United Gas Pipe Line Company v. Memphis Light, Gas and Water Division/Opinion of the Court

We review a judgment of the Court of Appeals for the District of Columbia Circuit which directed the Federal Power Commission to reject certain rate schedules for natural gas filed with it by petitioner United Gas Pipe Line Company (United) under § 4(d) of the Natural Gas Act of 1938, 52 Stat. 821, as amended, 15 U.S.C. § 717 et seq., 15 U.S.C.A. § 717 et seq.

United, a regulated natural gas pipeline company, supplies gas to Texas Gas Transmission Corporation (Texas Gas), Southern Natural Gas Company (Southern Gas), and Mississippi Valley Gas Company (Mississippi), under a number of long-term service agreements made and filed with the Commission prior to September 30, 1955, each of which contains the following pricing provision:

'All gas delivered hereunder shall be paid for by Buyer under     Seller's Rate Schedule (the appropriate rate schedule      designation is inserted here), or any effective superseding      rate schedules, on file with the Federal Power Commission. This agreement in all respects shall be subject to the     applicable provisions of such rate schedules and to the      General Terms and Conditions attached thereto and filed with      the Federal Power Commission which are by reference made a      part hereof.' (Italics supplied.) On September 30, 1955, United, proceeding under § 4(d) of the Natural Gas Act, filed with the Commission new rate schedules, together with supporting data, increasing its prices for gas as of November 1, 1955, by amounts estimated to yield total additional annual revenues of $9,978,000 from sales under the agreements here involved and from other sales also subject to the Commission's jurisdiction. Exercising its powers under § 4(e) of the Act, the Commission ordered a hearing as to the propriety of the new rates, and, except as to those relating to sales of gas for resale for industrial use only, suspended their effectiveness from November 1, 1955, to April 1, 1956, the maximum period of suspension authorized by the statute. Thereafter Texas Gas, Southern Gas, Mississippi, Memphis, and others claiming an interest in the proceedings were permitted to intervene, and on February 6, 1956, the Commission commenced the taking of evidence as to the lawfulness of United's new rates under the 'just and reasonable' standard of § 4(e).

On February 27, 1956, this Court announced its decision in United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373, in which it was held that United could not escape a contract obligation to furnish Mobile with natural gas at a single specified price for a term of years by unilaterally filing an increased rate schedule under § 4(d) of the Natural Gas Act. Following that decision the respondents in the present case for the first time moved the Commission to reject United's new rate schedules, claiming that their filing constituted an attempt on the part of United to change unilaterally the terms of its service agreements with Texas Gas, Southern, and Mississippi, and that such an attempt ran afoul of our decision in Mobile. Construing these agreements as in effect constituting undertakings by the purchasers to pay United's 'going' rates, as established from time to time in accordance with the procedures prescribed by the Natural Gas Act, the Commission refused to reject United's filings. It distinguished Mobile on the ground that the contract there involved specified a single fixed rate for the gas to be supplied under it which United was contractually foreclosed from changing without the agreement of the purchaser. 16 F.P.C. 19, 15 P.U.R.3d 279.

The Court of Appeals reversed. Accepting for the purposes of its decision the Commission's interpretation of United's service agreements, the Court of Appeals held that nonetheless the Commission lacked 'jurisdiction' to consider under § 4(e) the lawfulness of United's new rate schedules. The court regarded Mobile as establishing that § 4(e) applies only to rate changes whose specific amount has been mutually agreed upon between a seller and purchaser, and that where a purchaser has not so agreed, a rate change can be effected only by action of the Commission under § 5(a) of the Act. Since the rates set forth in United's new schedules had not been agreed to by its customers, the Court of Appeals therefore held that the Commission had no jurisdiction to proceed under § 4(e) to examine them, and that accordingly United's filings under § 4(d) should have been rejected. 102 U.S.App.D.C. 77, 250 F.2d 402. We granted certiorari because of the claim that the Court of Appeals misinterpreted our decision in Mobile, and on the suggestion that its judgment seriously frustrates the proper administration of the Natural Gas Act. 355 U.S. 938, 78 S.Ct. 429, 2 L.Ed.2d 420.

