UNITED GAS CO. v. MEMPHIS GAS DI
Legal provision: Natural Gas, or Natural Gas Policy Acts
Argument of Rankin
Chief Justice Earl Warren: Number 23, United Gas Pipeline Company, Petitioner, versus Memphis Light Gas & Water Division, et cetera, Number 25, Federal Power Commissioner, Petitioner versus Memphis Light Gas & Water Division, et al and Number 26, Texas Gas Transmission Corporation, Southern Natural Gas Company, Petitioners, versus Memphis Light Gas and so forth.
Mr. Solicitor General.
Mr. Rankin: Mr. Chief Justice, may it please the Court.
The issue in this case is whether under the decision of this Court in Mobile, a natural gas company may file schedules changing its rates unless it has a specific agreement in regard to the amount of those rates although it has reserved the right in its agreement to file such schedules under the statute subject to the Commission's approval.
The United Gas Company pipeline filed such schedules on September 30th, 1955, materially increasing the rates, changing the rates that it had under a contract.
The Commission found that it had the power to file such schedule to change rates by reason of the terms of its contract and the reservations that it had made under that contract for that power and rejected the Motions of the respondents to reject such filed rates which motions were on the ground that Mobile prohibited the filing of such rates unless there was an expressed agreement to the specific level of the rates.
The Court of Appeals reversed this action of the Commission I might say first, was taken after the rates were filed and suspended after the 30-day period, all of the rates, except those that were only industrial.
The rest of them were suspended in accordance with Section 4 (e) for the five months period and then they were subject to refund under that statute.
The Court of Appeals held that there was no right to file even though they accepted the construction for the purposes of this case of the Commission of a contract between the parties and that the reservation did provide for such filing.
The Court held that unless there was an agreement to the specific rate that was filed, that Mobile prohibited the filing and therefore, reversed the decision of the Commission.
Now, the agreement that is involved is set out on page 7 of our brief and it is crucial to this controversy.
We think that in light of the Commission's action and the Court of Appeals' acceptance for the purposes of this case of that construction or finding by the Commission that this Court should accept that it's supported by substantial evidence in the case.
And therefore, the agreement should be found like the Court -- as the Commission found it and that filing should be accepted by this Court.
But the language and the question of the defect of a language is raised as one other points by the respondents and we therefore would like to call to your attention partially.
The language that is of particular importance in this question is the fourth line “or any effective superseding rate schedules on file with the Federal Power of Commission.”
It's a question of what effective superseding rate schedules where any on file with the Federal Power of Commission mean.
The United contends that that means not only the rate schedules that were filed on a particular day of this agreement, but any that would be filed superseding or taking their place under the provisions of the Act, Section 4 (d) and that that where the Respondents said that they will pay which is in the first line, for the gas delivered shall be paid for by the buyer under the seller's rate schedules and such superseding schedule.
Chief Justice Earl Warren: Apart from, excuse me, apart from the reference to the rate schedule, was there any specific price referred to in the contract?
Mr. Rankin: The contract was a part of the tariff-service agreement rate schedules that the Commission developed.
It started back in 1940, but later largely after 1945 -- 1948 and the Order 144 that it promulgated at that time.
And the concept of that program of rate schedule was to have the rates set out in a tariff schedule and then in the service agreement that was made with all of the contracting customer, they would refer to that rate schedule, but the rates could not be set up as such in the service agreement with the idea that if they put them in the service agreement, there would be a tendency to make individual rates in every case.
And the purpose of Order 144 and that system of rate program was to try to have the rates effective as to areas and not as to individuals customers and the purpose behind that was to get away from the discrimination and preferences that had been discovered throughout the various industry hearings that the Commission had dealt with.
And they thought by having the rates in the separate tariff and the changes in the rates in separate tariffs, then the Service agreement would be made with the customers and refer to those rates would not have a separate individual rate for every separate customer and each customer would not have to look to every other service agreements to see whether someone else in similar situation had a better deal than he did so he could raise the question of preference.
Justice John M. Harlan: Were those services being (Inaudible) which just means as I remember the time in the Mobile case --
Mr. Rankin: That's right.
Justice John M. Harlan: And my question is, was there -- as there was in the Mobile contract, a special rate as distinguished from the rate that was prescribed in the ordinary tariffs that were en banc.
Mr. Rankin: No, the Mobile contract was distinctly different.
And there were some 18 contracts of that type that were filed with the Commission and those had a specific rate and no provision in the service agreement or the contract for any change whatsoever.
Now, this contract started out before 1948 with a -- an agreement between the parties for service and it also had detailed escalation provisions which are known in the trade as provisions for price increases based upon this difference in tax rates that are assessed or cost of living or anything of that type.
And they were specific in contemplating flexible rate structures that will be adjusted from time to time as changes in cost developed.
Now, in order to get away from some of these problems, the preference and discrimination and these escalation provisions -- the escalation provisions that they developed in the industry and the difficulty the Commission had to determine what the rate structures were and how the discriminations occurred and who they affected, the Commission decided to try to develop this tariff-and-service agreement program and they tried started out in 1940 with it the war and interrupted it and it was until 1948 that they could really develop and put it into effect.
But for example, here is a group of contracts and there were six files of this type that for United alone, the gas pipeline involved in this case.
Now, in order to try to find out if you're a rate expert, what your particular customer might be involved in with regard to whether some customer in the same group of area and type of the same rate in fact would be entitled to and so that you would find out whether the discrimination of preference against to your customer.
And you would have to go through all of these and try to find out, compare all these contracts and if that involve not only the rate itself but the time of delivery and the place of delivery and different differentials that would be involved in negotiation and the amount of gas that was furnished.
Then you'd also have to look at the supplements which for certain rates and provisions of that type, were replaced and would have to go through all of that kind of procedures in order to find out what the situation was that you've raised.
Now, it was so bad that with the -- the Panhandle Eastern, they developed gas shortage and it was a question of how they were going to supply all of these customers and what their relationship should be to eliminate the discrimination and preferential treatment that would be involved if they didn't treat them on a fair basis.
So, the Commission had that problem to determine how to handle prior to 1948 when they involved this tariff-and-service agreement system.
And in trying to deal with that, they found many, many preferences within discriminations that had developed, that had not come to light before that at all, but as soon as the shortage developed, then the customers all came and said, “Well, how this happened that my situation is like this other one and that was comparable?”
And they had to go through the whole system and reallocate to eliminate the preferences and discriminations that had developed.
And there were -- there was another case, a similar kind where they discovered it only after 5 (a) hearing the discriminations and preferences that occurred.
Now, under this tariff-and-service agreement system, we have a file like this that the customer or a rate expert can look at.
And he can determine and see what the schedule is in one place above the tariff provides for the rates and then there is -- at the back, a listing of every customer and what rate it is sold out and then there's a type of service agreement that is set out in the tariff's schedule.
That is the only service agreement that the pipeline can use to sell his gas unless he gets special permission on a regulation from the Commission and can show a reason why the service agreement should be different for this particular sale.
And you can see what difference that make the way the expert turn at the back, he can see what other customers that are comparable sold out, he can turn to this tariff schedule and he can turn it to the service agreement and he can find out exactly what his customer is getting, what he should get in order to be fairly treated along with other comparable cases.
Now, that is basic to the problem in this case.
First, however, I'd like to turn to the -- what Mobile held.
As we understand Mobile, it did not at all that there had to be any agreement to a specific rate in order to file under 4 (d) or 4 (e).
What we believe Mobile held was just this, that it did not set aside contracts and if you had a contract that provided that your rate was -- I think it was ten-seven-tenth cents the file in cubic feet in that case, and you have no provision for a change of that rate and you had it for 10-year period that the Act did not say you had any right to change it.
That's entirely and solely what that case held.
The case also held that you could have ex parte rates and that if you -- as we read it, if you had any provision for changes, you go back to the contract law separate apart from the Act and if under contracts, you have a right to make a change, you still have that under the Act.
The Act did not add anything to it except the right of review in order that the Commission could protect the public interest under 4 (d) and 4 (e).
One further thing we read in to the act is that of 4 (d) and 4 (e), the test of what is lawful is the same as under 5 (a) in that -- that the same structure and they have to be read together.
Commission so interprets it and so applies it.
It's also a question of -- there are some question raised in the case as to whether there's a different rule applied and whether there's an advantage to the consumer if you forced the examination of the rate under 5 (a).
Now, you recall that 4 (d) and 4 (e) is an entirely different structure.
It provides for jurisdiction in the sense of rate fixing and the rates can be filed, the schedule of rates under 4 (d) and 4 (e), there has to be a notice as this Court said in Mobile and then the Commission can consider during that period of time after the filing of notice whether or not with the showing that's made, the rate should be suspended or should be allowed to go into effect and they go in to effect at the end of 30 days if the Commission does not act.
And they go in to effect that this Court said in Mobile because of the contract between the parties or because the gas company files a rate and they do not going to affect because of the Act itself.
Then after that happens, the Commission may suspend the rates and set a hearing and that's what it did in this case.
And during that hearing, under its regulations, it requires that the burden fall upon the -- the person who files the rates to prove that they -- the proposed rates are not unjust, unreasonable, unduly discriminatory or unduly preferential and that's the test.
And in effect, the Commission always applies that test to determine whether or not it's -- the rates are lawful, applies them back against the structure of rates before and determines whether or not under that test, they are the lowest rates that will make a fair return plus the cost of doing business.
And it is construed as a pin point as distinguished from a general area of rates that might be fixed.
Well, that's what we think that Mobile means.
Now, the experience of the industry was that except in rare cases like Mobile made such contracts that I just referred to, the industry recognized there had to be some flexibility to rates.
By the nature of the industry, there had to be some type of long-term contracts because the investments were very great in these long pipelines over the country and it required large engagement of capital.
It also required some permanency to the relationships with the distributors because they involved themselves in substantial investments to provide this service.
So in light of that, contemplation of long-term agreements between the parties, there had to be -- it was recognized there had to be some provision for flexibility in rates to take care of the different costs and different levels of cost of doing businesses, cost of all kinds of materials and labor changed from time to time.
There also had to be some kind of a provision that would encourage capital to invest in this industry and provide the necessary funds for expansion as the country grew and needed the development of additional pipeline carrying capacity in order to take care of the distributor's needs for the various suburban developments that have been characteristic of this country from before the war period -- before it interrupted in ever since to very rapid manner.
Now, there have been substantial rate increases asked by these companies.
In every case, the Commission has suspended the rates and set them for a hearing in order to look at the consumer interest and seeing if the rate was proper and lawful under the test.
But I'm here to say that, I think this Court under its decisions in the past and in this case, must be interested as they access first in the consumer.
That the consumer also has the interest in the ability of these companies to perform their contracts and to meet the demands of this country in its growth and if they cannot continue to receive the capital and attract capital that is needed for the growth by getting a fair return, then the country is hurt, the consumer is hurt and that is part of this picture that we must look at in considering this case.
The most important element of this case to the Commission is the effect that it has upon the structure that it has created of these separate tariff and separate service agreement structure of rates.
I'll tell you why that is.
No agency of Government has enough money to do all the jobs that's given to it by Congress and time after time, this Court has seen that it has the ability to only do so much of that job.
So that, whatever funds it has, if it's going to regulate properly and in the interest of the country, it has to use to the greatest advantage.
And any system of rate structure that is as much as possible self-enforced and self-regulatory that it puts up sign posts and warning signs to the customers and the public generally of what -- of whether discriminations which are prohibited by this Act, undue discriminations and undue preferences, any place that you can have those sort of the customer can come along and say, “Here, how did this happen?
They can't do that to me.”
Instead of the Commission have to dig it up through a labyrinth of papers and before we had a situation where there were some 8,000 pages of these contracts as against some 388 pages, that's the kind of a situation that this tariff-and-service agreements program of rate structure developed as contrasted with the old contract system.
Now, it's argued by the respondents, well, this whole situation can be taken cared of.
You can still file under 4 (d) and have it heard under 4 (e) if you get an agreement and you ought to be able to get an agreement on the rate from everybody.
There shouldn't be too much trouble about that, but I have tried to carefully examine this and I don't believe that's true.
I don't think that you can get the agreement unless the parties are in rather considerable parity as to their bargaining positions.
Now, you must keep in mind under 4 (d) and 4 (e), the rates are suspended.
There is a refund provision except as to industrial and I will cover that in a moment, but otherwise, those rates are paid all during the interim.
Under 5 (a), if the rate is established there, it's only prospective.
It can't cover the back period.
Now, you take the distributor who doesn't want to expand his operation, is satisfied with the -- with the gas that he is getting, there is every interest in the world for him to not agree to anything.
Because he's says, it's their contention, you go under 5 (a) at that point, you can't file under 4 (d) and if it takes 2 years, 3 years, 18 months, whatever you can chase it down to and it's been as much as six years to have a 5 (a) hearing.
Let's say you can get them cut down further 18 months, during that 18-month period, while the cost of doing business is going up with the gas pipeline and all the cost of labor and living and materials and so forth, the Commission can't do a thing about it.
It can only make a rate that starts from the day that that hearing into it fixes it.
It can't even go back to the dates where they started the hearing and fixed the rate.
So, you would never get an agreement with the distributing company and that's the kind of situation unless you wanted to extend this operation.
Now, you can trade out in that kind of a case.
Possibly, the fact that you got additional gas and wants to have another development, you could take care of and other factors of that kind if you can find it, but in every case, you couldn't even find those.
In some cases, the distribution company would be a better trader than others then what will you have?
You will have the to follow that has no reason to trade out if you make some agreement of any kind or very little and finally does and you file under 4 (d) and 4 (e), you will have the one that has reason and he makes a different rate and you will have all kinds of rates involved all over the place.
