United Gas Improvement Company v. Callery Properties, Inc. (382 U.S. 223)/Opinion of the Court

The Federal Power Commission in 1958-1959 granted unconditional certificates of public convenience and necessity to numerous producers of gas in south Louisiana, the sales contracts of the producers calling for initial prices ranging from 21.4 cents to 23.8 cents per Mcf. After deliveries commenced under those contracts, consumer interests challenged the orders in various courts of appeals. The Court of Appeals for the Third Circuit sustained the Commission's action (United Gas Improvement Co. v. Federal Power Comm'n, 3 Cir., 269 F.2d 865) but we vacated the judgment (Public Service Comm'n, of State of New York v. Federal Power Comm'n, 361 U.S. 195, 80 S.Ct. 292, 4 L.Ed.2d 237) for reconsideration in light of Atlantic Refining Co. v. Public Service Comm'n (CATCO), 360 U.S. 378, 79 S.Ct. 1246, 3 L.Ed.2d 1312; and the other courts of appeals did likewise.

The Commission thereupon instituted an area rate proceeding for south Louisiana and consolidated the remanded cases with that proceeding. 25 F.P.C. 942. It advised the producers of their potential obligation to refund any amounts eventually found to be inconsistent 'with the requirements of the public interest and necessity' under § 7 of the Natural Gas Act, 52 Stat. 824, as amended, 15 U.S.C. § 717f. 27 F.P.C. 15. Later the Commission in the interest of expedition severed the present group of applications and set them for a hearing in a consolidated proceeding under § 7. 27 F.P.C. 482. At the end, the Commission imposed two conditions on the certificates granted in these cases. First, it provided that the producers commence service at 18.5 cents per Mcf., plus 1.5 cents tax reimbursement where applicable, a price that it found to be 'in line' with prices for Commission-certificated sales of gas from the southern Louisiana production area under generally contemporaneous contracts, 30 F.P.C. 283, 288-289. Second, it provided that until just and reasonable area rates are determined for south Louisiana, or until July 1, 1967, whichever is earlier, the producers shall not file any increased rates above 23.55 cents, the level at which rate filings might trigger increased rates by other producers under the escalation provisions of their contracts with the pipeline companies here involved. 30 F.P.C. 283, 298.

In addition, the Commission ordered the producers to refund to their customers the amounts in excess of the proper initial price which they had already collected under the original certificate. 30 F.P.C. 283, 290.

On review the Court of Appeals held that the Commission erred in limiting producers to an initial 'in-line' price without first canvassing evidence bearing on the question of what would be a just and reasonable price for the gas. It further held that the Commission had no power to place an upper limit on future rates that a producer might file. Finally, the Court of Appeals, while upholding the power of the Commission to order refunds, held that the measure of such refunds was not to be the difference between the 'in-line' price and the original contract price, but between the latter and the just and reasonable price subsequently to be fixed. 335 F.2d 1004. We granted certiorari, 380 U.S. 931, 85 S.Ct. 935, 13 L.Ed.2d 820. We reverse the Court of Appeals.

We think the Commission acted lawfully and responsibly in line with our decision in the CATCO case where we held that it need not permit gas to be sold in the interstate market at the producer's contract price, pending determination of just and reasonable rates under § 5, 52 Stat. 823, 15 U.S.C. § 717d. 360 U.S. 378, 388-391, 79 S.Ct. 1246, 1253-1255. Rather, we held that there is ample power under § 7(e), to attach appropriate protective conditions. And see Federal Power Comm'n v. Hunt, 376 U.S. 515, 524-527, 84 S.Ct. 861, 866-868, 11 L.Ed.2d 878. The fixing of an initial 'in-line' price establishes a firm price at which a producer may operate, pending determination of a just and reasonable rate, without any contingent obligation to make refunds should a just and reasonable rate turn out to be lower than the 'in-line' price. Consumer protection is afforded by keeping the 'in-line' price at the level where substantial amounts of gas have been certificated to enter the market under other contemporaneous certificates, no onger subject to judicial review or in any way 'suspect.' We believe the Commission can properly conclude under § 7 that adequate protection to the public interest requires as an interim measure that gas not enter the interstate market at prices higher than existing levels. To consider in this § 7 proceeding the mass of evidence relevant to the fixing of just and reasonable rates under § 5 might in practical effect render nugatory any effort to fix initial prices. We said in CATCO that § 7 procedures are designed 'to hold the line awaiting adjudication of a just and reasonable rate' (360 U.S., at 392, 79 S.Ct., at 1255), and that 'the inordinate delay' in § 5 proceedings (360 U.S., at 391, 79 S.Ct., at 1255) should not cripple them.

