FEDERAL POWER COMM'N v. TEXACO

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Argument of Howard E. Wahrenbrock

Chief Justice Earl Warren: -- Federal Power Commission, Petitioner, versus Texaco, Incorporated, et al.

Mr. Wahrenbrock.

Mr. Howard E. Wahrenbrock: Mr. Chief Justice, may it please the Court.

This case arose out of the Federal Power Commission's summary rejections of applications for certificates of public convenience and necessity, applications, which had been submitted by producers from natural gas for authority to sell gas to interstate pipelines.

The rejections were in accordance with general regulations because the contracts under which the sales were proposed to be made contained indefinite pricing clauses, that is clauses in addition to the normal type which were not prohibited by the regulations such as a provision that gas should be paid for at so many cents per thousand cubic feet and provisions for fixed escalations in such prices.

That is that the price should go up every year or two or five years by half a cent or a cent, something like that.

Nor other provisions for the reimbursement to the seller of any increases he might incur in taxes, production taxes, severance taxes, gathering taxes.

All of those clauses were allowed.

But the indefinite pricing clauses which were the object of the regulation are further provisions designed to increase the prices fixed under the clauses to which I've already referred, increased to move them up, keep them up to the highest prevailing level, there are variety of such clauses, the second party favored nation clause, which says that if the buyer pipeline pays anybody else a higher price, this price will have to rise equally.

The third party favored nation clause, if anybody else in the same area or field pays a higher price, this price will rise accordingly.

Spiral escalation clauses which provide that if the buyers own prices go up, he must pay his producer a higher price, the kind of provision that was incidentally involved in the -- the Wisconsin case, Wisconsin against the Federal Power Commission, the second Phillips case that was here few years ago.

Redetermination clauses, which provide that at specified times, the price shall be recomputed upon the basis of the highest prevailing prices two or three in average or something of that kind and renegotiation clauses.

The Commission also rejected at the same time the contracts under which the sales were proposed to be made, which were filed as rate schedules or submitted for filing as rate schedules governing the sales if they should be certificated.

Now, there was no question and there is no question here that the regulations applied to the proposed -- the -- the applications which were filed.

The contracts had been executed after the regulations became effective.

The clauses fell within the proscribed class and there had been no request for waiver.

This becomes important later.

The regulations of the Commission explicitly provide for filing applications for waiver or amendment, or repeal of rules.

And this -- this provision for waiver was in effect at the time of these rejections and throughout the 30-day period within which these parties had -- which they had in which to file their applications for rehearing, which are prerequisite to going to the court.

The court below set aside the Commission's rejections on the ground that the regulations were invalid, not because they were unreasonable, the Court didn't reach that question, but because the Commission had no power to issue such regulations it said.

It held that the Power Commission cannot deny certificate applications without the hearing provided in the certificate sections of the Act, Section 7.

And that the Commission cannot refuse to allow rates without the hearing provided in Sections 4 and 5, the rate sections of the Act.

While our petition for certiorari was pending in this Court, the Ninth Circuit in a -- exactly -- in an exactly parallel case, the Superior Oil Company case reached the opposite result, upheld a Commission rejection under corresponding situation.

And Superior's petition for certiorari is -- and our acquiescences are pending before this Court because of the square inter circuit conflict on the question, "Can the Federal Power Commission by a general regulation refuse to consider certificate applications and rate filings where the governing contracts contained pricing clauses, the Commission has determined are incompatible with the public interest.

These regulations were developed in a series of cautious steps over a period of some eight years.

The first step was taken in May of 1954 shortly before the Phillips decision holding producer rates and sales subject to the Commission's jurisdiction.

The rule-making proceeding was initiated in accordance with the -- the provisions of the Administrative Procedure Act for a rule with respect to the clauses of this kind and its chief importance now is in the early recognition or the recognition at least at that time of the existence of the problem.

Two years later, the Commission initiated a second rule-making proceeding.

In the light of the experience, it had by that time had with producer rate filings.

And in the light of that experience, it appeared that if indefinite pricing clauses could be proper -- properly and appropriately, outlawed by a general regulation large numbers of questionable increased rates could not be filed under the Mobile rule require -- prohibiting filing of rate increases contrary to the provisions of contracts.

But action was delayed in this rule-making proceeding until a decision was forced on the Commission by the Pure Oil case.

Pure Oil, a producer, filed for increases under its favored nation clauses.

The purchaser, El Paso, objected, said that the favored nation clause had not been activated, had not been triggered by the transaction that it was relied upon, and therefore, under Mobile, the filing could not be made.

The Public Utilities Commission and the people of California intervened in that proceeding before the Commission contending that these favored nation clauses were as it contended all favored nation clauses were unlawful and void the same contention that was made in the Wisconsin case before this Court.

The Commission ruled that they were not void under existing laws and regulations as this Court ruled in the -- in the Wisconsin case, but that they should be outlawed in future contracts and issued its regulation 232 which contains much of the substance of the regulation now in effect.

The Pure Oil opinion is important here for what it reveals about the indefinite pricing clause problem.

And I referred to it not to argue the reasonableness of the regulation because that question was not passed on by the court below and we have not attempted to argue it in our briefs here but to show something of the nature of the problem with which these regulations attempted to deal.

The first element that the Commission's opinion in the Pure Oil case discloses is that so long as such clauses are allowed, there need be no economic or other substantial justification for the increased rate, it can be filed any way.

And as long as it can be, the experience has shown that most in -- almost every case, in most cases, the increase is filed.

The mere fact that a higher price is paid to some other producer would be sufficient to activate the -- the clause.

The opinion refers to the lack of any substantial relationship to the factors, which bear on the value of the gas or on a determination of a reasonable level of rate for that sale.

A second factor discussed in the opinion is the interacting and cumulative effect of these clauses in numerous contracts in the same area, one acting upon the other, triggering the others and this in turn triggering more until a chain reaction is produced.

It was estimated by El Paso in that case -- in the Pure Oil case that if that chain reaction which had occurred there stood, El Paso's costs of purchased gas each year would increase from 35 or up to possibly $51 million, the increase of $35 million to $51 million a year.

A third element referred to in the Pure Oil opinion was that the pos -- that the possibility of such increases under indefinite pricing clauses makes it impossible when an application for a certificate is before the Commission for the Commission to judge what the pipelines cost of gas is going to be if the initial price is subject to be increased and the event anybody else increases his price, the Commission cannot determine whether the pipeline addition or the new pipeline should be -- will be economically feasible.

And the fourth element that the Commission mentioned is that these favored -- these indefinite pricing clauses have given rise to difficult problems of interpretation.

Under the Mobile decision, the Court -- the Commission must determine whether an increase filed under one of these clauses maybe accepted whether it is or it's not in accordance with the contract.

And if it is not, it must reject it.

And this has raised exceedingly difficult and complex questions.

One of those questions took seven years to decide.

It was in the Court's four years came to this Court on the merits once and the second time this Court -- or after the court below had affirmed the Commission's interpretation of the clause, this Court denied certiorari.

Another one where both factual and legal questions were involved took -- has already taken over four years and it's now pending in the Third Circuit on a record that was made before the Commission of more than 7000 pages.

And while this preliminary threshold jurisdictional question is being considered and awaits decision by the Commission and by the courts, the Commission is prevented from reaching the question of the reasonableness of the rate which is proposed.

And that question, the statute says is one that the Commission must give preference to over all other questions pending before it and decide as speedily as possible.

Now, this indicates the kind of problems that were sought to be dealt with by Order 232.

And in contract executed thereafter, that Order provided, that indefinite pricing clauses should be inoperative and of no legal effect.

But the Commission invited further comments and in effect, it enunciated a further rule-making proceeding in accordance with the provisions of the Administrative Procedure Act by inviting further comments and publishing that request in the Federal Register and serving it on natural gas companies.

And as a result of the comments which were received, some 30 comments being received, the Commission's substantially modified or ameliorated 232 to permit some indefinite pricing clauses.

If they were not operative more than once in any five-year period, during which no fixed escalations occurred and if the prices which were used as a point of reference for the increase where prices which were themselves subject to the Commission's jurisdiction and the Commission had not questioned those prices.