And then you will have to go under a 4 (e) hearing to try to straighten out all those preferences and discriminations that have been built by this old contract method of arriving at rates.
And it is -- will be very destructive of trying to protect the consumer interest and trying to have this picture uniform.
Not that everybody pays the same rate, but everybody that's in the same area or group where there isn't a good reason for him to pay a different rate gets the same rate.
And it does help the Commission by the people in the industry working at it to get rid of this discrimination better than any other idea that has been now developed.
Now, there is another -- in regard to industrial rates, I would like to cover that matter.
The statute does not provide for the suspension of industrial rates as such if the rate is set as to industry, there is no provision for suspension.
If it covers both industry and other rates, then, the Commission has always taking position that it is a suspendable rate and the greatest portion of the gas that's subject to the jurisdiction of the Commission is sole suspendable, not non-suspendable rates.
Justice Felix Frankfurter: Do you mean the tariff includes both?
Mr. Rankin: Yes.
But, there is no provision for suspending those that are called industrial only.
Now, that is an important factor, but it isn't anything like it just appears to be claimed in response brief and I think they must misconceived it in the way they have urged it because --
Justice Felix Frankfurter: Would you mind stating again the incidence of exclusively industrial rates where they're not suspendable in the whole network of the industry rate of prices.
Mr. Rankin: Any industry --
Justice Felix Frankfurter: Not -- not the law but the practicality.
Mr. Rankin: The practicalities of it are that there are several --
Justice Felix Frankfurter: In -- in quantity --
Mr. Rankin: Yes.
There are seven companies engaged in only industrial rates.
They amount at the present time to approximately 2%, I think a little less than 2% of the whole jurisdictional structure of rates.
So that approximately 98% of the rates are suspendable jurisdictional rates and only 2% are these that are non-suspendable.
Now, I'll tell you another thing about those.
Why does anybody buy that kind of a rate?
The Commission has urged for years almost since the Act was passed in 1938 that they changed this to make those rates suspendable and if the League of Municipalities and some of the industries would come forward and help, I'm certain they'd get a change, but there's a good reason why at least the industries don't.
You take the Pacific Northwest that's referred by -- to -- by response in their brief and you will find that there was a rate of two cents per -- per term and it was proposed to increase that rate to two-and-a-half cents per term for these various industries.
The suspendable rate was, as I recall three cents and it was proposed to increase it to three-and-eight-tenths.
Now, the toll in the industry that had bought the two or that was going to increase to two-and-a-half, could pay during the non-suspension period at the increased rate and be way ahead of paying the suspendable rate and that's apparently true throughout the industry.
Now I don't want to represent this always through because I haven't searched the whole picture as to whether it all fits that way, but it looks like it -- that is the picture and I can readily understand why anybody that's buying gas on that kind of a basis doesn't come in and urge --- that be suspendable because what he is doing, it's just like when you buy insurance or any other commodity, you're buying a different commodity and you're getting a better rate because you don't have the suspendible provision.
He takes the risk of whether or not it's going to get a price increase and -- in many and most cases he would have opportunity to take the suspendible provision at the same time.
And he chooses deliberately and purposely to make the other type of contract because he'd better off and he's got a cheaper cost for his gas even though it's not suspendible during that period.
Now throughout this growth of this industry and it has been rapid, it has been recognized that there has to be a flexible rate.
There has to be some provision or changes and modifications of the rate structure as the pipelines and distribution systems and other gas services people developed and have greater needs in the community, and also to take care of the costs of doing business and practically without exception, they always provide it for this escalation clause as I have described it.
Now, the Commission determined when it developed in 1948, this rate structure, the tariff-and-service agreement, they wanted to get away from these escalations provisions and a part of that was that there would be -- there was a recognition in the industry that with those clauses, generally, the customer could not come in and resist or object to the proposed rates at the hearing because he'd already agreed to him.
He got -- the provision in the contract.
So, the Commission was going to eliminate them entirely in 144 proceeding and United objected to that, and said that they thought that would be a change in their substantive rights.
And, the Commission said, it was not trying to change substantive rights in that proceeding which is a regulation proceeding.
It wasn't a place for -- it should be changed in substantive rights and they provided that there could be a reservation of the right under certain conditions to change the rate and make a filing under the provisions of Section 4 (d) and by that, they also, by the Order number 144, they generally eliminated the escalation, but they expressly provided for this provision that they couldn't revive their rates and it would be subject to Commission review.
Now, the Commission when it reviews these rates, is not arbitrator or deciding a controversy between the pipeline and its distribution company as private parties.
It's deciding what in the public interest is a lawful rate and it was applied the statute for that purpose.
So, it isn't in any way acting in the ordinary sense of trying to determine what the best rate is for these two companies to pay each other.
Of course this Court has said that mustn't the primary interest of the statute termed by Congress is to keep in mind the consumer that he is the primary interest.
And so, in passing in 4 (e) or 5 (a), as I've told you the Commission applied exactly the same principles and standards.
It has to determine as a regulatory body for this in the public interest as a lowest reasonable rate as lawful that can be applied and, that's his function and that's what it does.
So that -- and one other thing I would like to cover and I want to reserve some of my time and that is, in regard to the independent producers.
Suggestion is made that the Commission is not acting as, maybe it should or in the best faith, in regard to the independent producers.
Now, I want to tell the Court upon careful inquiry to the Commission that I have been advised, they are acting under the Philips' case, there is no question may be accepted and followed.
They're following the City of Detroit to do it and they're trying as rapidly as they can to meet the problem of the regulation of independent producers.
There isn't any question as this Court -- Court well recognized in the Philips' decision that there's got to be regulation of that level in order to protect the consumer interests, otherwise we just keep on spiraling up in that point, but the problem has been great.
They have over 11,000 balances of independent producers that they have suspended.
They're trying to work them through as fast as they can.
They have increased their force 50%.
They've gotten approval from the budget to do that.
Why don't they increase it more?
It's impossible because, it takes lawyers, great experts and engineers and people of that kind who have some knowledge to help them with their work and they recruit them as fast as they can.
Now they hope that at least by 1961 and they're working at it as fast as they can, they'll have that out of the way and they looked forward to the system like this of the tariff-and-service agreement structure of regulation in that area as soon as they can get on top of the situation that way, so that it will help to regulate itself in the same manner.
I would like to reserve the rest of my time.
Argument of Ralph M. Carson
Mr. Ralph M. Carson: Mr. Chief Justice --
Chief Justice Earl Warren: Mr. Carson.
Mr. Ralph M. Carson: -- may it please the Court.
On behalf of petitioner Natural Gas and Pipeline; United Gas Pipeline Company, Petitioner in number 23, I would like to speak in subordination to the solicitor General presentation because his client of the Federal Power Commission is very much in control of the Interstate operations of this petitioner as all other pipelines and Interstate suppliers of Natural Gas for resale, but at the same time I would like to devote myself if I may upon his shoulders because in this petition and our request for reversal of the Court below, we speak for a commercial interest with great importance, not only to ourselves as we can see, but to the gas consuming public and the industries who would use this pipe or fuel.
United Gas Pipeline itself, one of the larger transporters of natural gas interstate, it has 24,000 miles of transmission; it sells gas and other line.
It sells gas at wholesale only and the single fact of this case and agreements of all consumers represented by briefs file before the Court, it has had to pay and on is increasing prices for natural gas since the early forties, none an unusual thing.
A fuel is so valuable as characterized by Justice Jackson in the Hope case, which has been adapted now to so much residential and so much industrial consumer use of all kinds by the Interstate pipeline that have --- the country through miracles of technical adaptation.
If not wonderful that this limited supply despite explorations, constant and expensive exploration has resulted in the constant bidding of the price of gas and field, so that in the relatively static -- when in -- as against the relatively static stage of the industry, say in the early 1940s just after the enactment of the Natural Gas Act, a field competitive price with 3 or 4 cents per thousand cubic feet.
Today it's running up to 24 and 25 cents per thousand cubic feet.
And that's simply because people want it and because there's no way of controlling finally the price of a valuable commodity in short supply.
Now, through pipelines of this petitioner, their flow annualized over last year the incredible volume of 1,250,000,000,000 cubic feet of natural gas and other pipelines are as large and many are almost as large, so that the cost of constantly replacing this wasting asset, in exploration is a (Inaudible) and hence, rate increases.
We make no apology for the fact, and that the proceeding out of which the present motion to dismiss and reject filings arose was an application for rate increase.
It has been succeeded by other necessary applications for which I'll speak in a minute.
If I mention to the Court that 1 cent addition for thousand cubic feet for the price of gas means $10 million a year approximately additional cost of service and that 90% of the costs of service are represented in these filings that I will exhibit to the Court is the cost of gas.
You will see why that must necessarily be so.
Now, our case here as I say -- said rests upon the Solicitor General's case, and the tariff and filed service agreement formula that the Commission has, I think it's fair to say, imposed upon the industry.
I think that imposition was no doubt a wise one.
It has facilitated the understanding of the gas charges simplified and made uniform the tariffs, rates and classifications.
But it is a form in which the parties, the parties here, and other pipelines, and natural gas companies whose pricing methods may be affected by Your Honors' decision, it is a practice which has been imposed by Order 144 as of the year 1948.
Your Honors, bear in mind that the Natural Gas Act dates from 1938, you will note that for 10 years, the Commission administered its regulation by requiring the filing of all contractor's rate schedules.
And the Mobile contract which you had before you in 350 United States was one of those originally filed contracts filed and approved as of 1946.
And as intimated in a question from the bench, it was a special contract in that it was a fixed price contract for 10 years filed as a pertinent to a resale contract, also fixed price, to the Ideal Cement Company dependent upon the sale contract and it had no provision for price change of any kind or character.
Now, the decision of this Court in that case concerning which have we have no quarrel whatever here, as we think most inappropriately had been used, or distillations from it I think used, to invalidate a 20-year contract in this tariff-and-service-and-agreement form that I'll enlarge upon in a moment, with language not found in the Mobile case at all.
True, as was intimated, there was in the record and before the Commission, in the Mobile case, a regular service agreement which around 1955 or 1956 has been executed by Mobile, but that was not in question in that case.
The motion to reject, which Your Honors' sustained, was insofar as the increase affected the fixed price contract.
Now, the decision of the Court which is carefully limited to the facts has been by the court below, I think to the great injury of the industry and the public, enlarged to apply to this contract which provides in a service agreement where payment under a designated rate schedule, “or any effective superseding rate schedules on file with the Federal Power Commission.”
Those words or any effective superseding rate schedules have been completely ignored in the construction by the Court, although given their true value by the Commission on the facts to indicate a promise to pay the effective rates from time to time on part, that was the finding of the Commission based on all the evidence, but we are confronted with an application through a misconstruction of Your Honors' decision, which deletes those words from the contract.
Now, may I spend a little more time on the contract because, while the issue here affects at least nine pipeline companies with identical language for change, and the great many others were somewhat similar language, there are special facts in the situation at the United Gas Pipeline Company which are laid hold off by the respondents to argue that those words don't mean what we say.
United Gas Pipeline Company, as the Solicitor General intimated, resisted the new tariff arrangement set forth in Order 144.
It felt that that tariff arrangement, service agreement arrangement, which required the restatement of all contracts, deprived it of substantive contract rights.
Litigation resulted which was tendered to this Court, which resulted in some amendment of the tariff provision and Order 140 -- part 154 of the regulations thus promulgated to permit existing contracts to be restated.
To preserve their special clauses pending their life provided that the filing companies thereafter operated in the tariff-and-service agreement form.
That was done, but the result was that the United Gas Pipeline came late to this system.
So Your Honors will find the first filing which it may the so-called “conversion tariff” appeared in July 1952, and this filing for an increase out of which this motion arises in September 1955 and since then, it's adverted into in my -- brief of my friend's opposite there had been other filings which they label, “unilateral increases.”
It's a ratable most in a year because the price of gas has gone up and we are limited in our filings for rate increases strictly by these regulations to a showing -- a cost showing, building up a rate-base from which a fixed rate of return will yield revenue, distributed on a cost of service allocation to the different rate zone.
Now, here is a picture.
Here is in fact a file of September 1955.
It proceeds by setting forth the new rate schedules and those to purchasers, Your Honors will find in the record.
Then it gives an index, it gives an explanation of the series of the new rates.
It gives three (Inaudible), including a flowchart, and then it gives in great detail as demanded for the regulations that I call your attention, calculations of cost of plant, cost of gas, requirements of an -- return to investors, comparative earnings price ratios, and so on and so on with meticulous detail.
Now, Your Honors, this filing is not a mere dropping at in the Office of the Commissioner or mailing a letter to the Commission as some of our adversaries might incur.
If the Commission staff on examining this finds it does not comply with the form exacted by the regulation, this is rejected out of hand and we're given time to -- to repair the deficiency, the deficiency letter technique is used.
And this filing is not only posted in the Office of the Commission, but it's mailed to all the important large volume purchasers and selected schedules are mailed to all the distributors that purchase from us so that they can comment with knowledge during the Commission's inquiry on -- on filing on the suspended -- in the suspension period.
Now, what are the rate schedules to which this filing and subsequent filings are in amendment as permitted by the statue, and the contract?
They appear in general structure at the beginning of the record, Your Honor.
Those are 1952 rate schedules and I'm informed that they have now been superseded in many respects.
You will note after the first 20 pages, a series of pages called General Terms and Conditions, and then you will find in the general form and in the General Terms and Conditions provisions as to the service agreement on page 44.
And in the tariff separately you will find on page 47 a form of service agreement.
Those are all at their inception cut in combination a complete original tariff and which includes as you will note the form of service agreement or contract between the forms.
