Substantially that is what the Commission considers to have happened to petitioner's contract with intervener.

Mobile Gas Service Corporation, the petitioner, is an Alabama distributor of natural gas. It receives its entire supply of that fuel from the intervener, United Gas Pipe Line Company, a Delaware corporation.*fn2 By a 1936 contract between it and United's predecessor and an agreement entered into in 1941 with United itself certain of Mobile's gas for resale industrially was to be supplied by United for 90% of Mobile's gross resale revenues. The contract provided that the gas was not to be resold industrially for less than 16› per MCF (1,000 cubic feet) without United's consent. This agreement as amended by the 1941 contract was to continue in effect until 1962. Both contracts were filed with the Commission and became United's Gas Rate Schedule No. 20 and Supplement to that Schedule No. 7.

In 1946 United agreed with Mobile to a proposed arrangement between Mobile and Ideal Cement Company whereby the latter could be supplied with its industrial gas needs by Mobile for 12› per MCF for a period of ten years provided total deliveries remained between 100,001 and 400,000 MCF per month. In accordance with this United consented to accept the percentage rate of Mobile's sales to Ideal though this would be less than the minimum of 16› per MCF. United also agreed at that time to reduce the price of industrial gas to Mobile from 90% of the latter's gross resale revenues to 80% up to 41,667 MCF per billing month and 90% in excess thereof. Those agreements were filed with the Commission as Supplements No. 9 and No. 10 to United's Rate Schedule No. 20. Mobile then consummated its proposed contract with Ideal Cement Company to supply gas to the latter for ten years at 12› per MCF. The Alabama Public Service Commission approved that contract. Not only United but the Commission recognized the contract as late as July, 1952 when the Commission allowed United to substitute in its filed tariff a flat rate of 10.7› per MCF in place of the percentage rate Mobile had been paying. As United advised Mobile, this substitution was made under the Commission directive to convert from percentage to fixed sum and was almost identical with the amount the Mobile percentage rate actually figured.*fn3

On June 24, 1953, United filed with the Commission proposed increased rates, including a rate of 14.5› per MCF for industrial use gas for Mobile. On July 10, 1953, the Commission ordered a hearing on the lawfulness of those rates, suspended them pending the hearing with the exception of the new Mobile rate, and ordered that hearing to be consolidated with an earlier proceeding investigating all of United's rates. The new rate for Mobile being for industrial use was not subject to suspension under Section 4(e) of the Act. As a result it became operative July 25, 1953. Mobile, on July 16, 1953, attempted to intervene in the consolidated proceeding. On August 4, 1953, it filed a petition with the Commission setting up the above situation and asking the Commission to amend its order of July 10 so that United's new filing in so far as it affected the Ideal contract would be rejected and the 14.5› rate would not be permitted to take effect. In the alternative it requested a hearing on the lawfulness of the filing of that rate and asked that if Mobile was obligated to pay United the increased rate, United be directed to hold those payments subject to refund to Mobile in the event the new rate was ultimately determined to be unlawful. At that stage no action had been taken on Mobile's application to intervene and the new rate had been governing since July 25th. As a consequence Mobile amended its petition and urged the Commission that it be made a separate cause. That prayer was granted as was United's later petition to intervene in the new proceeding. On December 7, 1953 the Commission on the pleadings denied the prayers of Mobile's petition and dismissed it. On February 4, 1954, the Commission refused rehearing to Mobile. This petition for review of the Commission's decision followed.

Mobile's main point is that its United contract with respect to Ideal is a valid agreement which cannot be set aside by United's unilateral action of filing an increased rate schedule. It frankly recognizes the Commission's paramount authority and concedes that if after a proper proceeding the Commission found the contract rate to be against the public interest it could modify it or set it aside entirely.

The Commission contends that where a natural gas company files a rate schedule under 4(d) of the Act that rate is to be charged unless suspended initially or disapproved finally by the Commission after investigation and hearing; rates for industrial use not being subject to suspension when filed become effective thirty days thereafter until finally passed upon by the Commission.The latter insists that even where as here the rate conflicts with an admittedly preexisting filed contract the distributor is given no chance to defend its contract, on which it has made approved commitments, before that contract is to all practical purposes abrogated.

It is undisputed that under the ordinary 4(e) proceeding which the Commission has instituted with reference to the new rate schedule involved, the dispositive question before the Commission is whether the increased rates are just and reasonable. 4(e) makes this plain when it says:

"* * * At any hearing involving a rate or charge sought to be increased, the burden of proof to show that the increased rate or charge is just and reasonable shall be upon the natural-gas company, and the Commission shall give to the hearing and decision of such questions preference over other questions pending before it and decide the same as speedily as possible."

In other words if in the pending hearing United can show that its new filed rate for Mobile is reasonable that ends the matter and the new rate stands. No consideration will be given to the accepted contract, the circumstances under which it was entered into, the long term commitments sanctioned by the Commission and whether the rate fixed by it is unreasonable and against the public interest under the facts. What petitioner is endeavoring to do is have its contract passed upon in the first instance prior to authorization for filing of United's new rate and the consideration of whether that rate is currently reasonable.

The Commission maintains that 4(d) of the Act*fn4 upholds its stand. That section provides, as far as we are primarily concerned, that "no change shall be made by any natural-gas company in any such rate * * * or contract relating thereto, except after thirty days' notice to the Commission and to the public." This means, according to the Commission, that since under 4(e) it does not have the power to suspend an industrial use gas rate, United can fundamentally cancel the Mobile contract despite the fact that as of now Mobile is bound for its duration to Ideal, subject only to the Commission later passing finally upon the rate. And in the Commission thought this can take place without any statutory notice to Mobile or an opportunity for Mobile to be heard regarding its contract rate. The practical result of this is that Mobile in living up to its contract with Ideal is supplying natural gas to that company for 12› per MCF and may well be forced to continue to do so until the expiration of its contract in 1956. Meanwhile Mobile must pay United 14.5› per MCF for the same gas it delivers to Ideal though its contract with United has never been questioned by the Federal Power Commission or in any way construed to be against the public interest.

The Commission and intervener rely to a large extent upon Union Dry Goods Co. v. Georgia P.S. Corp., 1919, 248 U.S. 372, 39 S. Ct. 117, 63 L. Ed. 309, and Midland Realty Co. v. Kansas City Power & Light Co., 1937, 300 U.S. 109, 57 S. Ct. 345, 81 L. Ed. 540. The first case is quoted by the Commission as holding in 248 U.S. at page 375, 39 S. Ct. at page 118: "That private contract rights must yield to the public welfare, where the latter is appropriately declared and defined and the two conflict, has been often decided by this court." The principle stated is of course sound law and is expressly uncontroverted by petitioner. In the Union litigation there had been a hereing before the Georgia Commission on the question of the reasonableness of the contract rates. The Commission found that they were unlawfully discriminatory. Here, as we have seen, Mobile had no opportunity to defend the contract rate prior to the new rate coming into being.

Midland does lend some support to the position of the Commission and the intervener. But there the rates filed by the utility were not opposed and were permitted by the Missouri Utility Commission without hearing.*fn5 Far more important than that the decision is based upon a state court interpretation of a state statute. The question litigated and passed upon was whether a Missouri statute as construed by the ...

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