Justice John M. Harlan: (Inaudible)

Mr. Howard E. Wahrenbrock: Yes.

They participated in every one of these rule-making proceedings I have spoken out by submitting comments and data and argument

.And those comments and data, we have large copies of them with the Court so that the Court can look at them if it wants to.

These are, we believe, legislative history materials.

They are part of the proceedings back of the rule-making proceeding and maybe judicially noticed their part of the official files of the Commission.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Howard E. Wahrenbrock: The pipeline --

Justice Arthur J. Goldberg: (Inaudible) the producers.

Mr. Howard E. Wahrenbrock: The producers.

The producers -- yes.

That is the question I come to --

Justice Arthur J. Goldberg: (Inaudible)

Mr. Howard E. Wahrenbrock: -- in the Court very shortly.

Thank you.

Now, I do want to just first speak of the inadequacies which remained and led to the further -- the final form of this present regulation.

By outlawing these provisions saying they should be inoperative and of no effect certain inadequacies were still failure to deal with the problems, still remain.

The certificate applications and rates which contained such clauses could still be filed with the Commission and if they were filed, even though there was no economic justification or it appeared to be none for them, the Commission would have to conduct a proceeding on each one and they would still produce these chain reactions of which I have spoken.

So in October of 1961, the Commission issued its third rule-making proceeding and the effect of that was to provide for the rejections.

That brings us then to the question of whether rejections under such a regulation are valid, whether the Commission has power.

And we submit that the Federal Power Commission's choice to proceed by regulation rather than as the court below indicated it should by a trial like hearing in every case was basically simply an attempt to deal with a general problem in a general way.

The two-frequent failure of regulatory agencies to do more of this kind of thing was strongly criticized by Mr. James M. Landis and his report to President elected Kennedy in 1960.

His report emphasized that agency should devote more attention to the formulation of policy and to the embodiment of policy in general rules and regulations.

Instead of getting submerged in the ad hoc adjudication of individual cases and it is interesting that so modest and attempt to do what Mr. Landis urged that a regulation so cautiously developed as this by successive commissioners in office over a span of eight years and a regulation aimed at the problem singled out by Mr. Landis as Exhibit A in his museum of administrative horrors should, in the succeeding three years have drawn us into Court, into Courts of Appeals in 7 -- in 17 cases and ultimately here today.

Perhaps the broadest ground on which the Tenth Circuit ruled that the Commission lack of power here was that proceeding by general rule instead of ad hoc adjudication violates the Mobile principle, which Mr. Justice Brennan in the Sunray Mid-Continent case characterized as recognition of the integrity of private contracts.

But the Tenth Circuit never faces up to the obvious question why does a general regulation violate that principle anymore than case-by-case elimination of indefinite pricing clauses.

Suppose the Commission were to depend on the case-by-case approach, and I think Mr. Justice Goldberg that I answer your question now.

If in that case, if it were to proceed case-by-case, the Commission would have to accept each producer's certificate application although it was based on a clause or contract that contained such a clause as this.

It would have to hold a hearing in all of the usual -- on all of the usual questions of issues of public convenience and necessity such as the level of the initial price.

And in addition, it would have to hold the question on whether this indefinite pricing clause was compatible with the public convenience and necessity.

Now, probably there would be interventions on questions of this kind.

The Commissions in the States of California and Wisconsin, the Public Service Commission of New York had been intervening.

We have their interventions probably.

There would be an examiner's decision after the hearing and exceptions to it and breathing an oral argument before the Commission and the Commission decision.

Now, assume that the Commission should decide in such a case that the indefinite pricing clause is incompatible with the public convenience and necessity.

Under the teaching of CATCO, it can do one of two things.

It can deny the certificate or it can condition the certificate presumably upon the elimination of the indefinite pricing clause, and the producer can take it or leave it.

Each such producer in such a proceeding, case-by-case proceeding, would be in the same position.

It is in under this general regulation if it applies for a reg -- for a waiver.

It has the same burden of proof.

It has the same risk of drainage if there's a risk of drainage pending the decision.

It has the same possibility of meeting that by emergency steps.

The only difference is that the Commission must repeat the same kind of proceeding every time a producer brings it in, scores maybe hundreds of time and decide again the same question, the question which so far as anything that has yet been developed shows there is no substantial difference between cases on and decide that time and again every time a producer comes in and brings it before us.

Because unless there is a rule such as we have here, the Commission cannot refuse to consider the question.

It must under the statute hold a hearing.

Justice Arthur J. Goldberg: (Inaudible)

Mr. Howard E. Wahrenbrock: That's the reason we have statute law which lays down regulations in advance.

That's the reason we have a -- a power in an administrative agency to act by general rule, to eliminate that necessity for dissipating the Commission's time and energy on questions would have -- that it has in substance resolved.

As this Court has made clear --

Chief Justice Earl Warren: Do you have to know about how many proceedings there are of this kind with this rule would be subject to these rules?

Mr. Howard E. Wahrenbrock: We do not have figures on how many of the producer's certificate applications contain these indefinite pricing clauses.

That has bothered me that I have not been able to get that.

There are about 1400 of producer regulations a year to be considered of which there -- there's an unknown number that contain these clauses.

Chief Justice Earl Warren: Is it a large number?

Mr. Howard E. Wahrenbrock: Yes.

Well, the Commission has referred to it in the Pure Oil opinion and subsequently as floods of these filings.

As this Court as made clear, the choice between the ad hoc adjudicatory process and the general rule-making process is one for the administrative agency.

In the Chenery case the Court said, this is the second Chenery case, the function of filling in the interstices of the Act should be performed as much as possible through this quasi-legislative promulgation of rules to be applied in the future.

The choice made between proceeding by general rule or by individual ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.

Now, a closely related ground that seems to be interwoven in the opinion of the court below for the decision it reached, it seems to be that because the statutory restriction of sales of gas to those sales that are required by the public convenience and necessity is coupled in the statute with provisions to accomplish that objective by certificates issued in accordance with the proscribed hearing and other procedural requirements.

The Commission is barred from using its general rule-making power to aid in accomplishing the same objective.

And similarly that because the statutory requirement that contracts relating to rates shall be just and reasonable, it is coupled with provisions to accomplish that objective through hearings to fix just and reasonable rates and contracts.

The Commission is barred from using its general rule-making powers to aid in accomplishing that objective.

But we think that the definitive answer to the court below is that this Court has already passed on this question in the Storer case, United States against Storer, in 351 U.S., page 192, opinion written by Mr. Justice Reed.

And while there were dissents, there was no dissent on this point, no expressed dissent on this point.

In that case, the Federal Communications rule-making power under which it had acted is certainly no broader than that of the Federal Power Commission under which the Power Commission acted here.

The rule, which was promulgated by the Federal Communications Commission, was promulgated under the same Administrative Procedure Act provisions under which the Power Commission acted.

It invited comments.

It did not hold a trial like hearing, the same as true with the Power Commission.

That rule of the Federal -- of the Federal Communications Commission barred the issuance of station licenses to any person already interested in more than a specified number of stations.

And the Communications Act, like the Gas Act, the Communications Act in the Section 309 provides for the issuance of licenses after a hearing requires that a hearing be held before an application can be denied.

It was contended in that case that the rule of the Federal Communications Commission was invalid because it constituted a denial of a license application without a hearing, the same ground on which the court below relied.

And this Court upheld the Communications Commission's rule in these -- these terms.

At least I might mention these two sentences.

We agree with the contention of the Commission that a full hearing such as this required by Section 309 would not be necessary on all such applications.

As the Commission has promulgated its rules after extensive administrative hearings, it is necessary for the accompanying papers to set forth reasons, sufficient if true to justify a change or waiver of the rules.

We do not think that Congress intended the Commission to waste time on applications that do not state a valid basis for a hearing.

Now, that decision of this Court was argued extensively in -- in our briefs and in oral argument to the Commission below, extensively by us and to a certain extent, by our opponents.

And though it was so argued, it is not even mentioned in the Court's opinion except on another point with relation to jurisdiction, which was also an issue in the Storer case.

