FEDERAL POWER COMMISSION v. TEXACO INC. ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT.
Argued March 25, 1964.
Decided April 20, 1964.
1. A Court of Appeals granted review of a Federal Power Commission (FPC) order concerning a contract performed in its circuit involving natural gas produced there by two respondent natural gas companies incorporated outside the circuit, the principal place of business of one (A) being within the circuit; that of the other (B) being without. Respondents proceeded under 19 (b) of the Natural Gas Act, which provides for review in the court of appeals wherein the aggrieved natural gas company "is located or has its principal place of business." Held: The Court of Appeals erred in failing to dismiss the petition of respondent B for lack of venue, since the term "is located" in 19 (b) means more than having physical presence in a place and refers in the case of a corporation to the State of its incorporation. Pp. 37-39.
2. Pursuant to 16 of the Natural Gas Act and 4 of the Administrative Procedure Act, the FPC after a hearing given to interested parties, including respondents, at which they were allowed to submit their views in writing, issued regulations providing for the summary rejection of contracts with pricing provisions other than those specified in the regulations as being "permissible." Under 7 of the Natural Gas Act, which includes a provision for an FPC hearing, respondents each submitted an application for a certificate of public convenience and necessity to supply natural gas to a pipeline. Since the applications disclosed price clauses impermissible under its regulations, the FPC rejected the applications without a hearing. Its order on review was set aside by the Court of Appeals. Held:
Howard E. Wahrenbrock argued the cause for petitioner. With him on the brief were Solicitor General Cox, Ralph S. Spritzer, Richard A. Solomon, Josephine H. Klein and Peter H. Schiff.
Alfred C. DeCrane, Jr. argued the cause for respondent Texaco Inc. With him on the brief was Paul F. Schlicher. Carroll L. Gilliam argued the cause for respondent Pan American Petroleum Corp. With him on the brief were W. W. Heard, Wm. H. Emerson and William J. Grove.
J. Calvin Simpson and John T. Murphy filed a brief for the State of California and the Public Utilities Commission of California, as amici curiae, urging reversal.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
The Federal Power Commission in its regulation of independent producers 1 of natural gas has required them [377 U.S. 33, 35] to file their contracts as rate schedules. This was done by regulations which evolved as a result of a series of rule-making proceedings. 2 The pertinent regulations presently provide that only certain pricing provisions in the contracts of independent producers are "permissible," 3 any other being "inoperative and of no effect at law." 4 The regulations go on to say that any contract executed on or after April 2, 1962, containing price-changing provisions other than the "permissible" ones, "shall be rejected" so far as producer rates are concerned, 5 that a producer's application for a certificate of public convenience and necessity under 7 of the Natural Gas Act "shall be rejected" if any contract submitted in support of it contains any of the forbidden provisions, 6 and that, so far as pipeline certificates are concerned, any producer contract executed after that date which has that [377 U.S. 33, 36] infirmity "will be given no consideration in determining adequacy" of a pipeline company's gas supply. 7
These regulations were adopted pursuant to the provisions of 4 of the Administrative Procedure Act, 60 Stat. 238, 5 U.S.C. 1003. General notice of the proposed rule making was published in the Federal Register as required by 4 (a) of that Act. The Commission also gave interested parties a "hearing" under 4 (b). 8 No oral argument was had but an opportunity was afforded for all interested parties to submit their views in writing; and the two respondents in this case - Texaco and Pan American - along with others, did so.
Later, each respondent submitted an application for a certificate of public convenience and necessity under 7 of the Natural Gas Act, to supply natural gas to a pipeline company. Section 7 provides, with exceptions not presently material, that the Commission "shall set" such an application "for hearing." Since, however, the applications disclosed price clauses that are not "permissible" under the regulations, 9 the Commission without a hearing [377 U.S. 33, 37] rejected the applications. 28 F. P. C. 551; 29 F. P. C. 378. Petitions for review were filed with the Court of Appeals, which set aside the orders of the Commission. 317 F.2d 796. It held that while the regulations are valid as a statement of Commission policy, they cannot be used to deprive an applicant of the statutory hearing granted those who seek certificates of public convenience and necessity. The two cases are here in one petition for certiorari which we granted because of an apparent conflict between that decision and Superior Oil Co. v. Federal Power Comm'n, 322 F.2d 601, decided by the Court of Appeals for the Ninth Circuit. 375 U.S. 902 .