Now, to illustrate how those rates of charges which the Solicitor General explained as being uniform and published to the world, articulated with the contract for purchase.
May I ask Your Honors to look at one of the more recent contracts at page 305 of the record which is open to a class.
This rate schedule, at the bottom of the page, is available to any natural gas pipeline company hereinafter called bio and on page 306 you will find the rate for natural gas service as a demand charge and a commodity charge.
I won't take the time to illustrate the different types of rates, but the Commission currently controls the classification of those rates.
And then the rate on page 3 in this generally filed schedule dated 1954 is articulated with a service agreement at page 94 which happens to be that of Southern Natural Gas Company also a petitioner and the service agreement you will note provides the scope of the agreement, delivery point and pressure, volumetric obligations, other matters of negotiations between the parties as to the type of service and on page 970 under Article 4, you will find the article price.
All gas delivered shall be paid for by a buyer on the seller's rate schedule or any effective superseding rate schedules on file with the Federal Power Commission.
Justice Felix Frankfurter: Mr. Carson, what inference (Inaudible) draw (Inaudible)
Mr. Ralph M. Carson: That -- what inference do I wish you to draw from what, sir?
Justice Felix Frankfurter: From your recital for the last two minutes from the --
Mr. Ralph M. Carson: That these forms are prescribed by regulatory authority, exercised under statutory power and that the service agreement is intended to refer so they continue the service agreement in its price clause it refers to the continually changing series of rate schedules.
And -- and so intended by all parties as testified below.
In other words, I direct Your Honor's attention to the peculiar form of this to show that despite the impact of the regulation, it is essentially contractual.
And I avail myself of the extensive treatment of the liberty of the contract of the gas companies in Your Honor's opinion in the Mobile case and particularly, I address myself with the language at page 342 where the Court said that in the Mobile contract, there was no power to change if the purported change is one that the natural gas company has the power to make.
The change is completed upon compliance with the notice requirement and so on.
I say that -- that the parties understood that the filing of a new schedule under -- in connection with the service agreement, especially calling attention to effective superseding rate schedules, embraces just the type of change to which this Court especially left the way open in the Mobile case.
And I contrast that which to me the completely unintended and unintelligible insistence of our adversaries that this Court decided in the Mobile case, there could not be a new rate until the buyer had specifically agreed to the price.
Now, I'm digressing because I let on to Your Honor's inquiry, but in connection with what -- this was -- the Solicitor General said about a rate investigation under Section 5.
May I mention to Your Honors that without any criticism or whatever of the Federal Power Commission by reason of the smallest of its staff, the investigation under G1428 began on October 1948, lasted 10 years and finished last year and the contention of our adversaries is that during that period, our cost study which was necessary, we could not recover the price of gas.
We would be out of business if that was so.
I know that's quite impractical, let me address myself to the other angle.
What would be the sense in asking all the customers of United Gas Pipeline Company to agree to a particular rate change?
Can we ask them to read these two volumes?
Well Your Honors, have an amicus brief offered before you in which the City of Harrisburg says, “It's an imposition on us to make us read those volumes.
We can't understand them.
How can the four pipeline purchasers, the four pipeline transportation customers, the six cities in Alabama, the five cities in Florida, the 14 cities in Louisiana, the 13 cities in Mississippi, the seven cities in Texas, our company's distributors buying directly from us and the 59 cities in Texas buying from the United Gas Corporation gas that we sell with, how can they negotiate new contracts with us in any kind of unison in any reasonable period of time?”
As Mr. General as well said, you can only expect coming to the consensual agreement if there will be an inequality of power.
If for example, the new distributor needs or the consumer needs more gas, I'm told that the contracts affecting the 59 towns in Texas served by United Gas Corporation are in effect although not in terms of requirements contracts.
They can't need more gas in an effective way.
And to deal with each of them would have to deal with each of their city councils, and to deal with each of the communities and purchasers in the other States would have to deal with their State Commissions.
We'll never be through and when we got through, we'll be bound to be the very disparities, the alleged discriminations, the inequalities, the variations of rate zones, the departures from allocated costs which would bring us as Mr. Rankin said, into a Section 4 (e) proceeding to rectify discrimination.
Wholly useless and most injurious alternative and one from which I think we're clearly entitled to be rescued by the terms of our contract.
Now I'd like in the remaining time of my initial presentation to refer to the terms of the contract in connection with the legal -- with the legal analysis and characterization of those terms.
I have referred to Your Honors in our brief and I will not take time now, the controlling process of the regulations which appears in our Appendix, the White Appendix at pages 8 (a) and following, and the portions that I particularly mentioned in connection with the rate increase filing that I've showed to the Court would appear at page 20 (a) and the following in 15463, materials submitted with changes in the tariff.
At page 21 (a), if the proposed change in tariff or rate schedule will result in a major increase in rates or charges, there shall be submitted Statement A to M inclusive described hereafter.
And then omitting other detail, I direct Your Honors' attention to statements A to M beginning at the foot of page 24 (a) beginning with overall cost of service, rate base and return, cost of plant and so on in utmost detail as to which we have no hearing nor complaint.
It's an incident in regulation and running down through statement M.
Now, as I understand, if a filing of this character by inadvertence skips or mishandles anyone of those details is rejected out of hand.
We haven't made a filing yet or initiated a change in rate.
The surveillance is most -- is most exacting.
So, that the intimations in the briefs opposing, this covers industrial waste too, the information in briefs opposing that the rate changing procedure under Section 4 is just the means jacking up rates by writing letters and as soon as one increases refuse to write another letter is quite superficial and oblivious of the true facts.
Now, as this amply disclosed in our briefs, I might add before passing on, there's been information that these regulations may not be binding and the companies perhaps ought not to abide by it.
That affects us because we did our best to protect ourselves against them in 1948 in the litigation I spoke of that's mentioned on our briefs.
Now, we consider they are an entirely valid exercise statutory authority and we're persuaded that the discriminations eliminated had been wisely eliminated by the type of regulation that is now enforced.
But, I call on Your Honors' attention that one of the amicus briefs said that the Mobile case has held it widely, these regulations are invalid.
Hence, that we're contracting in a wholly invalid form which has been imposed upon us for the last 10 years.
And that counsel for one of the respondents in arguing to the Commission below said the same thing at page 1767 of the oral argument which is part of the record or on that printed record.
He said, “Now, it is our strong contention that Section 154, there are parts of it that are not valid under the Mobile decision.
As everybody knows, the Commission was under the impression that the law was different at the time these regulations were put into effect and although they have the force of law, of course they cannot have a force of law if they are in violation of the Act.
This type of contract Your Honors is a well known and long standing form as we see it for the determination and redetermination of price by an external standard.
We've cited cases in our brief.
They've been cited in the number of briefs.
Our adversaries have closely examined them and the best theory say is that true the rule for the determination of price by an external standard exists, but this is not a case for the application of the rule.
Now, we say it is.
We say that this is a perfect case for the application of that well established principle for the reason that we have here a standard erected of just and reasonable erected by the statute.
We have through an initiation of price change by the seller but an initiation addressed to an entire class so there's no choice of person or discrimination against anyone, that's attested here by the courts.
And procedures laid down in Section 4 which puts the eventual price beyond the control of the seller and subject to the influence of the buyer who wishes to comment and argue justness and reasonableness which is the statutory standard and that I ask you, is it to the essence of the contract of this time.
What utility can there be?
In time I had, so our customers who know the most about our rates in their business by consensual acceptance of a stipulated figure so that they cannot contest the justness and reasonableness of the rates in the Commission for the public's benefit.
Or, if they cannot withstand in their ascent to the particular rate, the court below held they have to do, they can come in and contest the justness and reasonableness, what does the ascent mean?
It seems to me a useless time wasting and expensive formality.
If I may call Your Honors' attention to the fact that the case is not cited in our brief has well considered this point in the New York Court of Appeals last year, the Bethlehem Steel case at 2 New York Second 46 456-460 where the court sustained a contract of sale by the Bethlehem Company allowing changes of price by in accordance with increases or decreases in regular prices to all purchasers of plain steel products and the Court said, that did not give the seller undue power of determination of the contract clause citing two of the cases in the Circuit Courts of Appeals on which we have relied.
Justice John M. Harlan: Would you mind giving me that reference again?
Mr. Ralph M. Carson: 2 New York Second Mr. Justice.
It's the new series in New York Court of Appeals 456 and my quotation is at page 460 and that was summary judgment, Bethlehem Steel against Turner Construction.
Ours is a stronger case because we're in the hands of the Commission and we're in no position to say nor is there anybody else here I think that the Commission does not strictly and thoroughly regulate and investigate.
That's the protection of the interest of the consumer under the standards of this Court in the whole case where the fair return and the interest of the investor must also be considered.
I would like to take a few minutes before I sit down to advert one point which is received undue emphasis in the respondent's brief connected particularly with the contract history of my client, United Gas Pipeline Company.
Now, I have said to Your Honors that we had difficulty with this tariff system.
We first tendered a form of tariff, General Terms and Conditions and service agreement in May 1952 which was rejected by the Commission.
There are ensued correspondents between us and the Commission at pages 283-289 of the record concerning that rejection.
As a result of the correspondence and with anxiety to get our rates filed because we were the last to file, we eliminated from the General Terms and Conditions of our tariff certain language which our adversaries say is essential to a change of rate.
We retained, however, that language is at page 289, we retained, however, the language that I'm talking about any effective superseding rate schedules.
Now, our adversaries says, “if at the time you found your tariff, you have both the language now in the agreement and this additional language which talks about a change in price in view of an increase in cost and if you then took out the additional language upon objection, must it not be (a), that you thought the additional language was needed to give you flexibility of rate and (b) that you're taking it out to price of your flexibility.”
And to that, we say not so.
We say, the elimination of the language was due to the fact that it was deemed by the Commission to be an automatic rate escalation of power of increase without control.
We say that because that is what -- those are words contained in the clause.
In the event, an increase in seller's cost and so on seller shall have the right to revise its rate to reflect such change and we say that additionally because our adversaries in opposing the certiorari so construe the language.
They said in their brief which we have quoted at our -- page 15 of their brief, the Commission objected to the quoted provision as an attempt by United to reserve the right to change the rates automatically contrary to the Commission's regulations.
Now, we, as I've attempted to say as a result of accepting this tariff abandoned the idea of changing rates automatically and since the Commission, and Commission and counsel here construed the objected language as affecting an automatic change, we then took it out and relied upon the -- or any effective superseding rate schedule language as giving as the change by filing and Commission action upon the justification by cost and fair return.
Now, I thought it right Your Honors to call your attention in connection with the administrative interpretation here.
The fact that one of our adversaries was then on the staff Commission, who drafted that language because he is the one or who has signed the brief which says that it was an automatic escalation and an argument before the Commission on this issue he said at page 1639, Commissioner (Inaudible) will recall it was rejected.
The staff had objected to certain provisions including that one about seller shall have the right to revise its rates to reflect such a change.
The staff thought that was a proposal by United to automatically change the rates without paying any attention to the Natural Gas Act.
Then he went on to say -- nonetheless, as he was saying today – tomorrow, nonetheless, we argue from other language here, an admission by United Gas Corporation.
Now, my submission to Your Honors is under the well settled rules of administrative interpretation, the Commission who promulgated the tariff, who received the new filing who have -- have continually permitted the advocation of the existing language as we claim it should be applied, is the Commission who heard that argument from a former member of their staff who handled the correspondence and having heard it determined in passages of the record which are now in our brief that I will not take the time the read, determine the intent of the parties was an intent for flexible change.
We are in the same position I think that as all the other pipeline companies and gas companies whose existing rates and whose pending increases in many million are affected will be affected by Your Honor's decision of this appeal.
May I reserve the rest of my time Mr. Chief Justice?
Chief Justice Earl Warren: You may.
Argument of George E. Morrow
Mr. George E. Morrow: Mr. Chief Justice and may it please the Court.
It seems to me advisable at this time to start out with a free Statement of what we conceive the issues in this case to be.
The Court of Appeals sustained the position which Memphis brought up to it on the ground that United's rates -- United's service agreement as interpreted by United and the Commission in this case failed to validate the filings which United made.
In other words, the Court of Appeals below held that assuming that United's service agreements meant just exactly what United and the Commission said that they meant, still the -- which was an agreement upon a rate changing procedure, still the Federal Power Commission had no jurisdiction under the Natural Gas Act as interpreted in the Mobile Case to accept such a filing of a proposed change in rate and to consider that filing and to grant any increase on the strength of it.
Justice Felix Frankfurter: Would you mind to infer to what you've just said that it is your view that Mobile governed this case?
Mr. George E. Morrow: Absolutely, Your Honor, like a blanket.
In the division of argument between Mr. Goldberg and myself, I will be discussing the facts and the law which substantiate the holding of the court below and Mr. Goldberg will take up the second leg of our argument in which the issue is whether or not the contract between United and it's customers is actually subject to the interpretation placed upon it by the Department -- by the pipelines and the Commission.
The Court of Appeals did not reach that point.
The Court of Appeals said, assuming that it is what they say it is, we still find that there was no jurisdiction in the Commission but we feel that the -- as a -- as an alternate ground in support of the Court's decision below, if it had gotten to that question, it would no doubt have found that United's -- the pipelines and the Commission's interpretation's was incorrect.
Justice John M. Harlan: Can I ask you a question?
Mr. George E. Morrow: Yes, Mr. Justice Harlan.
Justice John M. Harlan: Am I mistaken in considering that the Court of Appeals' opinion holds that Section 4 procedures are not available at all except in the single instance where there is an agreed contractual rate involved in filing?
Mr. George E. Morrow: I believe that's substantially correct, Your Honor.