The Court -- the Tenth Circuit did, however say, argue seems to have been very much impressed with the consideration that there was no possibility of effective judicial review in the absence of a trial-like hearing.

But as the Ninth Circuit in the Superior case pointed out, this would require that all general rule-making by administrative agencies be based on a trial-like hearing.

Other courts have found no difficulty in passing on the reasonableness of agency rules adopted by the same procedure.

That was true in the Storer case.

It was true by the Ninth Circuit's Superior case.

The Ninth Circuit did pass on the reasonableness of this very regulation.

It was true in the Court of Appeals for the District of Columbia Circuit in the recent Public Service Commission of the New York against the Federal Power Commission where the District of Columbia Circuit had under consideration the validity of the Power Commission's regulation governing the issuance of temporary certificates of public convenience and necessity.

So Tenth Circuit goes on to say that there was no finding by the Commission in haec verba that these provisions of the contracts are not just and reasonable, the finding that is specified in the rate sections of the Act and no explicit finding in haec verba that the clauses are incompatible with the public convenience and necessity.

But here again, we should point out that the Commission was acting under Section 16, its power to enact general rules and regulations to carry out the provisions of the Act.

It was not acting under the specific rate and certificate sections which require hearings or require findings.

Section 16 requires no finding.

It only specifies that the rule be one which is necessary or appropriate to carry out the provisions of the Act.

The procedures for accomplishing that kind of rule-making have been prescribed in the Administrative Procedure Act, Section 4 (b) of that Act, provides for participation by the submission of comments, data, and argument.

But expressly -- expressly says that this may or may not be in the discussion of the agency include oral presentation of any kind.

In Section 4 (b) of the Administrative Procedure Act does not require any findings.

It only specifies that after consideration of all relevant matter presented, the agency shall incorporate in any rules adopted a concise, general statement of their basis and purpose.

There is no contention that the Power Commission has failed to comply with that requirement.

And even if we go on to argue in our brief, even if the hearing requirements of Sections 4 and 5 and 7 were applicable and did have to be made, the Commission's statements made in issuing Order 232.

And in -- by reference in its opinion in the Pure Oil case, we show under repeated decisions are sufficient to meet the substance of the findings requirements of those sections.

Now, insofar as the Tenth Circuit rested on the ground that the Commission lacks power to regulate contracts under the principle of the Mobile case, we submit that it is clearly wrong.

Because there was no question before this Court in the Mobile case of the Commission's power to regulate contracts and no decision reached on that question.

The question there was of the Company's power to file rate increases with the Commission in violation of its contracts, not of the Commission's power to regulate contracts.

And though there was no question of the Commission's power to regulate contracts, this Court was careful in the opinion written for the Court by Mr. Justice Harlan to make it plain that it had not passed on that question and that there should be no implication of that kind drawn from the decision.

Because it is stated in that opinion at page 344 and I quote a part of the language, "denying to natural gas companies the power unilaterally to change their contracts in no way impairs the regulatory powers of the Commission for the contracts remained fully subject to the paramount power of the Commission, to modify them when necessary in the public interest."

This reading was confirmed in the subsequent opinion of this Court in the Sunray Mid-Continent Oil Company case where Mr. Justice Brennan wrote the opinion for the Court and he said this, "The short of the matter is that Mobile recognized that there were two sources of price and supply stability inherent in the regulatory system established by the Natural Gas Act, the provisions of private contracts and the public regulatory power."

Now in our brief, we review the explicit language of Sections 4 and 5, and the numerous cases which have uniformly upheld Commission orders requiring modifications of contract, uniformly upheld Commission orders requiring modifications of contracts, done so both in cases on the regulation of rates and service and in cases involving the issuance of certificates of public convenience and necessity.

Now, I believe that it is unnecessary at this time to shake more time here on that question.

Justice John M. Harlan: You -- you referred Mr. Wahrenbrock to a waiver -- a waiver provisions in these regulations.

How does that operate?

Mr. Howard E. Wahrenbrock: The --

Justice John M. Harlan: If a company wants a waiver and exemption from (Voice Overlap) --

Mr. Howard E. Wahrenbrock: Yes, sir, and -- and --

Justice John M. Harlan: How does it operate?

What stage does that come up (Voice Overlap)?

Mr. Howard E. Wahrenbrock: We have some very good examples because since the Tenth Circuit has held the regulation invalid, we've had the problem of what to do in the mean time and we have had many producers -- certificate applications submitted including -- when I say many -- I know off something in the neighborhood 30 of them.

And in recent -- since the decision of the Tenth Circuit, we've been doing this.

The application is received with these indefinite pricing clauses in it that the regulation proscribes if the regulation is valid.

I'm not sure what the immediate procedure is but probably there is a rejection of them in accordance with the regulation.

This has always been true.

Following that rejection in order to go to Court, the company must apply for a rehearing and has 30 days within which to apply for a rehearing.

At that time, it may apply for a waiver and we have recently been granting these waivers conditioned on the outcome of this litigation.

If the Commission's regulation is ultimately sustained, then those parties are required to eliminate those clauses upon their contracts.

If the regulation is not sustained, then this waiver waives the rule as to them and allows those indefinite pricing clauses to remain in their contracts.

Justice Arthur J. Goldberg: Well, there is no waiver provision (Inaudible) standing of decision on these questions.

Mr. Howard E. Wahrenbrock: That's -- that's right.

That's right.

The --

Justice Arthur J. Goldberg: What --

Mr. Howard E. Wahrenbrock: -- pro -- provision of the Commission's rules allows any party to file a petition to seek a waiver of the Commission's rules or --

Justice John M. Harlan: If you're sustained in this case, is that waiver -- is that waiver a provision now, wouldn't (Voice Overlap) --

Mr. Howard E. Wahrenbrock: That's right.

The waiver is terminated.

Justice John M. Harlan: Functus (Voice Overlap) officio, would it?

Mr. Howard E. Wahrenbrock: Pardon.

Justice John M. Harlan: It would be functus officio?

Mr. Howard E. Wahrenbrock: That's right.

Justice John M. Harlan: Oh I got the impression of what you said was that if even if you had the power to do what you're claiming here that nonetheless if the Company could show special circumstances, they could come in and ask for a waiver.

Mr. Howard E. Wahrenbrock: Yes.

Justice John M. Harlan: That's not so.

Mr. Howard E. Wahrenbrock: I believe it is so.

I -- I've made this unnecessarily confusing.

I'm using a recent example but the example was not a good one.

If a company comes in and says, "We've got special economic circumstances.

The regulation would -- however good it maybe as to others, should not be applied to us, then the Commission may waive the rule as to it or the company can come in and ask for a repeal of the rule or on modification of the rule, " that this section of the Commission's regulations permits that to be done.

Justice John M. Harlan: In the certificate proceeding (Voice Overlap) --

Mr. Howard E. Wahrenbrock: Yes, sir.

In connection with the certificate proceeding.

Justice John M. Harlan: So that if you prevail on this case and these companies wanted to come in and say, "We -- we're entitled to a waiver and should have because of special circumstances, would they get a hearing on that (Voice Overlap)?

Mr. Howard E. Wahrenbrock: Yes, sir.

Justice John M. Harlan: They would.

Mr. Howard E. Wahrenbrock: Yes, sir.

Yes sir.

There had been two such applications for a waiver granted by the Commission.

Justice Byron R. White: (Inaudible)

Mr. Howard E. Wahrenbrock: The whole purpose of the waiver is to accord them on hearing.

This is the same kind of thing that was involved in the Storer case where Mr. Justice Reed's opinion relies on the fact of the right to a waiver.

Justice John M. Harlan: Well, I suppose they have to make some kind of a prima facie showing -- a paper showing.

Mr. Howard E. Wahrenbrock: Yes.

I was going to draw that qualification.

Again, the -- if -- if there's no factual question raised on which a hearing would be necessary --

Justice Byron R. White: (Inaudible)

Mr. Howard E. Wahrenbrock: The waiver would have to show grounds for -- for exception from the general rule, from the --

Justice Byron R. White: (Inaudible)

Mr. Howard E. Wahrenbrock: Yes, they are -- thus far -- well in this particular case, there was no request for waiver so we don't reach that question.