The second condition which temporarily bars rate increases beyond 23.55 cents per Mcf., was likewise aimed at keeping the general price level relatively constant pending determination of the just and reasonable rate. We noted in Federal Power Comm'n v. Hunt, supra, 376 U.S., at 524, 84 S.Ct., at 867, that 'a triggering of price rises often results from the out-of-line initial pricing of certificated gas' and that the possibility of refund does not afford sufficient protection. And see Federal Power Comm'n v. Texaco Inc., 377 U.S. 33, 42-43, 84 S.Ct. 1105, 1110-1111, 12 L.Ed.2d 112. We think, contrary to the Court of Appeals, that there was ample power under § 7(e) for the Commission to attach these conditions for consumer protection during this interim period though the certificate was not a temporary one, as in Hunt, but a permanent one, as in CATCO and Federal Power Comm'n v. Texaco Inc., supra.

The 'in-line' price of 18.5 cents is supported by the contract prices in the south Louisiana area that were not 'suspect,' and the selection of 23.55 cents beyond which a price increase might trigger escalation reflects the Commission's expertise.

We also conclude that the Commission's refund order was allowable. We reject, as did the Court of Appeals below, the suggestion that the Commission lacked authority to order any refund. While the Commission 'has no power to make reparation orders,' Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 618, 64 S.Ct. 281, 295, 88 L.Ed. 333, its power to fix rates under § 5 being prospective only. Atlantic Refining Co. v. Public Service Comm'n, supra, 360 U.S., at 389, 79 S.Ct., at 1254, it is not so restricted where its order, which never became final, has been overturned by a reviewing court. Here the original certificate orders were subject to judicial review; and judicial review at times results in the return of benefits received under the upset administrative order. See Securities & Exchange Comm'n v. Chenery Corp., 332 U.S. 194, 200-201, 67 S.Ct. 1575, 1579-1580, 1760, 91 L.Ed. 1995. An agency, like a court, can undo what is wrongfully done by virtue of its order. Under these circumstances, the Commission could properly conclude that the public interest required the producers to make refunds for the period in which they sold their gas at prices exceeding those properly determined to be in the public interest.

We think that the Commission could properly measure the refund by the difference between the rates charged and the 'in-line' rates to which the original certificates should have been conditioned. The Court of Appeals would delay the payment of the refund until the 'just and reasonable' rate could be determined. We have said elsewhere that it is the duty of the Commission, 'where refunds are found due, to direct their payment at the earliest possible moment consistent with due process.' Federal Power Comm'n v. Tennessee Gas Transmission Co., 371 U.S. 145, 155, 83 S.Ct. 211, 216, 9 L.Ed.2d 199. These excessive rates have been collected since 1958; under the circumstances, the Commission was not required to delay this refund further. And the imposition of interest on refunds is not an inappropriate means of preventing unjust enrichment. See Texaco, Inc. v. Federal Power Comm'n, 5 Cir., 290 F.2d 149, 157; Philip Carey Mfg. Co., Miami Cabinet Division v. National Labor Relations Board, 6 Cir., 331 F.2d 720, 729-731.

Reversed.

Mr. Justice FORTAS took no part in the consideration or decision of these cases.