Where the rate as between the two utility companies has been taken out of the realm of controversy and the change has been made or completed by the pipeline companies -- by the -- by the two utility companies.
Justice John M. Harlan: And that -- that's the -- that's the sole scope under their view that the Section 4 (e) proceeding -- Section 4 (e) procedures would have?
Mr. George E. Morrow: Yes, Your Honor, but the -- the Court of Appeals took the view that the Federal Power Commission does not have the jurisdiction to intervene in the rate changing process itself.
Justice John M. Harlan: I just wanted to make sure I understood it.
Mr. George E. Morrow: Yes, Your Honor.
Justice Felix Frankfurter: There's no question here there was a term of a change, rates or the terms of the rates (Inaudible).
It is the absence of agreement to change the existing rate under which service was rendered in the absence of agreement, it wasn't called the (Inaudible) the two utilities, there is no power in the part of the Commission to accept the filing.
Mr. George E. Morrow: That's right, Your Honor in the absence of agreement upon the new rate.
Justice Felix Frankfurter: Upon the new rate.
Mr. George E. Morrow: Upon the --
Justice Felix Frankfurter: The terms of the rates or changes, et cetera are besides the present problem?
Mr. George E. Morrow: Yes, Your Honor.
I -- I'm -- I'm not sure that the parties to the proceeding have yet been completely identified in the Court.
United Gas Pipeline is of course is a natural gas pipeline.
It sells gas to Texas Gas which is another -- in Texas Gas Transmission Corporation, another pipeline company and United also sells gas to Southern Natural Gas Company, a third pipeline company.
Now, it's these three pipeline companies and the Federal Power Commission who are on the petitioner's side of the case.
The respondents are the Memphis White Gas and Water Division, a distributor of gas which purchases gas from Texas Gas and therefore indirectly from United.
And of course, the City of Memphis which appears as representative of its gas consuming public and the Mississippi Valley Gas Company which is a distributor in Jackson, Mississippi and which buys gas from all three of the pipelines involved in this proceeding.
I'd like to also recommend Your Honor's attention, the rendered amicus brief filed on behalf of the Public Service Commission in the State of California are supporting our position and also the Attorney General of Washington, the Attorney General of Wisconsin, the Attorney General of Tennessee, the Attorney General of Mississippi, National Association -- National Institute -- Municipal League Offices and the city of Edinburg.
I'd like to get down to the facts in this case as they appear on the record of this case.
United Gas Pipeline on September 30th, 1955 filed with the Federal Power Commission an increase -- schedules of increased rates which purported to increase their rates by a total of -- a jurisdictional rate by a total of approximately $10 million.
At the time United filed this filing with the Federal Power Commission, there was not a single one of its customers who even knew what the new rates were going to be.
There was no customer of United which had given its consent or agreement to the rates which United filed.
And to this good day, there is not one single customer of United that has consented or agreed to the rates filed by United in this case.
There is no consensual agreement whatsoever between United and any of its customers, no agreement to pay the rates which United filed and that is admitted by all parties to this proceeding.
Now, what -- if -- if there is no consent to the new rates, then what -- where does United get its right to file?
Well, it gets it from its contracts or purports to -- and particularly, from the effective superseding rate schedules language contract.
Now, I'd like to by way of a word of caution, I am assuming now for the purpose of my argument as the Court of Appeals did, that the effective superseding rates schedules provision contain all of the worlds of meaning which has been poured into it by United and the pipe -- other pipelines by implication and inference.
We don't, for one minute agreed that this is the correct interpretation.
This is the interpretation which United placed upon it in the record in this cause.
The Court --
Justice Tom C. Clark: (Inaudible)
Mr. George E. Morrow: The Court of Appeals did not reach the question as to whether the interpretation was correct Your Honor, that's correct.
Because it is so important in this case and because the interpretation which the parties -- the pipelines put on United Service agreements in the Commission, there is only a remote resemblance to the interpretation which they seem to put on the same contracts in their briefs in this Court, I'd like to take the time to read what United said about its contracts just very briefly from the record, it's also at page 25 of our brief.
It's on the record on 153 and 154.
Here's what United told the Federal Power Commission was the meaning and intent of the words effective superseding rights schedule of the agreement (Inaudible) schedule.
It was any of the intent and meaning of such language and were so understood by the parties that such provision contemplated freedom and right by United to sell the file with Federal Power Commission pursuant to Section 4 (d) of the Act, notice the change in rates with consequent freedom and right in Mississippi Valley, Texas Gas, Southern Natural and all of the similarly situated to oppose and contest both the propriety and the lawfulness of the notice changed in rates.
Notice Your Honors that the right to oppose and contest was consequent.
It was a correlative contract right.
United goes on the say in another paragraph, “Thus, there was mutual understanding and agreement that effective rates and offending tariff was subject to notice of change filed with the Commission, skipping, followed by full right to oppose and contest such change or review with the effective tariff rates superseded by such things in tariff rates as became effective pursuant to Commission review and determination of the contest, if any, of the propriety and lawfulness of the notice change.
Now, Texas Gas was in such complete agreement with United at that stage in the proceedings that it simply adopted United's language, verbatim as its own interpretation of a contract.
United went on with specific reference to its contract with Mississippi Valley and -- and on page 26, we see where they again emphasized that the purchaser under the contract, the purchaser was free to oppose and contest any noticed change.
Southern Natural, United of a customer wanted to the same kind of service agreement was of the same opinion in the Commission.
You can see at the page 27 of our brief where Southern Natural says that the effective superseding rates schedule provision right grants to United the right to file with the Commission under the provisions of Section 4 (d) changes in rates schedules under which Southern purchases natural gas subject of course to Southern's right to oppose any such change rates in the proceeding before the Commission in respect thereto initiated under the Section 4 (e) and 5 (a) of the Act.
Now, all of the statements by the pipelines involved United's about its own contract contained three particular points.
It's a sort of three-point arrangement.
United was to have the contract right to file a change in rates.
The purchasers were to have the correlative and coequal contract right to oppose and contest that filing and the Federal Power Commission was to be the one that made the decision.
Justice Felix Frankfurter: How do they find -- they wouldn't have the right to suggest under the statute.
Mr. George E. Morrow: Under the statute Your Honor, their right to contest would depend upon the discretion of the Federal Power Commission in a proceeding under Section 4.
Justice Felix Frankfurter: Do you mean that the Federal Power Commission would be free not to the deal in opposition to be not to the fact of filing but the validation of what was filed?
Mr. George E. Morrow: That's right, Your Honor.
The Federal Power Commission permits intervention in accordance with its discretion.
Justice Felix Frankfurter: -- understand it, would you?
Mr. George E. Morrow: Yes, Sir.
-- Yes, Sir.
Justice Felix Frankfurter: Why do you have to decide the fact that they -- they just derived from the contract?
I don't quite appreciate the significance of your evidence.
Mr. George E. Morrow: I -- I'll try to make it appear to Your Honor that the very purpose having the significance of it is this, that if there was a contract right on the part of the parties to oppose and contest this rate, then, there could not have been any contract obligation on the parties to pay the rate at the time it was filed.
You couldn't have a contract obligation to do the very thing that you had a contract right to oppose.
Justice Felix Frankfurter: I ask you again Mr. Morrow, I don't understand it.
Wouldn't they have all the right to oppose if not given by the statute?
Mr. George E. Morrow: No, Your Honor, it is not.
Justice Felix Frankfurter: It couldn't oppose the going (Inaudible) the change rates?
Mr. George E. Morrow: Your Honor, the -- Section 4 of the statute says that States, municipalities, public service Commissions and so forth have the right to intervene in the Section 4 proceeding.
Natural Gas companies have the petition to the Commission for -- for intervention and the Commission permits them to intervene because the orders always say intervention maybe in the public interest.
Now, in Section 5 and this will become -- the significance of this will become important later, in Section 5 proceedings, the natural gas company has the absolute right to intervene to distribute of customers.
Justice Felix Frankfurter: But the denial by the Commission did exercise only if the interest of the -- depends on the intervener is not otherwise protected for them, isn't that right?
Mr. George E. Morrow: I think that's a matter of the Commissions' practice, yes, Your Honor.
The point out I want to emphasize is though as a matter of contract right the point in the parties, there was this right to oppose and contest the new rates.
Now, where you have a contract agreement whereby one party may propose a change or file a change, the other party has the contract right to oppose that and a third party has a right to decide the issue, you have an arrangement with all the characteristics of an arbitration procedure.
Justice John M. Harlan: I've been trying very hard to follow your argument and I want to see if I get it.
Mr. George E. Morrow: Yes, sir.
Justice John M. Harlan: As I understand it, when you cut through always what you're saying is that absent the contract, there was no, right no statutory right to any for Section 4 proceeding at all and that what the parties had sought to do here is by contract to supersede and impose upon the Commission an administrative procedure which is not found in the statute.
That's your argument --
Mr. George E. Morrow: That is precisely yes -- yes, Your Honor.
Justice John M. Harlan: Now, which means in to refine it a little bit with the -- you say there would be no right on United's part -- on the part of the United here to file its proposed rate change absent the so called consent in the contract?
Mr. George E. Morrow: Yes sir, that is correct, sir because absent the so called consent in the contract, we've got the precise Mobile case.
Justice Felix Frankfurter: Since it is -- why is everybody --
Mr. George E. Morrow: Yes sir.
Justice Felix Frankfurter: But didn't absolute that -- when you say absolute, that it would have more meaning and that the presence of it makes no difference to Mobile?
Mr. George E. Morrow: That is correct, Your Honor.
The present makes no difference.
The presence of the right to file makes no difference which I think I can make it clear.
Let me get back to this business of just exactly what kind of a preacher this contract between the parties was.
It was an arbitration proceeding and Southern Natural, one of the parties to the contract conceded and stated to the Federal Power Commission that this was an arbitration procedure used just those words.
It says that there's no reason in the law or in common sense while a natural gas company may not lawfully agree that the right specified in the contract maybe submitted to arbitration by either of the parties.
And it went on to say, that is exactly what has been done in this case.
So the contracts, it went on to say clearly contemplate that the seller may submit of the Commission on the Section 4 (d) changes in rates with the Commission acting as the arbitrator between the parties under its powers granted by Section 4 (d) and 4 (e).
Now, I might say that ever since that's done, Southern Natural and Texas Gas have been backing away from that term arbitration from the recognition that all this was on agreement to an arbitration procedure and they have finally come to full circle and in their briefs now, they spend several pages to explain why it couldn't possibly be an arbitration procedure, but I submit to Your Honors that this is the record in the clause.
This is the record upon in which the Commission made its decision and it is the record upon which this Court of course must make its decision.
Now, the three pipeline parties then were in full agreement before the Commission as to what their contracts meant.
Incidentally, the Commissions conceived the issue in this case as primarily an issue of contract construction as to what the contracts mean.
The Commission adopted the pipelines' interpretation completely and wholly.
Now, in adopting it, it of course realize of what United was really filing was a proposal, a proposal for an increase in rates subject to the opposition --
Justice John M. Harlan: Well, does it change the rate?
It wasn't a proposal, it was a change rate, wasn't it?
Mr. George E. Morrow: Your Honor, it could not have been a change to rate because there's no one who agreed to pay that rate.
They couldn't have been a contractual --
Justice John M. Harlan: Well, it couldn't rate a contractual change rate but it could've been -- it could've been an ex parte change rate.
Mr. George E. Morrow: Oh, but Your Honor, that's just exactly what Your Honor's opinion in Mobile held that you could not do.
The Natural Gas Act gives --
Justice John M. Harlan: Where do you find that in the opinion?
Mr. George E. Morrow: They're getting -- the Natural Gas Act said the opinion gives no right or power to a natural gas company to file a change in rate.
There is no one --
Justice John M. Harlan: Maybe that's the way you read Mobile.
Mr. George E. Morrow: Yes, Your Honor that is the way I read the Mobile opinion and stating that Section 4 of the Natural Gas Act provides no rate changing procedure.
And, since it provides no rate change and procedure, that's exactly what United was trying to do in the Mobile case to make a filing which -- of a rate which have not been agreed to by the parties.
Justice John M. Harlan: It did not meet -- the agreement in Mobile was an agreement for a specific contract rate that was the last for a fixed term, for 10 years.
Mr. George E. Morrow: Yes, sir.
Justice John M. Harlan: And what Mobile -- what United was trying to do in that case to abrogate that contract by resorting to rights which it claimed it had under the Act.
Mr. George E. Morrow: Yes, sir.
Justice William J. Brennan: Now, that is not the situation.
Mr. George E. Morrow: And Your Honor, I found that United could not abrogate that rate.
I mean --
Justice William J. Brennan: Abrogate the contract.
Mr. George E. Morrow: It could not abrogate -- well, it could not file the new rate.
Justice John M. Harlan: No it could not abrogate the contract?
Mr. George E. Morrow: But the holding was that the filing was a nullity.
Justice John M. Harlan: Because it sought to supersede ex parte contractual agreement which United had entered into.
Mr. George E. Morrow: As I understand the opinion, Your Honor went in to a very full analysis of Section 4 of the Natural Gas Act and showed that United could not do what it wanted to do there because it was attempting to use Section 4 as a rate changing procedure.
And the Natural Gas Act provided no rate changing procedure.
And therefore, there was -- and furthermore, that the review of power of the Commission was the sole power over rates that the Commission had, not the power to participate in the rate changing process between the companies.
To get back to the Commission's filing -- the Commission's finding in this case, the Commission recognized, so clearly recognized that this was a proposal that it use the word proposal four times in the course of its opinion in referring to United's proposed rate.