It is apparent that the Court of Appeals misconceived the import of our decision in Mobile. The contract before the Court in that case required United to furnish natural gas to Mobile at a single fixed price of 10.7 cents per MCF (thousand cubic feet) for a period of 10 years. The contract contained no provision for any different rate, or for changing the agreed rate during the term of the agreement. It was argued by United that the Natural Gas Act gave it the right to abrogate this unqualified contract obligation and increase at will its price of gas to Mobile by filing new rate schedules under § 4(d), subject only to the Commission's approval of such schedules under § 4(e). In rejecting that contention this Court held that the Natural Gas Act, unlike the Interstate Commerce Act, 49 U.S.C.A. § 1 et seq., 'evinces no purpose to abrogate private rate contracts as such,' that the Act did not 'empower natural gas companies to change their contracts unilaterally,' and that in this respect regulated natural gas companies stood in no different position under the Act than they would have in the absence of the Act. 350 U.S. at pages 338, 340, 343, 76 S.Ct. at pages 378, 379, 380, 100 L.Ed. 373. Since United had contractually bound itself to furnish gas to Mobile throughout the contract term at a particular price, we held that its obligation could be abrogated only by the Commission, in the exercise of its paramount regulatory authority under § 5(a). Ibid., 350 U.S. at pages 344-345, 76 S.Ct. at pages 380, 381.

The United contract now before us, as construed by the Federal Power Commission and as viewed by the Court of Appeals for the purposes of decision, is vitally different from that in Mobile. On this view of the contract United bound itself to furnish gas to these customers during the life of the agreements not at a single fixed rate, as in Mobile, but at what in effect amounted to its current 'going' rate. Contractually this left United free to change its rates from time to time, subject, of course, to the procedures and limitations of the Natural Gas Act. In such circumstances there is nothing in Mobile which suggests that United was not entitled to file its new schedules under § 4(d), or that the Commission had no jurisdiction to consider them under § 4(e). On the contrary we said in Mobile (350 U.S. at page 343, 76 S.Ct. at page 380):

' * *  * except as specifically limited by the Act, the      rate-making powers of natural gas companies were to be no      different from those they would possess in the absence of the      Act: to establish ex parte, and change at will, the rates      offered to prospective customers; or to fix by contract, and      change only by mutual agreement, the rate agreed upon with a      particular customer. No more is necessary to give full     meaning to all the provisions of the Act: consistent with this, § 4(d) means simply that no change-neither a      unilateral change to an ex parte rate nor an agreed-upon      change to a contract-can be made by a natural gas company      without the proper notice to the Commission. * *  * '

The Court of Appeals therefore erred in reading Mobile as limiting the procedures prescribed by § 4(d) and (e) to instances where the parties by mutual agreement had 'reformed' a rate contract. The reason these procedures were unavailable to United in Mobile was because the company had bargained away by contract the right to change its rates unilaterally, and not because § 4 does not apply to such rate changes whether made pursuant to or in the absence of a contract.

Moreover, we find nothing in the scheme of the Natural Gas Act which would justify the restrictive application which the Court of Appeals' decision gives to § 4(d) and (e). Section 4(c) requires every natural gas company initially to file with the Commission its rates for any 'sale subject to the jurisdiction of the Commission, * *  * together with all contracts which in any manner affect or relate to such rates *  *  * .' Section 4(d) provides for the giving of notice of any change 'in any such rate *  *  * or contract relating thereto *  *  * ' by finding new rate schedules with the Commission and keeping them open for public inspection. And § 4(e) authorizes Commission review of the lawfulness of any such changed rate. The record before us affirmatively shows that United in the filings here at issue has complied with all the duties which these sections in terms impose upon it, and there is nothing in these sections which even remotely implies that § 4(d) and (e) procedures are applicable to the filing and review of only those rate changes whose amount has been agreed upon by the seller and buyer.

The important and indeed decisive difference between this case and Mobile is that in Mobile one party to a contract was asserting that the Natural Gas Act somehow gave it the right unilaterally to abrogate its contractual undertaking, whereas here petitioner seeks simply to assert, in accordance with the procedures specified by the Act, rights expressly reserved to it by contract. Mobile makes it plain that '§ 4(d) on its face indicates no more than that otherwise valid changes cannot be put into effect without giving the required notice to the Commission.' 350 U.S. at pages 339-340, 76 S.Ct. at pages 378. (Italics supplied.) The necessary corollary of this proposition is that changes which in fact are 'otherwise valid' in the light of the relationship between the parties can be put into effect under § 4(d) by a seller through giving the required notice to the Commission. Mobile expressly notes that in the absence of any contractual relationship rates determined ex parte by the seller may be filed under § 4(d). 350 U.S. at page 343, 76 S.Ct. at page 380. We perceive no tenable basis of distinction between the filing of such a rate in the absence of contract and a similar filing under an agreement which explicitly permits it.