Justice Arthur J. Goldberg: I suppose if your application for waiver itself and in fact that particular rule is the wrong rule, it's a very bad, bad rule and you really consider that matter as to raise it but it's discussed to modify the rule and you've decided not to modify the rule, you'll reject it.

Mr. Howard E. Wahrenbrock: That's right --

Justice Arthur J. Goldberg: And I think (Voice Overlap) --

Mr. Howard E. Wahrenbrock: -- precisely.

Justice Arthur J. Goldberg: (Inaudible) called for was the fact that (Inaudible) special hardship or special economic reason applying to the facts of the case.

Mr. Howard E. Wahrenbrock: Yes.

Justice Arthur J. Goldberg: Unless you would require it showing that at least in fact (Inaudible) the allegation offense would warrant a hearing.

Mr. Howard E. Wahrenbrock: That's right.

Justice Arthur J. Goldberg: Is that -- is that true?

Mr. Howard E. Wahrenbrock: That's right.

As this Court said in the -- in the Storer case, there's no need for a hearing where no grounds have been presented for the departure from the general rule.

Now, I would like to take time now to turn unless there are other questions on this to the venue question which we saved in our petition for certiorari.

Texaco, one of the two respondents here, after having taken several previous cases for involving Federal Power Commission orders to the Court of Appeals for the District of Columbia Circuit, and then having taken one to the Court of Appeals for the Fifth Circuit under the Principal Place of Business Clause of Section 19 (b) of the Gas Act.

In this case, went to the Tenth Circuit under a claim that it, Texaco, is located in the Tenth Circuit within the meaning of Section 19 (b), although under the normal meaning of the word "located" as the legal residence which in the case of a corporation is the state in which it is incorporated, Texaco should have gone to the Third Circuit, it being incorporated in Delaware.

But the Tenth Circuit held that it had venue this -- of this case and there are, in its opinion, at least three discernible grounds for that decision.

The first is, its statement in its opinion that Texaco and I quote, "conducts extensive operations in that circuit referring to the Tenth Circuit."

But if "located" is the equivalent of the place where extensive business is done, Congress would not have needed to have added in Section 19 (b) a provision for venue upon the basis of the principal place of business.

If doing some business, if doing extensive business is enough, Congress wouldn't have had, then go on and add a principal place of business.

In fact, the Tenth Circuit's opinion deprives the language of principal place of business as any meaning or purpose in Section 19 (b).

It makes it a pure redundancy in violation of the -- the usual important and helpful rules of statutory interpretation that meaning shall be given to all provisions of the statute if that's reasonably possible.

The Tenth Circuit admitted in its opinion, admitted as much, when it said that there was overlapped in the provisions and it has -- it had construed them.

But it said that the overlap was for the purpose of clarity.

Well, that doesn't seem to be any need for clarity if the clauses are properly interpreted and probably, this kind of an explanation could be made in -- against every case in which courts attempt to give meaning to all provisions of a statute.

And it's not necessary here because if lo -- located is construed in its normal meaning of legal residence and principal place of business is given its normal meaning, both are given meaning, both are consistent.

The second ground on which the Tenth Circuit seems to have denied venue -- or upheld venue is this and I quote its language."

More importantly, the gas is produced in the Tenth Circuit and the performance of the contract occurs in the Tenth Circuit."

Now, that maybe a good conflict of laws' rule for determining the State whose laws shall govern the contract but there is no authority that we know of in statute or in case law or anywhere for the proposition that Texaco's performance of its contract in the Tenth Circuit shows that Texaco is located, the company is located there.

Unknown Speaker: (Inaudible)

Mr. Howard E. Wahrenbrock: It was saved, if Your Honor please.

It was not the basis for seeking certiorari but it would --

Unknown Speaker: (Inaudible)

Mr. Howard E. Wahrenbrock: Yes, it was specified as a question that was reserved to be argued.

Unknown Speaker: (Inaudible)

Mr. Howard E. Wahrenbrock: Thank you.

On page 2 of the petition for certiorari, in Footnote Number 1, "If certiorari is granted, Commission reserves the right to argue."

Court below erred in not dismissing the petition for lack of vain.

Unknown Speaker: (Inaudible)

Mr. Howard E. Wahrenbrock: That's right.

That's right, but this has become even more important than it was at the time the petition was filed.

Because within the last few days as we have shown by supplemental letter to the Court, the precise venue question on these precise arguments that I'm advancing now made by us in a motion to dismiss a similar case in the Fifth Circuit, has resulted in the Fifth Circuit dismissing a petition for one of proper venue.

Justice John M. Harlan: Oh, we can't decide both questions, can we?

If we sustain you on this and we don't reach the merits.

Mr. Howard E. Wahrenbrock: If you sustain us -- (Voice Overlap)

Justice John M. Harlan: (Inaudible) I should think your point with reservation was that it --

Mr. Howard E. Wahrenbrock: Oh, my associate, of course, reminds of what I should have thought up sooner.

This question is present only in the Texaco case.

The other, the substantive question is still present as -- with respect to Pan American, the other respondent which was a separate case before the Tenth Circuit.

And as the Pan American, the question must be decided.

The venue question if we are sustained will eliminate only the Texaco case.

Justice Byron R. White: (Inaudible)

Justice John M. Harlan: (Inaudible)

Mr. Howard E. Wahrenbrock: I'm sorry.

I don't get your question.

Justice John M. Harlan: Well, the case you're arguing --

Mr. Howard E. Wahrenbrock: We would -- we do need to get this settled, there have been -- there have been many of them and it is important then -- it's now, we're glad we have a conflict because we hoped the Court will decide the venue of question as well.

Justice John M. Harlan: But the venue of question isn't here.

We haven't granted straight on that.

Mr. Howard E. Wahrenbrock: It's my understanding of the practice of the Court that where it grants certiorari to review a question such as the substance that we have here and that the petition reserves the right to -- intention to argue a second question that this Court will consider and that that is open to consideration by the Court, and we may -- we may argue it at any rate.

And now that we may argue it, and now that there is a conflict, we hoped that the Court will pass on it.

Justice John M. Harlan: Or in other words, if I understand it on what you want us to do is to take this other case that's being held and has been held and get the number of it where the venue of question is presented.

Mr. Howard E. Wahrenbrock: No, I'm sorry.

Justice John M. Harlan: Is that it?

Mr. Howard E. Wahrenbrock: On the venue --

Justice John M. Harlan: Then assert and then decide that question too.

Mr. Howard E. Wahrenbrock: On the merits, we have a conflict between the Tenth Circuit and the Ninth Circuit.

That's -- that's on this question of the validity of the regulation.

Justice John M. Harlan: Yes, so that's the question you've been arguing up to now.

Mr. Howard E. Wahrenbrock: Up until I've got to venue.

Justice John M. Harlan: Right.

Mr. Howard E. Wahrenbrock: Now on -- there is the conflict of the Tenth Circuit with the -- with the Ninth Circuit on -- on the merits, on the validity of the regulation.

There is also -- has developed since this petition was filed, a conflict between the Tenth Circuit and the Fifth Circuit on this venue of question, the venue of question being raised only with respect to the respondent, Texaco, here.

Justice John M. Harlan: Well, I'm -- well, I'm still confused because I don't understand the venue of question to be presented in this case that you've been arguing now.

Mr. Howard E. Wahrenbrock: When we -- when we petition for review of the Tenth Circuit's decisions in two cases.

One involving Texaco and one involving Pan American.

Justice John M. Harlan: Alright.

Mr. Howard E. Wahrenbrock: We raised, so far -- we pointed out the existence of this question with respect to venue and reserved the right to argue that question with respect to venue in the case when -- which Texaco was the petitioner in the Tenth Circuit.

Now, we are arguing the venue of question with respect to the Texaco case in the Tenth Circuit.

This --

Justice Tom C. Clark: Deciding your (Voice Overlap) reached demand.

Mr. Howard E. Wahrenbrock: You do not reach within the Texaco case.

Justice Tom C. Clark: (Inaudible)

Mr. Howard E. Wahrenbrock: You do reach it in this case, but so far as it relates to the respondent Pan American.