Thus, as we show at page 28 of our brief, the changes contemplated by the agreements than the Commission were unilateral changes to be proposed by United and in the last sentence of the opinion it wound up, United's proposal for increase rate in this proceeding does not constitute a prohibited unilateral change of a contract.
So, the Commission clearly recognized that United's filing was nothing, but a proposal as it had to be if it was an arbitration proceeding and the customers have the same right to oppose a right correlative and co-equal to rights of (Inaudible).
So, from there, the case went up to the Court of Appeals and that the Court of Appeals defining was made just exactly as United and the Commission argued their rates was that all they had agreed upon was the right file, in other words, the right to make the arbitration proposal.
And then after a careful review of this Court's opinion in Mobile, the Court of Appeals held that on agreement upon the right to make the proposal which did not take the rates out of the realm of controversy between the parties, but attempted to drag the Federal Power Commission down into the rate controversy between the two utilities, that that sort of an agreement simply was not sufficient to make these rates subject to the jurisdiction of the Federal Power Commission.
The Federal Power Commission said the Mobile opinion does not work on proposals.
Section 4 provides much for the filing of proposal and therefore there was no jurisdiction in the Commission in this case to undertake the arbitration of the contract between the parties.
Now, if the Court please, I want to go into a very thorough discussion with the Court, if I may, on the subject of the Mobile case because we have studied it carefully, obviously the Court of Appeals studied it carefully and we've come to the conclusion that the Mobile case does not permit the filing of the kind of rates which United filed in this case.
But I see that it's 4:30 at this time so I'll --
Chief Justice Earl Warren: It's 4:30 –
Mr. George E. Morrow: -- take that up tomorrow.
Thank you, sir.
Argument of George E. Morrow
Chief Justice Earl Warren: Numbers 23, 25 and 26.
Mr. Morrow, you may continue your argument.
Mr. George E. Morrow: Mr. Chief Justice and may it please the Court.
Yesterday there was a question from the bench to the effect can Natural Gas Companies change their rates by any means to their customers without the customer's consent under our theory of this matter.
And the answer of which I gave was “No,” in solely in the reference of Section 4 of the Act.
Now, it is of course quite clear that Natural Gas Companies can change their rights -- their rates without their customer's consent even their contract rates anytime that they can convince the Commission that they deserve an increase in proceedings under Section 5 (a) of the Act.
That is the remedy which this Court said in the Mobile case was always available to a Natural Gas Company, whose rates were too low to enable it, to carry on its public service functions properly.
Now, the answer to that question leads me into maybe putting my last chapter first as it were so that I can explain to the Court just what we are driving at, just what the system of regulation under Section 4 and 5 of the Act was intended to be by Congress as we see it.
I think it becomes clear from what I've already said just now, that the only issue in this case is whether United should have filed under or should have applied for a rate increase under Section 5 of the Act instead of as it did under Section 4 of the Act.
There's no question that if United had a need for a rate increase that it could get it.
The only question is whether it could get it under Section 5 or under Section 4.
Now, what's the difference?
What's the practical difference between these two procedures?
Well, Section 5 of the Act is an administrative procedure whereby the Federal Power Commission in its role as the protector of the consumer interest, the public interest investigates the rate of a Natural Gas Company to determine whether that rate conforms to the public interest.
And if the rate does not conform to the public interest, then the Federal Power Commission issues an order at the conclusion of the proceedings which modifies the rate to make it conform.
And the new rate thus modified goes into effect from and after the date of the final order in the proceedings.
Now, the principal difference under Section 4 has to do with the refund procedure.
Under Section 4 of the Act the Commission also exercises the same rate review power which it exercised under Section 5, but it -- and -- and it's reviewing the existing rates of Natural Gas Companies.
The only difference --
Justice Potter Stewart: No, you're talk about the factual difference, it does not matter (Inaudible) what is the difference if any in time making (Inaudible) for proceeding exercises.
Mr. George E. Morrow: That's exactly what I'm getting to Your Honor, right now.
The difference is the time when the rate goes into effect.
Under a Section 4 proceeding, if the Commission suspends the rate, then it goes into effect five months later.
At least it goes into provisional effect.
It's a sort of a pendente lite effect because at the end of the proceedings, the Commission again, after having fully considered the rate, again issues its order might find the rate to conform to the public interest.
But there, its order had made retroactive by this refund procedure, because if the rate which is filed is higher than it ought to be according to the Commission's final order, then the excess has to be scrapped off and refunded to the customer.
So, that the effect is that you've only had one rate in effect all the time.
So, the difference between -- practical difference between Section 5 and Section 4, is that the rate goes into effect earlier in a Section 4 proceeding.
It's what you might call a quicker proceeding and Section 5 the slower proceeding.
Justice Potter Stewart: How long does the effect (Inaudible)?
Mr. George E. Morrow: Your Honor has again gotten right to the point ahead on me.
Section 5 proceedings historically have taken a long time.
The Commission in its brief cites horrible examples up to five years or six years in which it has taken, but I submit Your Honor that Section 5 proceedings need not take that long.
You see, as Chairman Kuykendall of the Commission has pointed out since the decision in the lower court, if a Section 5 proceeding is being used -- well, let me put it this way, up to this time, Section 5 proceedings have only being used to decrease the rates of Natural Gas Companies.
So, that the decreased rate does not go into effect until the end of the Section 5 proceeding.
Well, quite obviously, the Natural Gas Company is not anxious for the proceeding to end.
As -- as Mr. Kuykendall, Chairman of the Commission said the pipelines have been running away from the Commission in these five-day proceedings up to now.
And he points out that there might be -- that it might be possible to process them in a very much shorter time where the pipeline company wants an increase and is running with the Commission cooperating with the Commission staff in every way and working to get the -- the proceedings to a conclusion.
Nevertheless, even in that sort of a situation, the chances are that a Section 5 proceeding, the rate is still the slower proceeding of the two, the rate goes into effect later.
Now, this brings me down to -- to really what we're aiming at.
What we are asking is what we think Congress intended was nothing more than a fair break to the Natural Gas Company and the distributor company.
We expect -- we -- we think that Congress intended to put them on the same procedural level.
Here's what I mean by that.
Up until this time, Section 5 (a) has always been the proceeding by which a customer can get a decrease in rate.
Section 5 (a) specifically provides that a Natural Gas Company which thinks it's rates are too high can go to the Commission and -- in effect, this what happen – happens.
The company goes to the Commission and says, “Mr. Commission, we are bound by a long-term contract without natural gas supplier and these rates we think are too high.
They're not in the public interest.
Won't you Mr. Commission exercise your regulatory jurisdiction, investigate these rates and if you find that too high, won't you give us relief in the public interest regardless of our contracts because you've got the paramount power over those in the public interest.”
Now under a Section 5 proceeding as illuminated by the Mobile case, the Natural Gas Company which wants an increase can do exactly the same thing.
It also goes to the Commission and says, “Mr. Commission, we are bound by our long-term contracts with our customers” and may I pause to say that there's nothing involved in this case except long-term contracts, but all of the United jurisdictional contracts are long-term contracts.
“We are bound by our long-term contracts to our jurisdictional costumers.
We think we deserve an increase but our customer won't agree to that increase.
Now, won't you Mr. Commission” says the pipeline, “Won't you investigate our present existing rates and if you find that they are so low, that they are not -- that they interfere with our ability to carry out our public utility function, won't you grant us the right to increase those rates,” filed under Section 4.
Now, you see in that way, for the first time, the public -- that the Natural Gas Pipeline Company and the distributor company are placed on exactly the same procedural point.
The distributor company's right to a decrease is just as great, just as firm as the -- in -- in a case where it deserves it as the Natural Gas Company's right to an increase is in the case where the Natural Gas Company deserves it.
So all this does, this proceeding that we think United should have taken, all it does is to put the pipelines on the same procedural plane with the distributor, the distributor who directly serves the consumer, the consumer, who is the darling of Congress.
The consumer who's protection was the primary purpose of the Natural Gas Act.
That's all we are asking this Court to decide in this case.
That when there has been no agreed upon increase between the pipeline and its contract costumers, they go under Section 5.
When there has been no agreed upon decrease, between the pipeline and its contract costumer, the customer goes in under Section 5.
Now, that -- that makes everything in the Act fall into place.
It gives everything a reasonableness.
For instance, let's take the same thing over to Section 4.
There, Congress has an effect said, “Let the utilities see if they can work it out first.”
Now, if the two utility companies can get together on a rate increase, if the pipeline can convince its costumer that it's entitled to a rate increase and the costumer agrees to it, then you've got an agreed upon rate.
Then the pipeline can file that new agreed upon rate with the Commission under Section 4 in the quicker proceeding.
Or by the same token, if the costumer convinced the pipeline that the pipeline's rate is too high, then you agree upon a lower rate.
And the lower rate goes into effect under Section 4 in the quicker procedure.
Now, this makes sense.
Justice John M. Harlan: Supposing that the Congress accept the Commissions (Inaudible) and they made adjusting their rates under Section 4 is certainly a refund for the -- would they be arguing now that nevertheless, the suppliers can only operate under Section 5 or --
Mr. George E. Morrow: Within a non-agreed upon increase, yes Your Honor because if that happened, it would simply put the industrial rates in the same category with all other rates and I've been talking about all the other rates up till now.
Now, let's see what sense that makes in terms of the Congressional intent.
Here you have a situation where you have two public utilities dealing with each other, the pipeline and the distributor.
Now, Congress says that if these two public utilities can get together and agree upon a rate which they as between themselves think is reasonable and then file that rate with the Commission, isn't there a -- a reasonable warrant or basis or at least temporary presumption that that rate is reasonable?
And therefore, isn't it appropriate to allow the new rate to go into effect under barn so it's in effect while the Commission acting in it's capacity as protector of the public interest, the third party in interest to those contracts investigates this new completed contract to see whether it serves the public as it should.
On the other hand, suppose the two utility companies, the parties directly involved in the rate have not been able to get together on what they consider is a reasonable rate then isn't it reasonable that the new rates sought -- whether the higher rates sought by the pipeline or the lower rate sought by the costumer, the distributor, isn't it reasonable that the new rate should have to prove itself as it were in the course of the Commission proceedings before the Commission order makes it effective?
The whole Act begins to take form and shape and all we're asking, I repeat once more, is an even break for the distributor and the pipeline.
The distributor under this theory has the same rights to a decrease as -- as the pipeline does to an increase and this gives him correlative remedies to go along with those correlative rights, to a non--agreed upon right, correlative remedies under Section 4 to an agreed upon right.
Now, the question is raised about the ex parte rates and I like to quote from the Court's opinion just what was said in Mobile about this business of ex parte rates because a great deal has been said in the Commission's -- well, in all the briefs about it and I think that they have completely misunderstood the impact of what the Court said.
The Court was saying in Section, it was discussing in Section 4, the fact that the Natural Gas Act did not change the contractual powers of Natural Gas Companies, did not interfere with or changed the rate making or rate changing powers of Natural Gas Companies and it followed that up by this sentence which is found in page 343 of the opinion.
The obvious implication is that except as specifically limited by the Act, the rate making powers of Natural Gas Companies would be no different from those they would possess in the absence of the Act, it's in the (Inaudible), to establish ex parte and change at will rates offered to prospective customers or to fix by contract and change only by mutual agreement the rate agreed upon with a particular customer.
Now, which one of those alternatives do we fall under in this Court?
May it please the Court there is not a single prospective customer in the picture in this case.
Every single customer is a long-term contract customer of United.
Therefore, we are obviously within the second alternative where United has no right to file an ex parte rate to us, but must fix by contract and change only by mutual agreement the rate which is agreed upon with these particular customers.
The Court also said, oh, and -- and let me pause there to say that it seemed to appear from the argument of opposing counsel that what we were trying to do was to demolish the Commission's regulations.
Now, I grant that I said what Mr. Carson quoted me as saying that under the -- in the light of the Mobile decision, there might need to be some modifications of the Commission's regulations, but those are minor.
We have no quarrel with the general scope intent in purpose of the Commission's regulations as explained by General Rankin.
Now, we do have quarrel with the message there set forth in the briefs but if you will recall, General Rankin said that the only purpose of the regulations was to take these sheets of contracts and he showed how thick it was, a lot of different complicated contracts which United had with all its customers and reduced it down to this much contract to put all of the contractual arrangements between the parties into a uniform format prescribed by the Commission and that was the only purpose of the regulation.
And that was the purpose that the Commission said at the time that promulgated the regulations as their only purpose and we quote them at 86 of our brief, "A presiding examiner's statement which was adopted in toto by the Commission."
It said the Commission's purpose in promulgating Order Number 144, which of course promulgated these regulations, was precisely as it stated in its explanatory opinion therewith that the proposed amendment of the general rules and regulations was for the sole purpose of achieving uniformity and simplicity with respect to form, composition and filing of schedules of rights and charges for the transportation and sale for resale of Natural Gas in Interstate Commerce.
It was solely a matter of form, and as a matter of form, we have no quarrel with it at all.
It was a splendid idea to get all of these complicated contracts down to a simple uniform format.
So, the -- the Commission's argument which it attempts to launch from its regulations on the basis of its regulations just simply won't stand up in the light of which the Commission has already said about those regulations.
It's clear that actually what has happened in this case is this.
In the Mobile case, the Commission came to the Court saying United has a right to file this unilateral change in its contract because the Natural Gas Act, Section 4 of the Natural Gas Act by providing a rate changing procedure confers upon at that right.
That was the Commission's argument in Mobile.
And this Court said, "No, it's no such thing.
Section 4 is not a rate changing procedure".
Section 4 provides not for proposals.