Thus Mobile, properly understood, affirmatively establishes United's right to proceed under § 4 in the circumstances of this case. As we there said, 'The initial rate-making and rate-changing powers of natural gas companies remain undefined and unaffected by the Act.' 350 U.S. at page 343, 76 S.Ct. at page 380. United, like the seller of an unregulated commodity, has the right in the first instance to change its rates as it will, unless it has undertaken by contract not to do so. The Act comes into play as to rate changes only in (1) imposing upon the seller the procedural requirement of filing timely notice of change, (2) giving the Commission authority to review such changes, and (3) authorizing the Commission, in the case of rates for sales of gas for other than exclusively industrial use, to suspend the new rates for a five-month period and thereafter to require the posting of a refund bond pending a determination of the lawfulness of the rates as changed. (See § 4(d), (e), at note 3, supra.)

It seems plain that Congress, in so drafting the statute, was not only expressing its conviction that the public interest requires the protection of consumers from excessive prices for natural gas, but was also manifesting its concern for the legitimate interests of natural gas companies in whose financial stability the gas-consuming public has a vital stake. Business reality demands that natural gas companies should not be precluded by law from increasing the prices of their product whenever that is the economically necessary means of keeping the intake and outgo of their revenues in proper balance; otherwise procurement of the vast sums necessary for the maintenance and expansion of their systems through equity and debt financing would become most difficult, if not impossible. This concern was surely a proper one for Congress to take into account in framing its regulatory scheme for the natural gas industry, cf. Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 603, 64 S.Ct. 281, 88 L.Ed. 333, and we think that it did so not only by preserving the 'integrity' of private contractual arrangements for the supply of natural gas, 350 U.S. at page 344, 76 S.Ct. at page 380 (subject of course to any overriding authority of the Commission), but also by providing in § 4 for the earliest effectuation of contractually authorized or otherwise permissible rate changes consistent with appropriate Commission review.

What has been said disposes of the question whether anything in the Natural Gas Act forbids a seller to change its rates pursuant to § 4 procedures simply because its customers have not agreed to the amount of the rate as changed. There remains the question whether United's service agreements reserved to it the power to make rate changes in this manner. The Commission found that the agreements so intended, but on its view of the case the Court of Appeals found it unnecessary to decide the question. We think it would be both unnecessary and dilatory for us to remand the case to the Court of Appeals for consideration of that issue, which involves matters peculiarly within the area of the Commission's special competence and as to which we could hardly be aided by a further examination of the record by the Court of Appeals. Indeed neither side suggests such a course, even alternatively, both asking us to decide the case in its present posture.

After scrutinizing the record we are satisfied that the Commission's determination as to the meaning of the service agreements here involved was amply supported both factually and legally. There is no necessity for us to embark upon a detailed discussion of the various contentions made by the parties, none of which appears to have been overlooked or misapprehended by the Commission. It seems sufficient to say that the record shows that these agreements are typical of the 'tariff-and-service' arrangements contemplated by Commission Order No. 144, 18 CFR § 154.1 et seq.; that until this case no one connected with the industry seems to have thought that agreements of this sort precluded natural gas companies from changing their rates in accordance with and subject to § 4(d) and (e) procedures; and that the respondents' present contrary contentions had their sole genesis in a mistaken view of our decision in the Mobile case. Beyond this, we find nothing in these agreements, as interpreted by the Federal Power Commission, which is hostile to any of the provisions or purposes of the Natural Gas Act.

For the reasons given we hold that the Court of Appeals was in error in concluding that in the circumstances of this case United could not proceed to change its rates by filing under § 4(d) of the statute.

Reversed.

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

Mr. Justice DOUGLAS, with whom THE CHIEF JUSTICE and Mr. Justice BLACK concur, dissenting.