The third ground on which the Tenth Circuit seems to have faced its ruling on venue is one that sounds better at first than it appears on examination.

"Congress," the Court said, "substituted the word "located" in Section 19 (b) for an earlier use of the word "resides" in an earlier draft."

Therefore, having substituted "located" for "resides," and the Court said, "Congress must have intended to use "located" in a different meaning from that of the word "resides."

But a comparison of that original draft and the late -- and the present form of the statute shows that the change from "resides" to "located" was incident to a more important change and is "located" very plainly appears to have been used as the synonym for "resides."

The more significant change that was made was at incident was -- was that in fixing the circuits in which review might be sought of Federal Power Commission orders.

The original draft had provided that the circuit should be determined by reference to the petitioner.

The party agreed, circuit related to him.

In the revised draft that which became the law, the circuit is determined by reference to the company to which the order relates.

That seems to have been the important change that was made and the change in the use of the word "located" for the word "resides" seems very clearly to have been that in -- that the draftsman intended to avoid saying, the circuit wherein the public utility resides.

If it had used the word "resides," it would in this new language have had -- did he say the public utility resides and it was to avoid the awkwardness of that phrase, we submit that the Court changed -- that the draftsman changed the language.

Justice Potter Stewart: Why is that phrase so awkward?

I don't quite get that.

Mr. Howard E. Wahrenbrock: The point is that the original language said, "The circuit wherein the -- in such a person resides, meaning the agreed person.

Justice Potter Stewart: Yes.

Mr. Howard E. Wahrenbrock: If it had just substituted that the Circuit wherein the licensee or public utility that was the language of the Power Act resides, it would have been an -- an awkward phrase to speak of a public utility as residing in a circuit, and the draftsman, we submit has sought to avoid that awkwardness by saying, "Wherein the public utility is located."

But we believe --

Justice Potter Stewart: This is a matter --

Mr. Howard E. Wahrenbrock: -- using --

Justice Potter Stewart: -- literary style.

Mr. Howard E. Wahrenbrock: Yes, yes.

I'd like to save the remainder of my time.

Thank you.

Chief Justice Earl Warren: Mr. Gilliam.

Argument of Carroll L. Gilliam

Mr. Carroll L. Gilliam: Mr. Chief Justice, and may it please the Court.

To clarify one point about the matters of substance, I am appearing on behalf of Pan American Petroleum Corporation, who is also a respondent.

As to it, there is no venue of question before the Court.

Mr. DeCrane, who will follow me, will respond as to the venue of question.

My remarks are directed solely to the question of validity of these regulations.

At the outset, I would say that the Commission counsel referred to Dean Landis report and made reference to museums of administrative horrors.

In our view, the Tenth Circuit correctly consigned these particular regulations to that museum.

The important thing before the Court today is that these regulations do two things.

They're not only purport to declare in operative and therefore, outlaw certain types of contract clauses that historically have been used.

They also prescribed affirmatively the only permissible clauses that hereafter may be used by producers in selling natural gas in interstate commerce to pipelines.

The Commission, therefore, did two substantive things.

Commission counsel has argued primarily a form of procedure.

I would like to direct the Court's attention primarily to the substance of what the Commission has done because the gist of the holdings of the Tenth Circuit relates to the substance of the orders.

That holding is, first, that the Commission has no substantive powers to prescribe or proscribe clauses in this fashion in advance of its review of the contracts as to which it is acting.

The Tenth Circuit, in our view, correctly read this Court's opinion in the Mobile case to lay out the dichotomy under this statute of the powers of the Commission on -- on the one hand with respect to contracts and the powers left to regulated companies with respect to contracts on the other.

The Court there held that this Act did not abrogate contracts.

The Court further pointed out that the Commission's power with respect contracts is that of review.

Review of contracts in the Court's language made in the first instance by regulated companies.

I would like to illustrate briefly what in our view is the proper operation of this Act with respect to contracts under the constructions of this Court.

We are not in the position that the Commission apparently would put us in saying to the Court that the Commission has no power to change contracts, the questions actually are, "How upon what facts in applying what standards the Commission may outlaw contracts and then prescribe alternatives in substantives?"

The substantive order that is of most importance is the order, denoted Order 232A, which appears in the record at R20.

It, in a few lines, declared inoperative and, therefore, outlawed all clauses except those which there appear.

The next order that the Commission issued in this chain, I should correct the reference to Order 232A begins on page 18 and concludes on 21.

The next order of significance here is order 242 which begins on page 22 of the record.

That order directed a bar at the Commission's door.

And it specifically says, "That anyone who comes to the Commission with a contract that contains a clause different from those that were previously set out in the Order 232A, is denied the hearing that Section 7 specifies and is relegated to a status under which he has no right of hearing, he -- his contract is never judged under the Act's standards and he is told that the only clause he may have is a clause such as that set forth in Order 232.

And those clauses themselves have not been tested under the Act's standards.

There has never been a finding by the Commission that the public convenience and necessity is served by the clauses the Commission has prescribed.

There has never been a finding by the Commission that these clauses the Commission has prescribed are just and reasonable which is the controlling statutory standard as to all contracts and all contract clauses.

That is the impact of the two-principle rule orders that are now before the Court.

The specific Pan American sale which brought us here is a contract which does not contain any of the clauses of the type, Mr. Wahrenbrock had discussed.

The particular clause that brought us before the Tenth Circuit and before the Court appears in the record beginning at R87 and continuing to R88.

The particular clause is that portion which appears on R88.

It is not a spiral clause.

It is not a favored nation clause.

All it is, is a clause under which the pipeline and the producer have agreed that in 1983, the 20th year after deliveries began, these parties will re-determine price.

That price then would be filed before the Commission under Section 4 of the Natural Gas Act.

The Commission then would have full power to suspend it and a just and reasonable determination would be made as to the rate.

As pointed out by the Commissioner who dissented in part on the first issuance of Order 232, which started this chain of events, renegotiation clauses of that type had never been considered by the Commission.

They have never had a hearing as to such clauses.

If there has ever been a commission hearing from which so-called administrative expertise would evolve, it has been solely and only with respect to the so called favored nation's clause, which was involved in the Pure case discussed by the Commission.

The Commission has never considered arbitration clauses, renegotiation clauses, redetermination clauses in any hearing.

Justice Potter Stewart: Before these rules were promulgated, their parties were invited to express their views in writing.

Mr. Carroll L. Gilliam: That is correct.

Justice Potter Stewart: It did so and then there were some modifications made but there was no hearing as such?

Mr. Carroll L. Gilliam: No fact finding hearing.

Now, this is part of our problem.

We agreed that the Commission has rule-making power --

Unknown Speaker: (Inaudible)

Mr. Carroll L. Gilliam: Rule-making power.

There's no question about that but under this Act, there obviously are certain functions that the Commission performs in certain substantive decisions that the Commission makes, which are not susceptible to this position under the rule-making process.

The Tenth Circuit correctly concluded that deciding what clause is just and reasonable or what clause serves the public convenience and necessity is a decision that requires the process Congress has specified in Section 7 that is a hearing upon the certificate and a testing of -- against public convenience and necessity.

Justice Arthur J. Goldberg: With that of what said, it's the present argument -- if the Commission failed on the theory on the general rules (Inaudible).

Mr. Carroll L. Gilliam: Your Honor, our first point is that with respect to contracts that are in existence now, the Commission can proceed in its area rate proceedings and it -- which are under Section 4 and Section 5, it can proceed in consolidated Section 7 cases.

This case-by-case is just a bugaboo raised by the Commission.

These things historically are considered on a consolidated basis along with a pipeline's expansion project.

They -- there maybe scores of producers right in the same hearing, the same record.

The case-by-case part, I think this Court can lay aside, the Tenth Circuit did not hold that.

It's an exaggeration by the commission below.

And here, the consolidated approach, the Court has left standing.

It's specifically said, "Area pricing is not before it."

Now, our position is as to existing contracts and clauses in those proceedings with the California Commission there.

With us there, the Commission staff there and the technicians and the questions that are involved when you prescribe and proscribe clauses, there's a fact finding process, a decision consistent with the statutory standards would have to come out with respect to contracts that are not yet written.