The scope of the Commission's review power under Section 4 is the same as it is under Section 5 to review the existing rates of Natural Gas Company and to make it crystal clear, the Court pointed out in Mobile that Section 4 provides no more than, let's see, provides no more than that otherwise valid rates, and if I may, here it's on page 339, it starts right at the bottom of 339.
In short, Section 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.
Now, how does it change yet to be an otherwise valid change, it's between these two utility companies, very simple.
Let's -- let's take for instance just to make it concrete, United and Mississippi Valley, United's customer company.
Prior to the filing of the rate in this case by United, it had a long-term contract with Mississippi Valley and Mississippi was purchasing gas from it at a certain, specific, well understood, agreed upon price.
Now, obviously, the price was the very heart of that contract.
It was integral part of the contract and they were purchasing gas at a price which had been contracted for and agreed upon.
Now, United wants to substitute a new rate for the rate which they have agreed upon and have been observing for several years.
How can it make that substituted rate valid?
There's only one way.
United has got to find somewhere, somehow an agreement on the part of its co-contractor to pay the substitute rate.
And that's why at the outset of this case of my argument here, I dwelt upon the fact that there has been no agreement on the part of Mississippi Valley, Texas Gas, Southern Natural, any other customer of United to pay the rate which United filed in this case.
The rate is not an otherwise valid rate.
The rate is nothing more than a proposal on the part of United which draws the Commission into the vortex of the rate controversy between these two public utility companies and that's the rate, I mean, that's under the contract as construed by United.
Actually, you might say our ultimate position in this case goes even deeper than that and that is that with effective superseding rate schedules provision cannot contain and cannot be interpreted to contain all of the tremendous volumes of significance which has been implied into it and inferred into it by the parties to this case and for that argument, I will turn it over to Mr. Goldberg.
Chief Justice Earl Warren: Mr. Goldberg.
Argument of Reuben Goldberg
Mr. Reuben Goldberg: Mr. Chief Justice, may it please the Court.
At the outset, I want to reemphasize, if I may, for a moment what Mr. Morrow has just said.
I want to reemphasize that Mississippi, a contract purchaser of Natural Gas from United Gas Pipeline Company has a contract with United for the purchase of Natural Gas for a specified term of years at a specified price.
The fact that the price is specified in the contract by reference to another document, a rate schedule in accordance with a format prescribed by the Commission's regulations to provide an easy means for the public of locating the rates involved and for the staff of the Commission in locating it, does not make that rate, we submit, any less a specified contract rate.
The rates specified by reference to the rate schedule is every bit as binding upon United and upon Mississippi as was the price in the Mobile contract.
The petitioners say, however, that there is a material difference between the Mobile contract, and the contract with Mississippi, and the contracts it has with the other pipeline petitioners in this case.
The difference they argue lies in this effective superseding rate schedule provisions that innocent little phrase.
That provision they say, implies an agreement on a rate change procedure a reservation by United of its right unilaterally to file a change in the contract rate.
And they say, “That's all we need under the Mobile decision to make the filing a valid filing eligible for filing under Section 4 (d) of the Act,” but we submit the provision does not mean what they claim for it.
The provision as the words given its ordinary made make clear, it's only explicit recognition that in a regulated industry the rate agreed upon by the parties is subject to the paramount power of the Commission to review it and to modify it while it is contrary to the public interest.
The legal effect of that language, is to make certain that when the Commission in the exercise of its paramount power reviews the rate and determines that it is either too high or too low depending what the case maybe that the seller and the buyer are both equally bound to continue to buy and sell gas under that contract under that new rate.
Thus, if the Court please --
Justice John M. Harlan: That -- that would be so in quite in respect of this clause, isn't it?
Mr. Reuben Goldberg: I am not getting right to that if I may get it in to -- in the order my argument will take only a moment.
The Mississippi's contract we say is therefore, exactly like the contract in the Mobile case, because what is explicitly stated in the effective superseding rate schedules provision was implicit in the Mobile contract.
As the Court recognized in Mobile, the Commission has the power, the paramount power to review that rate and to change it.
And under the law, United would be obligated to sell at that rate and Mobile would be obligated to purchase at that rate because that modified rate under the law is therefore the effective superseding rate precisely what the provision in the contracts here involved talks about.
Now, the petitioners contend that this construction that we put on that language reduces it to surplusage because they say, if you construe with the way you argue, it only says what the law is, but the provision not only says what the law is.
It prevents a claim of illegality or impossibility that might be otherwise have been advanced by either of the parties if a rate ensued out of the exercise of the Commission's paramount power that perhaps they didn't care for.
And it's not an uncommon thing to find in contracts provisions that do no more than state what the law is because they serve the very useful purpose of precluding contentions that might otherwise be advanced and a provision that serves such as purpose we submit is not surplusage.
I would venture to say, and certainly my experience is pretty limited in that respect, but I would venture to say that if we can have a dollar for every contract that there is in this country that contains a provision that does nothing more than state what the law is for the very purpose I've indicated, I think we have a pretty large sum of money perhaps even large enough to make dent in the National Debt.
We submit that you can read that language in the contract over and over again and it'll be searched in vain for evidence of an agreement on a rate change procedure or a reservation on the part of United unilaterally to file a rate change in the contract rate.
There isn't any reference in the provision to Section 4 (d).
There's no reference of the provision to Section 5 (a).
There is no reference in that provision to anything that connotes a rate change procedure.
The petitioners recognized this.
They don't say that the provision expresses an agreement on a rate changing procedure.
They say it is to be implied and I assume that means that the provision is ambiguous and needs construction and this is a reasonable implication of the provision.
We think it is neither to be reasonably implied nor found when it takes at least a paragraph to state what they claim for this little phrase.
There's nothing in the language that that purports to say what is effective to change a rate.
There's nothing in it that even suggests under what circumstances a change can be made and there's certainly no agreement in it to pay any rate whatsoever or even an agreement that the mere act of filing will make the rate that United filed effective on the face of it.
We find in the agreement in the provision only an agreement to pay the effective and I emphasize effective, superseding rate and I emphasize effective because that provision is a limitation.
It's a condition upon an obligation to pay any different rate.
We know in the Mobile case that rates are not effective superseding rate simply because the pipeline company has filed it to the Commission.
In that case, United had filed a rate, the Commission had accepted it, it was treated by United and the Commission is effective, and Mobile even paid it, but this Court held that the filing was nullity.
It was not an effective superseding rate because the Commission had exceeded its authority in accepting that filing since it was not an agreed upon change and United had exceeded its power to file it because it was not of that character.
And United is keenly aware of the lack of resemblance of the effective superseding rate schedules provision to this agreement on a rate change procedure or even a reservation of the right to file rates.
And they're keenly aware of the rule of contract construction that says that a contact is to be construed more strongly against the draftsman and of course for draftsman of the contract, its creator, its author is United.
Justice Felix Frankfurter: Would it make any difference to your argument that instead of the phrase as founded the service agreement which you're addressing yourself, the word were these, under settled rate schedules or any rate that maybe subsequently filed with the Federal Power Commission, would that make a difference to your argument?
Mr. Reuben Goldberg: I -- I think so if I have -- have in mind the revision of the provision.
I think that the --
Justice Felix Frankfurter: (Voice Overlap)
Mr. Reuben Goldberg: -- provision was only be eliminate --
Justice Felix Frankfurter: -- any rates that maybe subsequently filed with the Federal Power Commission, would that make a difference to you?
Mr. Reuben Goldberg: I think so if I understand the revision.
I think the revision was to exclude from the language that's on page 9 of our brief the word “effective”.
Yes, I think so.
I think it would probably make a difference.
Justice Felix Frankfurter: Well, but wouldn't the law --
Mr. Reuben Goldberg: Because we --
Justice Felix Frankfurter: Wouldn't it be effective to be in there by force of law?
No rates can be -- no rate is determined unless it's effective according to the determination by the Commission.
Mr. Reuben Goldberg: But Mr. Justice Frankfurter, that provision would then be susceptible of the interpretation that the purchaser had agreed to pay whatever rate United filed and that was the rate --
Justice Felix Frankfurter: He could agree to that.
Mr. Reuben Goldberg: I don't understand why not.
Justice Felix Frankfurter: He could not agree to that because of the controlling power of the Commission determined the public interest.
Mr. Reuben Goldberg: But he can agree to a new rate.
Now, even though United and the purchaser agree on the rate, it does not mean that the Commission is precluded from reviewing and modifying it.
That's where --
Justice Felix Frankfurter: That's what they mean by effective.
Effective means that which the regulatory body determines eventually is the legally and plausible rate.
Mr. Reuben Goldberg: That's exactly our contention that the inclusion of the word “effective” has reference only to rates that achieve their effectiveness through the exercise by the Commission of its paramount review policy.
Justice Felix Frankfurter: But my question to you is, whether effectiveness isn't necessarily qualify in every agreement between parties?
So, no amount of agreement that leaves out the word “effective” can leave out the power of the Commission to determine what count --
Mr. Reuben Goldberg: With that, we thoroughly agree.
We certainly --
Justice Felix Frankfurter: Whether effective doesn't need to add or subtract because of law does that.
Mr. Reuben Goldberg: Mr. Justice Frankfurter if I understand that I have some trouble with that, may I try to explain my difficulty?
Justice Felix Frankfurter: You take care of my difficulty [Laughter]
Mr. Reuben Goldberg: I certainly -- I certainly would -- would hope -- of my being here is -- is pointless.
As we read Mobile, the Natural Gas Company and its customers have complete freedom to initially enter into contracts and to negotiate new rates.
Now, as we read Mobile when the pipeline company has that kind of a rate, it may file it under Section 4 (d).
That rate is made effective by its own action as the Court said in Mobile as we read the case by giving to the Commission the notice required by the notification procedure.
Now, the Commission may decide to do nothing about it and then they may charge it or it may suspend it.
Now, as we see it that agreed upon rate if it is permitted to become effective, of course may then be charged.
If it is suspended, its provision would become effective at the end of the suspension period and then again maybe charged by the pipeline company.
Justice Felix Frankfurter: Unless in the meantime the Commission disposes of it --
Mr. Reuben Goldberg: Oh yes.
If -- if the Commission and the interim period has concluded the proceeding, it never really becomes the rate that they charge.
They charge only the rate that the Commission determines at the conclusion of the proceeding.
Now, I -- I think I see now what Your Honor was getting at that despite the agreement of the parties, effective superseding always means that which the Commission accepts for filing and permits to become effective by its authority under the Act.
Justice Felix Frankfurter: Can it mean anything else?
Mr. Reuben Goldberg: I think not.
I think --
Justice Felix Frankfurter: Alright.
Mr. Reuben Goldberg: I certainly, would have to agree that it could mean anything else having come through to the same point by my own exposition.
Justice Felix Frankfurter: That means whether effective is there or not, effective depends on what the Commission does or doesn't do but not by the agreement of the problem.
Mr. Reuben Goldberg: I -- I see Mr. Justice Frankfurter's point that even if it were agreement to pay any superseding rate, it would have to be an effective superseding rate that could be charged.
But the point I was trying to make was, that if the word “effective” had been left out, you could possibly interpret that as meaning that it is at least an agreement as between the parties by the purchaser to pay what is tendered to the Commission vis-a-vis the parties without bringing in the Commission's authority.
Now, if I may, as I was saying, United is keenly aware of the lack of resemblance of this provision to an agreement on a rate change procedure and it is keenly aware of the provision of the -- the rule of contract and construction that says a contract is to be interpreted most strongly against the party drafting it which as I said was in this case United.
It therefore tries to raise the provision to the stature of the term of art in the industry which it says was accepted as evidencing an agreement on a rate change procedure.
There's simply nothing to this.
This is an act of rationalization.
Prior to Mobile and our motions to reject, it was not thought, it was never suggested that the power to change rates was derived from the contracts or any provision of contract between the pipeline company and their customers.
In fact, the argument in Mobile was that power was derived from the Act and that it existed regardless of what there was in contract against it.
The Act was considered to be the source of the authority.
The contract argument was a development of Mobile and of our motions to reject and was advanced to meet those developments.
And we submit, that United has turned to the contracts for escape for Mobile and this little effective superseding rate schedules provisions has been selected as the candidate most likely to succeed as the provision in their opinion more susceptible to interpretation of the view they tried to put upon it.
The provision is of course no term of argument.
If it were, we would expect to find it in each of the contracts in the industry in precisely those terms, but the Commission itself concedes, and I believe the concession appears at pages 111 of its brief, that the contract language varies as between one Natural Gas Company and its customers and another Natural Gas Company and its customers and we have printed as Appendix A to our brief.
The provisions from the formal contract that Texas Gas Transmission Corporation uses which is one of the pipeline petitioners in this case, and that appendix discloses immediately that they employ an -- an entirely different set of words for what I might call their effective superseding rate schedules provision.
And additionally, it discloses that they did include an express reservation to change rates under certain specified conditions and the specified conditions were when certain increases incur when increases incurred in certain specified taxes.
Unless these contracts are held to mean what they say, the publication provision of Section 4 (c) of the Act which says that the contracts need to be published, so that they're available to the public and people may know what's in them, we submit would be frustrated.
In interpreting this contract and considering it, we cannot lose sight of a fact that it wasn't drafted by an amateur.
It was drafted by United which Mr. Carson yesterday described as one of the largest pipeline companies in the country.
We think perhaps it is the largest.
It has all sorts of resources at its command, including rate experts and the most skillful of counsel.
The drafting of rate contracts for United, of rate schedules, of tariffs is a day in and day out occurrence.
And when United sets out to draft the provision reserving the right to file a change in rates United knows how to do it and we don't have to infer that.
We have the contemporaneous evidence in this record as to the meaning and intent of the contract.