A preliminary question, which concerns Texaco Inc., alone, is whether venue to review these orders of the Commission was properly in the Tenth Circuit. The governing provision is 19 (b) of the Natural Gas Act which provides:
The Act with which we deal was enacted August 26, 1935. At that time and down to the 1948 amendment of 1391 of the Judicial Code, 28 U.S.C. 1391 (c), the only residence of a corporation for purposes of federal venue was the State and district in which it had been incorporated. [377 U.S. 33, 39] See 9 Fletcher, Cyclopedia Corporations (1931), 4385. That theme runs through the cases. See, e. g., Shaw v. Quincy Mining Co., 145 U.S. 444, 449 -450. We conclude that, although "located" sometimes is used as indicating a place of business (Mercantile Nat. Bank v. Langdeau, 371 U.S. 555 ), in the setting of this Act "is located" and "resides" are equated and that "is located" refers in the case of Texaco to its State of incorporation. There is symmetry in that construction as the choice, so far as circuits are concerned, is then left between that State, the "principal place of business" (with no penumbra of other places of business, as here), or the District of Columbia where the Commission sits.
Texaco is a Delaware corporation and there is no claim that its principal place of business is within the Tenth Circuit. The Court of Appeals therefore erred in failing to dismiss its petition for lack of venue. There is, however, another respondent, Pan American, whose principal place of business is within the Tenth Circuit. We therefore proceed to the merits of its application.
The main issue in the case is whether the "hearing" granted under 4 (b) of the Administrative Procedure Act is adequate, so far as the price clauses are concerned, for purposes of 7 of the Natural Gas Act. We think the Court of Appeals erred, that the present case is governed by the principle of United States v. Storer Broadcasting Co., 351 U.S. 192 , and that the statutory requirement for a hearing under 7 does not preclude the Commission from particularizing statutory standards through the rule-making process and barring at the threshold those who neither measure up to them nor show reasons why in the public interest the rule should be waived.
In Storer the Federal Communications Commission, pursuant to its general rule-making authority, limited [377 U.S. 33, 40] permissible multiple ownership for radio and television stations. Storer, which had seven radio stations and five television stations, was under that rule automatically disqualified for further licensing. To surmount that barrier it argued that the Act required a license to issue where the public interest would be served and that before an application could be denied, a hearing must be held. We said:
The rule-making authority here, as in Storer, is ample to provide the conditions for applications under 4 or 7. Section 16 of the Natural Gas Act gives the Commission power to prescribe such regulations "as it may find necessary or appropriate to carry out the provisions of this Act." We deal here with a procedural aspect of a rate question and with a certificate question that is important in effectuating the aim of the Act to protect the consumer interest. Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 610 . In a rate case under 5 (a) of the Act the Commission can pass on existing contracts affecting rates, can find that particular contracts are "unjust, unreasonable, unduly discriminatory, or preferential" and thereupon has power to determine the "just and reasonable" rate or contract and "fix the same." And see United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 341 . And where, as here, applications for certificates are made under 7 of the Act, the Commission under 7 (e) is required to control the terms and conditions under which natural gas companies, such as respondent, may initiate sales at wholesale of natural gas in [377 U.S. 33, 42] commerce. Atlantic Refining Co. v. Public Service Comm'n, 360 U.S. 378, 389 .
Pan American does not disagree on that score; it insists that those changes and adjustments can be made only after an adversary hearing. To that there are two answers. The present regulations do not pass on the merits of any rate structure nor on the merits of a certificate of public convenience and necessity; they merely prescribe qualifications for applicants. Those qualifications are in the category of conditions that relate to the ability of applicants to serve the consumer interest in this regulated field. They are kin to the kind of capital structure that an applicant has and to his ability by reason of the rate structure to serve the public interest. It must be remembered that under this Act rate increases are initiated by the natural gas company, the Commission having the burden by reason of 4 (e) of the Act to initiate a hearing on their legality with only a limited power to suspend new rates. See United Gas Pipe Line Co. v. Mobile Gas Service Corp., supra. Natural gas companies that seek to enter the field with prearranged escalator clauses and the like have a built-in device for ready manipulation of rates upward. Protection of the consumer interests against that device may be best achieved if it is given at the very threshold of the enterprise. At least the Commission may so conclude; 12 and [377 U.S. 33, 43] the legislative history makes clear that its authority reaches that far. H. R. Rep. No. 1290, 77th Cong., 1st Sess., pp. 2-3, states:
To require the Commission to proceed only on a case-by-case basis would require it, so long as its policy outlawed indefinite price-changing provisions, to repeat in hearing after hearing its conclusions that condemn all of them. There would be a vast proliferation of hearings, for as a result of Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672 , there are thousands of individual producers seeking applications. See Wisconsin v. Federal Power Comm'n, 373 U.S. 294, 300 . We see no reason why under this statutory scheme the processes of regulation need be so prolonged 13 and so crippled.