As we read Mobile, the Commission is without substantive power to pull out of the blue the clauses that will be in those contracts to post the rule and say from this day forward, the only contracts that are consistent with public convenience and necessity and just and reasonable of this.

Now, our reason for that is historically this, and I would emphasize just and reasonable.

That is a rate regulatory standard with constitutional routes and you apply it to facts.

You don't apply it.

It's still unknown, undecided contracts or rates not even in deem.

As we read this Act, the interrelation of Section 7, Section 4 and Section 5 is such that the Commission has full powers to consider all of these clauses.

And frankly, I do not know whether all of them would pass master in a hearing under the Act.

Justice Arthur J. Goldberg: Why is the provision (Inaudible)

Mr. Carroll L. Gilliam: Your Honor, in our view, the waiver argument can be dismissed as a complete sham proceeding.

There are legal problems with it and there are practical problems with it.

The legal problem is this, and we say this is the illegality of the waiver approach.

It removes the decision on a clause from the statutory standards that Congress has set up.

Instead of having a proceeding under Section 7 as to public convenience and necessity or a proceeding under Section 4 or 5 where just and reasonable as the standard.

You are consigned in theory to a so-called waiver process where there is no standard.

It isn't even written.

It maybe the whim of the various -- I don't mean this derogatorily but commissioners are birds of passage in the administrative process.

It is removing the decision that is made on the most vital part of a contract, the rate fixing provisions from the statutory standards that Congress set up.

Now, the practical part of it is probably more important.

It is not possible once this Court decides this case, assuming it affirmed the Commission for a producer to get a contract upon which to seek waiver.

The hooker in it is a provision of Order Number 242 that applies to the pipeline companies as well as the producers.

There is a provision that if a pipeline company, which has to get a certificate also, comes before the Commission with a reserve, a gas supply that is covered by a contract with one of the so-called odious clauses in it.

That reserve and that gas supply, the Commission will not consider as committed to pipeline, that goes out.

Now, a pipeline cannot get a certificate without a reserve showing.

In fact, it also cannot get financing.

So that places on the other side of the bargaining table, from the pipeline side, an impediment in ever putting that pipeline's name on a contract that has a provision other than this that have been posted on the board by the Commission.

There have been and -- to our knowledge in this vague area that we're in now until there's a final decision, cases that I would call flukes, and in fact that two that are before this Court today are, they result in part from misunderstanding of the regulations.

The Commission had referred to the Atlantic two-way route cases.

Texaco, in the blue colored brief before you, I believe in the appendix has set out for this Court exactly what has happened in those two cases.

In the first case, a so-called hearing was started and all of the evidence with respect to the contract clause except the name and qualifications of the witness was stricken on the grounds that it was a question of law that the contract complied with these regulations or did -- or did it not.

All the evidence was not even received.

The next Atlantic Clause which resulted in a granting of rehearing ultimately resulted in the fact that because of economic and business compulsion, Atlantic could not hold out and it no longer has the clause and therefore, there is no such hearing.

It is quite true that in theory, that may appear to have a gloss of some type of out.

But in practice, it does not -- and we would say, even if it purported to, the Commission cannot remove the testing of applications from Section 7 and from the public convenience and necessity test and make the standards something unwritten, unknown and unstated.

It also cannot remove the decision as to a just and reasonable clause from that standard of the Section 4 or 5.

I would say quite frankly that there is quite a bit more involved to the problem than just these particular clauses.

Because the standards of this statute that are involved here and the test for determining whether a clause meets the statutory standard are also the procedures and the standards that apply to fixing the rate level itself.

There is no -- would be no difference at all between what the Commission did here than setting up a notice as it did here in giving people 17 days to comment and these comments incidentally are not served by another participants and then coming out with a rule and saying, "These are the permissible rates in certain areas."

Now, as the Court knows in the Wisconsin case, the Commission has come out with a statement of general policy that sets out in areas' particular rate levels.

The Commission bear, makes known to the industry that if you come in with a contract with a rate that is higher than that, you are going to have to go to hearing.

The Tenth Circuit has left standing in the same posture, this Order 232A.

It says that the Commission certainly can leave Order 232A standing as an expression of the Commission's policy.

Every producer in the country is on notice.

You are guided by that if you come to the Commission as we did with this renegotiation clause, operating in 1983, a clause that is not accord with Order 232A.

The -- all that the Tenth Circuit requires is that with such a clause, the Section 7 process be followed.

Now, when we would arrive at the Commission with that clause, we of course have the burden of proof.

The 20 or so other producers were involved in the same project and in the pipeline would be in the same hearing.

This can be looked at in relation to the particular area in Wyoming to the predictions as to what will be our requirements over the life of this contract to have access to filings under Section 4 and the Commission can write a reasoned determination.

If this clause falls, then the question then is a substitute which would also enable us to have access to Section 4 of the Act and therein the form in which we may attempt down the road to prove a just and reasonable rate.

In our view substantively, what the Commission has done is create a straitjacket which it had no power to do in the first place.

It has done it in a manner that the Act does not commit and has placed us in the position as we are here today before this Court with no record upon which we can refute or respond to the condemnation that the Court heard for roughly an hour of these contract clauses.

As the Court may note in view of the holding below, the only record that is before this Court today because of the way the Commission has proceeded in its view of rule-making consist solely of the papers that we filed before the Commission, a letter rejecting our application and the regulations on their face.

There is no record here from the rule-making proceeding.

There is no record here on the questions or to substantiate the argument that Mr. Wahrenbrock made.

There is no record here that would substantiate our questioning of the statements he made or our attempts to show that the particular renegotiation clause that we have here is compatible with the public convenience and necessity standard.

I think in -- in brief, the Tenth Circuit reading this Court's decision in Mobile, citing what this Court said in Memphis about the importance of flexibility under this statute correctly concluded that the Commission is without substantive power to prescribe clauses in advance because of the nature of the function.

It also correctly concluded that when the Commission acts as to clauses like this and bearing in mind that it is doing two things.

It is wiping out, one and prescribing another, and both have to be just and reasonable according to the Act.

When it is doing that Act, the Tenth Circuit holds that the Act's specification of hearing is required because that requires fact finding.

The Tenth Circuit, likewise, holds that the standard of the Act must be applied.

Now, the Tenth Circuit has looked at what the Commission has said and has correctly concluded that everything that the Commission discussed in promulgating these rules could be accepted.

But these still are not the relevant factors that control determining public convenience and necessity under this statute or justness and reasonableness, both of which are standards that have been construed by this Court, both of which are imported into this statute from the long history of federal regulation of rates.

And they have that history back of them whether they're being applied to a pipeline, a producer or any other regulated entity.

Now, the fourth conclusion that the Tenth Circuit reached is that the methods that the Commission has here used.

That is a so-called nonreviewable general order and a rejection letter operate to bar the Courts under Section 19 (b) of this Act from ever reviewing a decision as to propriety of a clause upon a factual record.

The record that is presently before the Court is I think an example of the correctness of the Tenth Circuit's opinion.

I would like to mention just briefly what in our view the Commission is empowered to do and which the Tenth Circuit recognized, because we are as much concerned about how the Commission proceeds as it is the Commission.

First of all, the policy pronouncement method which Section 16 would permit is left to the Commission.

These views of the Commission as to a specific clause are left standing.

The Commission, likewise, may consider these clauses or any other on consolidated bases under Section 7 of the Act.

And as I mentioned earlier, that has always and historically been in relation to specific pipeline projects and specific areas.

The Commission, likewise, is left free to consider all of these clauses in the area rate proceedings under the Act.

We have cited in our brief the fact that today, the Commission has already in operation four of these proceedings and those four are said by the Commission to cover 75% of the gas that is presently moving in interstate commerce.

In proceedings of that type, we may be heard persons who have views about these clauses may be heard and as I said, the result that comes out would be consistent with the just and reasonable standard.

The last point that I would like to emphasize is that a long-term contract is something that the producer has to live with.

The Commission requires a pipeline to come to the Commission with a long term committed gas supply.

As the Court recognized in discussing the pipeline's problem in Memphis, this obviously means that when you sit down in 1963 to write a contract that is going to apply you -- to you, and in my client's case, this will be the next 30 years until the gas is completely exhausted.