The only contemporaneous evidence I might say which shows that United never regarded the effect of superseding rate schedules provision as a reservation of a right to file changes and never intended it to perform that function.
Let me briefly describe that history.
As Mr. Carlson told you yesterday, United had brought the Commission for about four years in and out of the courts challenging the validity of the regulations, which incidentally it now embraces and the most wonderful thing that ever came down to pipeline.
United finally, in 1952, decided that it would comply with the Commission's regulations.
So, in accordance with those regulations it prepared a propose tariff.
Now, the regulations say that in the tariff you're supposed to have the proposed form of contract you will use for the purchase and sale of gas.
United therefore, drafted a proposed form of contract included it in the tariff.
The proposed form of contract included the effective superseding rate schedules provision that we have before us today and additionally, as we set out at page 57 of our brief, I think it is, it's at page 57 yes, included a provision expressly reserving the right to file changes in rates.
If I may take just a moment to read it, “the rate established by seller,” United said, “are designed to reflect seller's cost of rendering service to provide a fair rate of return to seller.”
In the event of an increase in seller's cost, or of any change which would result in the rate of seller providing less than a fair rate of return, seller shall have the right to revise its rates to reflect such change.
Such revised rates shall be charge only after they have them filed to the Federal Power Commission and become effective in accordance with its rules and regulations.
Now, unhappily perhaps the United, it included this very same provision in the general terms and conditions of the tariff.
The Commission's regulations expressly state you may not include that kind of a provision in the general terms and conditions.
The regulations say, you may include that kind of provision in your form of your contract only.
The Commission therefore, rejected the propose tariff concluding the form of contract and returned it to United pointing out that they had never accepted a tariff which included the provision but what that they having accepted forms of contracts that included such provisions as authorized by the regulations.
The United was extremely anxious by this time after filing to the Commission for four years to have its tariff accepted as rapidly as possible.
And United was laboring under the impression that the Commission would require a rephrasing of the provision before it would even approve it for inclusion in its form of contract.
Rather than incur the additional delay that they thought might develop, they struck the provision not only from the general terms and conditions, but they struck the provision from the form of contract as well.
And the form of contract which was approved without this provision became the executed contracts for the purchase and sale of gas that we have before us in this very case.
And now, faced by Mobile, faced by our motions to reject, United seeks to read in that -- into that effect a superseding provision a wholly different provision which of its own volition it had deleted.
Even if United were able to hurdle this contemporaneous evidence of their intent, there is yet another hurdle before that.
I'd -- I'd like to refer the Court for a moment to this little pamphlet which is the appendix to United's brief at page 16A.
I'm particularly, interested in the middle portion of the middle proviso, which says and I'm going to skip a few words that refer to another section that are not material here, “a Natural Gas Company may state in the service agreement that it is or will be its privileges under certain specified conditions to propose to the Commission a modification, change or substitution of the then effective rate or charge.”
And incidentally, may I interpolate here for a moment to say the reference to certain specified conditions has reference to various components of costs involved in serving -- in selling gas that may go up and down if the case maybe, taxes, cost the gas purchase and so on.
Now, United was on notice as to what it had to do to reserve its right to file rates.
And the provision that it voluntarily deleted was in response to this permission that the Commission was giving them in the rules and regulations.
Now, the effective superseding rate schedule provision doesn't even begin to come close to meeting the requirements of this regulation.
It does not even remotely specify any terms or conditions under which it would be United's right to file changes in rates.
And if it were to be interpreted as United now contends, it would be unlawful under these regulations as the Commission's recent decision in the Houston case which we cite and discuss at page 62 of our brief, makes very clear.
In that case, there was a new pipeline company that had been certificated.
Houston, Texas Gas and Oil will take gas down to Florida.
In accordance with its right and under the Commission's regulations, it undertook to prepare its tariff and there again, it included a proposed form of agreement.
The Commissioner rejected it and let me read just quickly the language used by the Commission in rejecting it and I quote, this is at page 62 of our brief, “In the form of service agreement, no changes for the filing of changes are set forth while Section 154.38 (d) (3),” I interpolate the section we were just looking at, “of the Commission's regulation, requires that the service agreements set forth, the specified conditions under which a change my be filed.”
Accordingly, the Commission said, “The present language of the form of service agreement is not allowable and revised tariff sheet should be filed enumerating the conditions, if any, under which rate changes may be proposed.”
This provision would have to be rejected for the very same purpose.
And to interpret it as they would contend, just flies in the face of that provision and the contemporaneous evidence.
If there is any lingering doubt that the effective superseding rate schedules provision was not intended to perform the function that the petitioner is now claim for it, we submit that doubt is dispelled when the unconscionable results that are produced by petitioner's interpretation are considered when applied to sales, for resale, for industrial use only, which have heretofore been referred to.
Such sales are particularly important to Mississippi as they are to many other distributors.
For example, as we indicate in our brief, and United does not deny this, Willmut Oil and Gas, another contract customer of United, purchases gas under United's rate schedule, which it has provided the sales, for resale, for industrial use only, 45% of its volume of sales is that type of a sale for industrial use.
And the United only answer is, “Well, it's only to one customer.”
Whether it's to one customer or 10 customers, however, 45% is an important part of that utility's sales.
In the case of the distributors of gas in the Pacific Northwest, as the amicus brief of the Attorney General of the State of Washington makes claim, 68% of the sales made by the distributors in that case, for industrial use are purchased under contracts of this non-suspendable, non--refundable type.
And Mississippi, for the period involved in this case, its purchases of gas from United or sales, for resale, for industrial use only, represent the 65%.
And let me pause here to say that in the answering briefs, we have been vigorously challenged as to the accuracy of our 65% and I might say to the Court that that 65% was computed for me at my request by responsible official of Mississippi Valley Gas Company.
And it's obvious to me, although, I can't for the light of me analyze all of the figures that have been thrown at me in those answering briefs and where they come from.
It is clear that they are talking about some percentage in another period not involved in this case when they say the percentage is only 20%.
Well, let me make this point, whether 20% or 65%, the point is that it is significant either at 20% or at 65%.
Let me, for a moment, before I get too deeply into an explanation of the significance of these sales, repeat in part what Mr. Morrow has pointed out.
Except for sales, for resale, for industrial use only, the Commission has the power to suspend new rates, and if the proceeding is not concluded at the end of five months, they become effective subject to refund on motion of the Natural Gas Company.
When the Commission concludes its proceedings, they can make it retroactive.
But with respect to sales, for resale, for industrial use only, the Commission has no power of suspension and it has held that it is completely without power of refund.
Those new rates are non-suspendable, non-refundable.
They come -- they become effective 30 days after filing.
Now, let's see the consequence of that.
Justice Felix Frankfurter: Would you mind stating in a word what the policy of Congress was in that provision of the Act?
Mr. Reuben Goldberg: Mr. Justice Frankfurter I don't think that I -- I can.
I would like to explain why I don't think I can.
Justice Felix Frankfurter: Don't take your time (Inaudible).
Mr. Reuben Goldberg: Well, I simply want -- I simply want to say that there's just a jury of legislate -- legislative information.
It seems to have suddenly come in at the end of the legislative debates and I don't think anyone can really say what in the world caused that?
I know when I was with the Commission, we wrestled with it, and I think perhaps they're still wrestling with it over there.
Justice Felix Frankfurter: Anyhow it is the policy of Congress?
Mr. Reuben Goldberg: Oh, yes.
Yes, I -- I would certainly have to say that.
Now, but the significance of it is -- is that they are contending, Mr. Justice Frankfurter, that a purchaser of its own volition agreed to enter into a contract that granted to its supplier the power to impose, to exact, and to retain at will whatever United, under petitioner's interpretation of their contracts chose to file.
Now, let me bring it right back to the case at hand.
The increase filed for that class of sale was about $650,000 in round number out of the total increase to Mississippi Valley of about, let us say, $900,000.
Now, under petitioner's interpretation, that filing maybe made, it goes into effect 30 days after it's filed because the Commission is without power to suspend it, and they can charge it and collect it for as long as that proceeding is pending.
And when that proceeding is over and the Commission says, “United, you had no right to charge that rate.
It was excessive all through that period and you're not to make that charge to the future.”
And Mississippi then says, “United, how about giving me my money back” and United says, “Sorry, we pocket that.”
The Commission has held it has no power of refund.
Now, we submit that no responsible officer of Mississippi, the board of directors of Mississippi, no responsible officer of any distribution company would enter into a contract for the purchase of gas, which is essential to its economic wellbeing, which is essential to its ability to sell gas to domestic customers at rates within their reach, to grant to their supplier the power at will in their unfettered discretion to file any rate they choose and to collect it from the date 30 days after filing.
And even this prospective relief is illusory because, again, in its unfettered discretion, as soon as the Commission has issued its order saying that the rates of the past were unreasonable and they should be reduced for the future, United can again come forward with a new rate increase for this class of service and it becomes effective within 30 days.
In this very case, during the pendency of these proceedings, United has filed three additional rate increases unilaterally for this type of service and United has been collecting it under its interpretation.
Now, we submit that it's just simply inconceivable and unreasonable to interpret the provision as an agreement by Mississippi to confer such a power on its supplier.
Mississippi denies and we have denied it repeatedly that we ever intended to come to such an agreement.
Let me take a moment to explain the significance of --
Justice William O. Douglas: Is there anything in the entire administrative practice before the Commission to choose to rely on this problem?
Mr. Reuben Goldberg: As to why there is no power is suspended --
Justice William O. Douglas: Either -- pointing either way, either for the position asserted by the Commission at the present time or in favor of the groups.
Justice Felix Frankfurter: As to the interpretation of the context to this.
Mr. Reuben Goldberg: No.
Justice William O. Douglas: As to the interpretation of Section 4.
Mr. Reuben Goldberg: Oh, on this --
Justice William O. Douglas: Is this the first case of the Commission is ruled, made a specific ruling?
Mr. Reuben Goldberg: This is the first case I think that the Commission ruled at the moment.
Justice William O. Douglas: Is this the -- is this marked change in -- in procedure before the Commission?
Is this a new ruling or does this follow old precedents?
Mr. Reuben Goldberg: Oh, under -- this -- this power of lack of refund power, I'm not sure that -- yes, let me put that thing.
Justice William O. Douglas: The ruling of the Commission in its construction of Section 4 in this case, is that --
Mr. Reuben Goldberg: That's a -- that's a --
Justice William O. Douglas: Is that the --
Mr. Reuben Goldberg: That's a new one.
Justice William O. Douglas: That's --
Mr. Reuben Goldberg: That's a new one.
That was a construct -- well -- well, if -- it did -- I was going to -- I was just about to say that it didn't construe Section 4, but it construed the contracts, but actually, it had to do both.
It turned to the contracts and said this is an agreement on a rate-changing procedure, and then it turned to (Voice Overlap) --
Justice William O. Douglas: I know what -- I know to give.
I know what to give.
But I say is this first time they ruled that way?
Mr. Reuben Goldberg: Yes.
Justice William O. Douglas: Or are there any contrary rulings in earlier years, since the change of Commission policy, this hearing the Commission policy?
Mr. Reuben Goldberg: The first time -- the first time it was brought up.
I've been trying to go but Mobile came along and this problem in our case was the first one arising after Mobile.
I think we were the first, perhaps not the first, but the first decision that came down on the motion to reject.
Justice Hugo L. Black: Do you cite the holding of the Commission in connection with inability to get refund?
Mr. Reuben Goldberg: Yes.
Justice Hugo L. Black: What is it?
Mr. Reuben Goldberg: That they made that decision in the Mobile case, I think it's in 64 of our brief.
Justice Hugo L. Black: It's at what?
Mr. Reuben Goldberg: At page 64 of our brief, Footnote 35.
Incidentally, that was the order in the Mobile case which came up to this Court and we'll review again in the Mobile case.
Let me take just a few minutes to point out the Commission in its brief spends a great deal of time parading all sorts of public goblins and calamities before the Court in an effort to secure a reversal of the decision below.
But we have given chapter and verse on the actual experience of the industry since the decision of the court below, and that actual experience completely contradicts the Commission's speculations which incidentally are completely undocumented.
One thing we pointed out, for example, when the Commission raised the specter of inability of the pipeline companies to raise capital, we said why?
Here is evidence that these pipeline companies, since the Memphis decision, since the decision of the court below, have been able to raise capital.
They have received a very favorable reception of the market, in some cases, even more favorable than the reception that they received prior to the decision of the court below.
And the Commission is unable to deny that.
It conceived in its answering brief that that's the fact, but what is the Commission's answer?
The Commission says, “Well, in every one of those cases, there were some special factor that accounted to the favorable reception.”
In other words, when the news is bad, blame it on the decision of the court below, but when the news is good, shrug it off, blame it on something else.
The decision of the court below had nothing to do with it.
We submit that the decision of the court below is completely right.
It helps restore that stability of supply arrangement, that order of chaos, which this industry needs to be a healthy industry.
Thank you very much.
Chief Justice Earl Warren: Mr. Solicitor General, would you mind addressing yourself to this last point that counsel has taken up, namely, the -- as I understood it yesterday, it was your argument and the argument of Mr. Carson that all this would do would be to give the opportunity to the Commission to study the situation and that later there would be a refund of any access that they found to be beyond the public interest.
Now, would you -- would you mind telling me if I -- if I understood you correctly yesterday or whether there are some circumstances where there will not be any refunds in the event the Commission finds that the new filings where not in a public interest.
Argument of Rankin
Mr. Rankin: I will make it very clear that there are cases where under the Act, it is impossible as the Commission construes it to make refunds and those are the limited cases of less than 2% that involved industrial rates.
To that extent, there is no provision in the Act as the Commission construes it for a refund of those rates that are not properly although initiated they are -- they are found later to be unlawful.