Pan American finally argues that the "hearing" accorded it under 4 (b) of the Administrative Procedure Act 14 did not comply with that Act nor with the Natural Gas Act. It points out that 7 of the Natural Gas Act requires a hearing and that 5 of the Administrative Procedure Act provides, with exceptions not relevant here, that a full-fledged adversary-type of hearing be held in "every case of adjudication required by statute to be determined on the record after opportunity for an agency hearing. . . ." "Adjudication" is defined in 2 (d) of the Administrative Procedure Act as "agency process for the formulation of an order"; "order" is defined as "the whole or any part of the final disposition . . . of any agency in any matter other than rule making but [377 U.S. 33, 45] including licensing." And "licensing" is defined as "agency process respecting the . . . denial . . . of a license." 2 (e). What the Commission did in these cases, however, is not an "adjudication," not "an order," not "licensing" within the meaning of 2. Whether Pan American can qualify for a certificate of public convenience and necessity has never been reached. It has only been held that its application is not in proper form because of the pricing provisions in the contracts it tenders. No decisions on the merits have been reached. The only hearing to which Pan American so far has been entitled was given when the regulations in question were adopted pursuant to 4 (b) of the Administrative Procedure Act.
[ Footnote 2 ] See Order No. 174-B, 13 F. P. C. 1576, 18 CFR 157.25; Order No. 232, 25 F. P. C. 379, 26 Fed. Reg. 1983, as amended by Order No. 232A, 25 F. P. C. 609, 26 Fed. Reg. 2850; Order No. 242, 27 F. P. C. 339, 27 Fed. Reg. 1356; Reg. 154.91 et seq., as amended, 18 CFR (Cum. Supp. 1963) 154.91 et seq.
[ Footnote 3 ] Section 154.93 defines the "permissible" provisions:
[ Footnote 4 ] Ibid. For a discussion of escalation clauses see Pure Oil Co., 25 F. P. C. 383, aff'd 299 F.2d 370.
[ Footnote 5 ] Ibid.
[ Footnote 6 ] 157.25.
[ Footnote 7 ] 157.14 (a) (10) (v).
[ Footnote 8 ] Section 4 (b) provides:
[ Footnote 9 ] Pan American's contracts provide (1) for a one-cent escalation in 1968, 1973, and 1978, and (2) for a redetermination of a "fair market price" in each five-year period commencing October 1, 1983, but in no event for less than 20.5 cents per thousand cubic feet.
Texaco's contract contained price clauses to become effective at definite times or upon the happening of definite circumstances in the [377 U.S. 33, 37] future, e. g., the passage of 5, 10, or 15 years, increased taxation on the production, severance, gathering, transportation, sale, or delivery of gas or as a result of renegotiations undertaken six months prior to the beginning of the third (1974) and fourth (1979) of the four five-year periods into which the contract term was divided.
[ Footnote 10 ] See 313 (b) of the Federal Power Act, 49 Stat. 860, 16 U.S.C. 825l (b); cf. S. 1725, 74th Cong., 1st Sess., with S. 2796 of the same session.
[ Footnote 11 ] Regulation 1.7 (b), 18 CFR (Cum. Supp. 1963) 1.7 (b), provides in relevant part:
[ Footnote 12 ] The Commission in making the last amendment to the regulation now challenged said:
[ Footnote 13 ] In one recent case seven years elapsed between the date of the new rate filing and the close of the review proceedings. Shell Oil Co., 18 F. P. C. 617, 19 F. P. C. 74, set aside sub nom. Shell Oil Co. v. Federal Power Comm'n, 263 F.2d 223, rev'd sub nom. Texas Gas Transmission Corp. v. Shell Oil Co., 363 U.S. 263 ; on remand, aff'd sub nom. Shell Oil Co. v. Federal Power Comm'n, 292 F.2d 149, cert. denied, 368 U.S. 915 .
[ Footnote 14 ] See note 8, supra.
MR. JUSTICE STEWART, dissenting in part.
I agree with Part I of the Court's opinion, holding that the petition of Texaco Inc. should have been dismissed for lack of venue. I cannot agree, however, that a gas producer's application for a certificate of public convenience and necessity can be rejected without the full adjudicative hearing to which 7 of the Act entitles him. My reasons are substantially those expressed in Judge Breitenstein's opinion for the Court of Appeals. 317 F.2d 796, 804-807. [377 U.S. 33, 46]