You are going to have to have clauses that permit you to have access to Section 4 of this Act and if they're going to have any meaning at all, they cannot be.

Our guess now and can coning specific prices for 1970, 1975, 1983 and on to 1999, if they have any significance or meaning at all, they have to be related to external factors.

The Memphis Clause that the pipeline uses isn't related anything at all.

It simply says that the going rate and the pipeline is free to file a rate anytime it sees fit.

This is the clause that was before the Court in Memphis.

Our clauses are far, far more limited.

Our view is that after a Section 7 hearing and after the area rate cases, when the Commission has finally decided what are the facts that determined reasonable rates under this statute, which is this Court knows the Commission has not yet done.

When that is done, what should emanate from the area rate cases will be clauses which would be related to those facts.

I think in a large measure, we could say that what the Commission has attempted to do here is wholly premature because it has been before this Court twice in the past two years telling the Court that today and until it decides that the first area rate case, it will not know and cannot tell this Court what specific facts determine reasonable rates.

Then how can the Commission today or in 1961 say that clauses in existence are not related to reasonable rates?

It cannot answer that question until it answers the question of what facts generate a reasonable rate.

Having answered that, it then can look at clauses and if the external facts specified are not relevant to reasonableness, then that clause may fall.

And what the Commission prescribed that then should be related to its reasonableness factors.

Today, however, it has done this completely in a vacuum.

There is no record.

There has been no finding of facts.

There has been solely comment and as to clauses not even in existence, the Commission has attempted to exercise powers that it does not have.

In our view, we are willing to sustain any burden of proof that the Act places upon us.

But we believe the Tenth Circuit has correctly concluded that the Commission here is guilty of over reaching and that it must be channeled back into the Section 7, Section 4, and Section 5 process, both as to procedure and as to substantive standards.

Thank you.

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: Yes, sir.

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: Your Honor the -- what we call Memphis type clauses are used by the pipeline companies.Producers historically have never had such clauses.

As we read this rule and I think the Commission is applying it that way, it would not permit a producer to have a clause of that type.

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: That's not permitted.

Justice Byron R. White: That's not?

Mr. Carroll L. Gilliam: Not permitted.

The only ones that are permitted are fixed escalation clauses and a clause that actually amounts to a free is only thing that requires me today --

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: Well, let us -- let me --

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: Suppose the initial price is 15 cents and it provides that in five years, it will go to 16 cents.

That's permitted.

Justice Byron R. White: Now, what Act -- what Act (Inaudible)

Mr. Carroll L. Gilliam: Well at the end of the fifth year, the producer would file with the Commission a notice of rate increase for that one thing.

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: The Commission suspends that.

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: Suspend that --

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: Oh yes.

Yes.

It has right to suspend the rates that result from any of these clauses.

They're always subject to that and they're always subject to the refund requirement and our burden to prove the reasonableness of the specific rate.

We always have that.

The clauses don't remove that all.

They merely give you the right to go there and file.

Without them, you can't file at all.

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: I don't agree with that Your Honor because they -- this fixed --

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: No sir.

The Commission says that --

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: There would be.

Justice Byron R. White: And they would have (Inaudible)

Mr. Carroll L. Gilliam: Five years, 10 years from now, that's correct or ours in 1983.

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: That time but the rule does not eliminate the "flood" of filings because it permits fit -- fixed escalations.

Now, this can mean that instead of our 1983 renegotiation, we have a fixed escalation of tenure every year or let's just take that, 1962, 1963, 1964, 1965, 1966 and we could have that.

And yet, every time we -- we got the right to file, we would have to file.

In our view and in fact, I think if you tabulated statistics, you would find that the flood of filings results more from what the Commission permits the fix annual escalation.

Justice Byron R. White: (Inaudible)

Mr. Carroll L. Gilliam: No.

It -- it doesn't -- they're permitting it to be filed doesn't have that significance at all.

We don't contend that and the Commission has clearly held that.

The only thing they look at, at the present time under Section 7 is the initial rate.

Now, they obviously have the power under Section 7 and they should be doing this is to look at all the other provisions of the contracts and the facts of record.

If in that hearing, the Section 7 public convenience and necessity hearing with facts, there is some clause down the line that may not relate to factors that determine reasonable rates under Section 4 or 5.

The Commission could imposed a condition that that be taken out.

But in so doing, they can -- they would have to permit a substitution of a clause that still left access to reasonable rate.

Now, when it gets to Section 4 or 5 as in the case with pipelines, you make the filing of the rate, you have to justify it in hearing if you -- if it's five years from now.

I think this is a fundamental of public utility regulation that you have the burden of a continuous just and reasonable rate and you have the right as well for that.

This Act says so in Section 4 (a), "All rates shall be just and reasonable."

It also requires all contract clauses.

The one that we write and the ones they prescribed.

And without the hearing we're talking about, they don't know that what they have hit even meets the statutory standard.

Unknown Speaker: (Inaudible)

Mr. Carroll L. Gilliam: Well Your Honor, you may recall it in the Phillips case on the basis of its facts, Phillips sustained the rate levels that resulted from those clauses.

Now, insofar as the clause itself, this again refers to what I said about the area rate cases.

The Commission has said that what it wants to do there is to come out with a price in the area for gas.

The so-called favored nation clause would permit the producer who isn't getting that price.

To get that price, I don't know whether it will be compatible or incompatible.

This is what I think we need to find out and the Commission needs to find out.

Thank you.

Justice John M. Harlan: Does the Court of Appeals have the administrative record before it?

Mr. Carroll L. Gilliam: Not in the two cases they hear Your Honor.

Justice John M. Harlan: The ones that are here?

Mr. Carroll L. Gilliam: No.

There is a pending --

Justice John M. Harlan: Well, if the Commission -- if the Commission prevails on this thing, I -- I just think somebody has to take a look at that record.

Mr. Carroll L. Gilliam: Your Honor, there is before the Court today, a case Number 387 which is a petition for writ -- the Pan American file.

The court below granted a commission motion to dismiss our petition for review on the rule-making record.

That case went out when the rule-making record come out with it.

We have petitioned here for review of that decision as to reviewability of the general order on the rule-making record.

It has not yet been granted by the Court.

It left the court below and this Court today with nothing but the rejection order and the two rules on the face.

Now, that is the Commission's construction of the review provision of the Gas Act.

It contends that these general orders are not reviewable in the rule-making proceeding, and it has so far succeeded in every single circuit.

So you're left with what is before the Court's thing, to review that.

Unknown Speaker: (Inaudible)

Mr. Carroll L. Gilliam: Well -- first-- between now and then of course under Section 7, we would be issued a certificate.

You assume that after that hearing, the producers were selling in this project would have the renegotiation clause left, the 1983 clause.

When 1983 came around and the price was renegotiated by us in the pipeline then we would have to file the rate with the Commission under Section 4.

There would been the, "I don't whether in 1983 there will be still area rate hearings but there would be a hearing of some type under Section 4 or 5."

Justice Tom C. Clark: You wouldn't have (Inaudible)

Mr. Carroll L. Gilliam: No.

Justice Tom C. Clark: (Inaudible) contracts are filed.

Mr. Carroll L. Gilliam: Well, our contract runs to the life of the lease.

It's not a 20-year contract.

It will still be there as long as there's gas.

But of course, it has a clause that says economic production and this relates to rate.

Justice Tom C. Clark: Now, I didn't understand what are the objections of those 1983 provisions?

Mr. Carroll L. Gilliam: The Commission does.

Justice Tom C. Clark: (Voice Overlap)

Mr. Carroll L. Gilliam: No sir.

Justice Tom C. Clark: (Inaudible) they would need that, wouldn't they?

Mr. Carroll L. Gilliam: The --

Justice Tom C. Clark: (Inaudible)

Mr. Carroll L. Gilliam: Yes sir because if it goes out now --

Justice Tom C. Clark: (Inaudible)

Mr. Carroll L. Gilliam: Well Your Honor, it's the construction of the Act in relation to contracts as in Mobile.

If the day we signed the contract, we don't have the contract right to file.

In 1983, we will never have it.