Now, our brief shows that the claim of the Mississippi Valley is not correct as to the amount of gas that it buys on industrial basis when it claims 67%.
We point out that there is some 27% in one year and it's down to 6% but there still is a fact that as to the 2% of the regulated rates or jurisdictional rates in the country, there is no provision for refund.
Chief Justice Earl Warren: Yes.
Mr. Rankin: Now, they don't call your attention, however, to the fact that they have a provision for automatic escalation as to everyone of these contracts in Mississippi Valley so that if the rate is raised to them, they pass it on immediately under their contract to the industry customer purchaser.
Now that doesn't protect the consumer, I want that clearly understood.
The consumer doesn't get it back, but it does put them and that's -- if they have been frank about that, they would have shown the Court that there is obvious reason why they wouldn't care too much what the -- the rate whether or not their new rates were filed as long as they had a provision for automatic escalation in their contract.
Now, I was trying to point out yesterday that although there is no provision for that refund, the industrial buyer buys at a cheaper rate so that he can figure that even though I pay an increased rate, I still get it a lot cheaper than I -- if I bought the susependable rate which is also available to him in Pacific Northwest.
I don't know that is available in all cases.
I didn't examine that as I tried to tell the Court but I know in Pacific Northwest, it was available.
They had both rates available to industrial buyers and they deliberately bought the cheaper rate because it was -- they took the chance and they were still better off on the increase and if they bought the suspendable rate where they would get the refund.
Justice Felix Frankfurter: To gain that figure yesterday Mr. Solicitor, 2%, do I understand that to be the total gas consumed subject to regulation by the Federal Power Commission of that close to, whatever it is only 2% is non-recoverable becomes non- sustainable.
Mr. Rankin: That's right.
Justice Felix Frankfurter: Is that what you're saying?
Mr. Rankin: That is correct.
Justice Felix Frankfurter: But the total volume of gas subject to regulation was consumed and subject to regulation, only 2% falls under this non-recoverability.
Mr. Rankin: That's right.
I've checked that carefully.
Now, of course, the Commission has asked that it be given that power even as to that 2% and it has asked to repeal it over the years.
Congress has seen fit not and the history indicates that these are short term contracts and that the Congress at the time in speaking about it, felt that it was not a particular problem.
We set up that legislative history but the Commission has still felt well, even 2% we ought to try to care of but we haven't been able to persuade the --
Justice Felix Frankfurter: Under all the -- this 2% are -- are the class of large consumers?
Mr. Rankin: Well they're well able to take care of themselves.
Justice Felix Frankfurter: All right.
Mr. Rankin: They're powerful industry people generally, they make individual contracts, they're usually for short term and they have stand-by provisions for oil or coal or other provisions because most of them are uninterruptible that is the service can be stopped in order to take care of people at home and --
Justice Felix Frankfurter: But as --
Mr. Rankin: -- so forth.
Justice Felix Frankfurter: -- but as your own statement indicates, they're well able to take care of themselves at the expense of the consumer and I take it the Commission wants that power in order to protect the consumer indirectly.
Mr. Rankin: Well, I think they could do a better job myself.
I think that they would have to look at what they say to the Congress in order to say exactly but they have asked it time after time Congress seem fit not grant it.
Justice Hugo L. Black: Who gets the refund of the others?
Mr. Rankin: The refund goes back to the customers, disposed of it.
It goes back to distribution company and as I said to the service station --
Justice Hugo L. Black: Does the law require that?
Mr. Rankin: The law requires it.
Justice Hugo L. Black: The distribution -- distribution company does it go back to the person who buys the gas?
Mr. Rankin: I can assure you that it does.
Justice Hugo L. Black: Has it even done it?
Mr. Rankin: I -- I have been advised that there are cases where it has.
Justice Felix Frankfurter: This Court had given you trouble on that subject?[Laughter]
Mr. Rankin: That's right.
You asked me that before in the City Service case and I answered the best I could.
Justice Felix Frankfurter: Alright.
Mr. Rankin: I -- I know it goes back to distribution companies because the Commission orders it and sees that it does.
Whether it goes back to the consumer is something else and I can't assure it.
Justice Felix Frankfurter: A difficult problem with --
Mr. Rankin: That's right.
Now, I would like to call attention to the Houston case.
It's been referred to particularly this Houston case as an example of where it's inconsistent with our position and that is not correct.
We treat that on page 26 of our brief in the Footnote and we point out specifically that the problem was this.
The service agreement is required by the regulations to be set out in the form -- a form to be set out in the tariff schedule and in this they have some language to the effect that it would be as the buyer and seller have agreed upon the rates and which are set forth here in below.
So there was the form and it said has set forth here in below.
Now, the reason the Commission wouldn't prove that was that they construed it would give the buyer to the seller the opportunity to have a different provision for everyone of their service agreements because of the saying which are set forth here in below.
And they specifically said they couldn't do that because it would take away this principle they were fighting for and have held for all the way through in this terms and service agreements program where the -- the rates for certain class of service and area are to be uniform and without any preference and discrimination.
Chief Justice Earl Warren: Mr. Carson.
Argument of Ralph M. Carson
Mr. Ralph M. Carson: Mr. Chief Justice and may it please the Court.
By way of correction of an inadvertence yesterday and for the record, let me say that the docket number of the 10-year Section 5 (a) proceeding in our case which has just been completed is G1142 and not 1428.
The facts are as I otherwise stated.
And before I go too far from the Chief Justice's question, let me by way of supplement to what the Solicitor General has said with all of which we agree, say that as shown in our reply brief, only 1.8% of all United Gas Pipeline's jurisdictional sales go or sale or resale for industrial use only.
Now that is another term of argument, if the Court please, because it's the language of Congress.
Direct industrial sales are not subject to regulation.
Sales or resale only are subject to regulation and the Non-suspendability Clause applies in Section 4 -- in Section 4 to sale or resale for industrial use only what is usually called in the tariffs an I-rate meaning industrial rate or interruptible rate.
They aren't guaranteed of both amendments and for that to get a lower price and they buy in large volume and their large-volume usage usually what they call a volumetric rate not always, of course.
But – now the trick in the statistics is this as our reply brief shows that many of these distributors buy it from us and other pipelines on a g-rate, a full commodity and demand schedule with a specified regular billing demand and supply and in off-peak periods they divert some of that consumer gas to industrial use.
Now, that's not the sale by us or resale for industrial use only therefore, it's not a non-suspendable sale, it's a suspendable sale.
So, counsel can tell you “Oh, we resell, it's a great percentage of our gas for industrial use.”
They don't buy it from us for resale for industrial use and it's a great deal of the gas that they sell in industries is suspendable as to increased rates.
Chief Justice Earl Warren: Mr. Carson, would it make any difference in your position whether your figures were right or -- or the respondent's figures were right?
Mr. Ralph M. Carson: Yes, insofar as extended as a legal volume (Voice Overlap) --
Chief Justice Earl Warren: The legal principle.
Mr. Ralph M. Carson: The legal principle I would like to address myself to as a matter of Congressional policy sir.
Now a question was asked to Mr. Goldberg, what the Congressional history was?
And he said it was so slight that it didn't matter as I understood him.
On the contrary, I cited in our brief this question was carefully considered.
Justice William O. Douglas: Is your reply brief (Inaudible)
Mr. Ralph M. Carson: No sir, it's on our main brief and I did not put forth the quotations and I do not think I should take rebuttal time to read the quotations, but I can assure Your Honors that in 81 Congressional Record part 6, page 6727, Congress related -- referred to the industrial sales as based on the short term character of the contracts to which General Rankin referred and at a subsequent page which would be as a subsequent to that the introducer of the bill, Mr. Lee, described the construction of transmission systems and the necessity of getting industrial contracts and subsequently in the same part, he said, "This practice of the Commission's has permitted the Natural Gas Companies to compete for industrial fuel business and that produced revenues which have resulted in much lower schedules of natural gas rates to the householder then the rates would have been had the industrial sales have not been made" and then at pages 1844-45 in specific answered to Congressman Pettengill in connection with the suspendability point and the natural monopoly of electricity, Mr. Pettengill said, “And he's not competition the best regulator price there is?"
And the witness said, "I think so, I think that is true to Mr. Pettengill."
And you'll find them in the Senate record that gas -- that gas was regarded as regulated in competition by coal and by oil.
That's the reason, Your Honors for this determined policy of Congress which has not been changed.
Chief Justice Earl Warren: That is not quoted in your brief.
Mr. Ralph M. Carson: It is cited in our brief but not quoted in extense Your Honor, but the history is there as a determined policy of Congress and may I just add in connection with the escalated cost as to which General Rankin calls attention.
Your Honors, bear in mind that these users of industrial non-suspendable gas had protected themselves on distribution and their customers have accepted the protection knowing the non-suspendability.
By a provision or rate increases to the consumer, if the rate goes up to the distributor, that means that the existing mechanism of rate filings has been understood by all concerned to permit increases under Section 4.
Another example (Voice Overlap) --
Justice Hugo L. Black: Are any of these purchasers or resales to industrial users offered any resistance to the effective superseding rate of this --
Mr. Ralph M. Carson: No sir.
Justice Hugo L. Black: How do they explain that?
Mr. Ralph M. Carson: Well, I suppose the availability of competing fields on a standby basis is always there.
They get lower rates.
General Rankin was entirely right yesterday in giving you the figures in the Pacific Northwest in Washington where the increased rate was less than the general rate.
And the reason is I think really that everybody has recognized as the Commission opinion says that this method of change under the effective superseding rate schedule language is an effective method accepted by everyone.
When Justice Douglas asked if there have been rulings on this problem, I think the answer was literally correct.
The Mobile case hadn't been decided and there hadn't been a motion made to reject a filing on what we deem in this application of the Mobile case.
But this effective superseding rate schedule language is in use not only in our contracts, but in the contracts of nine other companies whose names I have here alone and has been in use since 1945 and prior as is shown in the citations on page 53 in our brief to the Commission record at no doubt at the time when Mr. Goldberg as he said was with the Commission.
And universally, these filings have been acted on, recognized and received as a medium of rate change.
Justice Felix Frankfurter: Are you saying if I understand, you correct that this phrase that I was about to ask you what is the phrase, as I understand your (Inaudible) this phrase is found in contract in 1945 --
Mr. Ralph M. Carson: Yes sir.
Justice Felix Frankfurter: -- and filings have been made under it since 1945 before Commission.
Mr. Ralph M. Carson: Continuously and rate increases acted upon accepted both of course as to reasonableness or accepted as the propriety of filing uniformly.
Justice Felix Frankfurter: Well, that's all we have here now with the prior to the filing.
Mr. Ralph M. Carson: For prior to the filing it's what we have here now.
Of course the proceeding under the suspension of the order of the Court of Appeals and I am gratified to be able to perform on Court that the proceeding on this filing 9547 and that's on the subsequent filing which I warned the Court that increased costs required is coming into a completion and unless this Court's affirmance to the decision below throws the proceeding out, the work will not have been wasted.
But at page 53 of our brief, we have given all those citations and the prior history of the Commission.
Now, I was slightly surprised to hear counsel argue to the Court that the filings of fact below were wrong.
He argued contemporaneous evidence.
He argued construction by conduct and other matters which must lead to our brief.
All those matters have been determined by the Commission and all those matters as I think have been accepted by the court below, because I think that counsel was in error in telling Mr. Justice Stewart that the court below had not reached this point.
I think at page 257, no that's not the correct page.
I will refer to page 405 of 250, F.2d where the Commission's findings that the --
Chief Justice Earl Warren: It is in the record?
Mr. Ralph M. Carson: Yes, Your Honor.
It is in the record.
It's in my Appendix.
Rebuttal of Rankin
Mr. Rankin: Beginning of page 267
Rebuttal of Ralph M. Carson
Mr. Ralph M. Carson: It's at page 267.
Thank you, Mr. General Rankin page 267 of the record.
The Commission found that the phrase so on did provide the consent and that was an accurate quotation to the Commission's finding.
Then the Court says, in effect of the Commission's position is that the contractual consent to the act of filing is sufficient for Section 4 (d).
I respectfully suggest that is a misstatement of what the Commission held as just quote.
Then the Court goes on, “Correct though the Commission's statement that the parties intent maybe, it does not answer the question and go on, it goes on to the point of law which it was deemed erroneously.
This Court has decided in the Mobile case.
At page 269 of the record, there is also a statement by the court below towards the bottom of the page, albeit some of those customers may have consented to the act of filing.
Now, it seemed to me that when Mr. Goldberg told Justice Frankfurter that the effective superseding orders did not detract from the validity of the contract and the contract as restated by him without those would have permitted to find he had considered a way this case and I think necessarily so.
I leave to our brief the fact pages 17 to 18 of our brief every word effective, superseding on file comes from the statute or the regulations which are binding on us.
I'm interested in the suggestion that perhaps they're' not wholly valid but Your Honors have not been told to what extent they're not wholly valid.
But in any event, those words are terms of art and they take with them a great deal of history and Your Honors look back to the beginning of the filings -- the beginning of this book, you will see in the early rate schedules, stamped at the top the word “superseded.”
One of the words in the regulations showing this has been taken away and the new schedule has taken its place which the Mississippi Valley among others has agreed to pay according to the new rate.
I called your attention to the fact also that the court in as pointed out in the brief I'm glad to say of Texas Gas and Southern Natural who concurred with us in the interpretation of this contract, the Mississippi Valley contract service agreement among others having the effective superseding rate schedule language has also the sentence which Your Honors attention has not been called early, I regret I must sit down but I refer to the bottom of the page 112.
Chief Justice Earl Warren: Very well.