We're bound by this contract.

If it's taken out today, it's gone.

Justice Tom C. Clark: It's not (Inaudible)

Mr. Carroll L. Gilliam: No, sir.

We would have the certificate.

It would be on this contract with that thing ripped out.

We would be back to the Commission when it permitted but it would not permit us to renegotiate the contract in 1983, and would not permit us to come back then.

And that would be our posture.

Justice John M. Harlan: You'd either have to have what you have now, renegotiation or you have to have a Memphis-type provision.

Mr. Carroll L. Gilliam: Something else that would permit us to have right and trial with the Commission.

Justice Byron R. White: And that effect would be (Inaudible)

Mr. Carroll L. Gilliam: No, sir.

Thank you.

Chief Justice Earl Warren: Mr. DeCrane.

Argument of Alfred C. Decrane, Jr.

Mr. Alfred C. Decrane, Jr.: Mr. Chief Justice and may it please the Court.

I would like to expand on a question just ask to counsel Gilliam by Mr. Justice Clark as to what would happen if this rule were sustained because there is in effect before the Court, substantially and basically, a power question, of question of power of this Commission under the statute which proscribes its responsibilities, the statute which was written by the Congress of the United States.

This Court has said on frequent occasions that under the Natural Gas Act, the consumer of natural gas has been given a complete and comprehensive scope of protection against exploitation.

But let's examine that for a minute because I believe that it cannot be denied, Your Honors.

That if you sustain what the Federal Power Commission has done here, there is nothing to prevent this Commission tomorrow from issuing a rule-making notice stating that after June 1, 1964, no contract will accepted for filing by this Commission which contains a price that exceeds 20 cents per 1000 cubic feet or a price that is less than 18 cents for 1000 cubic feet.

Now, the consumers of natural gas may well feel that these prices are not in the range of what is just and reasonable and may seek the petition for review.

But when they petition for review from this rule, that is finally promulgated, they will be met as we were met by a record that contains absolutely no facts whatsoever by a Court of Appeals which says, "This is a bootstraps operation," if I ever saw one.

And by the monster that Mr. Justice White was afraid off when he wrote the Burlington Truck Lines decision reported in 371, when he said that, "If we leave these agencies solely to their expertise, we shall have created a monster."

Now, you said this can't happen under the Natural Gas Act, the Commission cannot promulgate a rule or regulation that says, "There'll be price of 20 cents, a minimum of 18 cents --"

Justice Byron R. White: What is the -- what is the ruling in (Inaudible)

Mr. Alfred C. Decrane, Jr.: If I put facts in the record, Your Honor.

One, I do not --

Justice Byron R. White: (Inaudible)

Mr. Alfred C. Decrane, Jr.: Would the facts be in the record?

Justice Byron R. White: (Inaudible)

Mr. Alfred C. Decrane, Jr.: They would -- they would be untested facts, unsworn fact.

They would be statements or comments but they would not -- there would be no test of these facts under the rule-making procedures which the Commission follows.

I would not know the facts that X, Y or Z put into the record.

I would have no right to cross-examine these facts.

This is the type of procedure which they followed.

It is the type of procedure which is spelled out in the first sentence of Section 4 (b) of the Administrative Procedure Act.

You will recall that the Commission said that there was no contest, that they had followed Section 4 (b).

Well, that's something of a -- a contortion of the position perhaps.

Because we contested the fact that they didn't really follow 4 (b) but we said that, "You didn't follow the second sentence of Section 4 (b)."

So saying that we didn't contest they followed the first one is not really a statement of our position because the first sentence doesn't apply.

And this was the point I was starting to make a second ago, Your Honors that, why can't the Commission promulgate a rule or regulation that would establish what the price will be here after and permit no challenge, no facts?

Only because Section 5 of the Natural Gas Act says that the Federal Power Commission can only set a side a price for a contract.

Remember, both are in the same sections, their authority over the setting aside of a rate as well as their authority over setting aside a contract.

They are both spelled out in Section 5 (a) of the Natural Gas Act, and that Section says that the Commission may not set aside a rate and it may not prescribe any rate or any contract for the future unless there has been a hearing.

Now, Section 4 (b) of the Administrative Procedure Act says that, "In a rulemaking proceeding where some other statute requires a hearing, then no rule can be promulgated without a hearing under the Administrative Procedure Act."

Now, it gets a little complex because we have to look at the two statutes.

We have to look first at the Natural Gas Act which sets out the basic powers, responsibilities and scope of authority and then we must construe it along with the Administrative Procedure Act.

Back in the time the Administrative Procedure Act was passed, Mr. Justice Clark was serving as the Attorney General of the United States, the office of the Attorney General, and the Department of Justice played a substantial role in the passage of this legislation.

It helped Congress to investigate the various agency procedures and to offer comments.

It went further and set out after the Administrative Procedure Act was published, a handbook for the agencies.

I wish to guide them to bring their rules, regulations and operations within the scope of this new legislation.

And in there, the pages cited in our brief, the Attorney General and the Department of Justice decided what sentence 1 and sentence 2 of Section 4 (b) of the APA mean.

This -- this is the rule-making provision that the Commission claims to have followed.

"There, it is set forth that where another statute such as the Natural Gas Act," said the Attorney General at that time, "requires a hearing before the promulgation of a rule."

Then that hearing must be allowed under the Administrative Procedure Act.

As Mr. Justice Goldberg brought out before and Chief Justice's question to Mr. Wahrenbrock, there is no record.

We're bothered to Mr. Chief Justice, by the fact that the Commission doesn't know how many of the filings are triggered by the clauses they've precluded.

We raised that point in our brief.

They don't know anything else about any of these clauses either and we've asked for an opportunity to prove it.

If you look at page 46 of this record, you will find in our contract the clause that prescribes that if at sometime during this sale which will go on for some 20 years, it is necessary for the pipeline to treat the gas because it becomes contaminant in the reservoir and it is produced in a state that the pipeline cannot take into its system.

The parties will negotiate and attempt to determine an adjustment in the price in order to take care of the pipeline's cost of doing this.

Now, these are the problems we've faced in trying to negotiation contracts that are going to be in effect for 20 years and longer.

But if you also turn with finger in page 46 of this record -- to page 20 of the record, the page to which Mr. Gilliam referred you earlier, where the Commission has prescribed attack on the church door as it were, the precepts that we may follow in writing contracts, you'll find that this clause is not included nor is anything like it.

You will also find in the record and you also heard the Commission tell the Court this morning that there is no economic relationship between the types of clauses which have been proscribed and those which -- and -- and a producer's problems or a natural gas company's problems.

What more direct economic relationship is there than the fact that if the gas becomes contaminated and it cost money to do something about it, the parties will sit down and determine on the basis of the costs, what adjustments should be made of the price.

Now, you heard a lot about spiral clauses and favored nations' clauses, but you didn't hear anything about this type of clause.

But this is the type of clause which is also precluded and it is not included in those clauses which the Commission has prescribed for the future.

We claim they can't do it because there is no finding that such clauses as I have just described are unjust and unreasonable and there is equally no finding before this Court, no record that you may look to as to why the clauses that were prescribed might be just and reasonable, which the Commission must find under Section 5 (a) of the Gas Act.

Justice William O. Douglas: I thought this was an Act to add some consumer interest.

You talk as if it's the pipeline's act, to protect pipeline company (Voice Overlap) --

Mr. Alfred C. Decrane, Jr.: Your Honor --

Justice William O. Douglas: -- as if the federal bureaucracy.

Mr. Alfred C. Decrane, Jr.: This Act, as I understand it and -- as it has been discussed by this Court.

One, it's suppose to have provided a complete and comprehensive protection for the consumer of natural gas.

Justice William O. Douglas: And -- and --

Mr. Alfred C. Decrane, Jr.: And also -- excuse me.

Justice William O. Douglas: It's the first time I've heard you mentioned.

Mr. Alfred C. Decrane, Jr.: Well, I tried to mention him a minute ago, Your Honor, to point out to you that if you sustain what the Federal Power Commission has done here.

The next time the consumer of natural gas appears in this Court, there will be no record upon which he will challenge what the Commission has done.

Do you recall in the Wisconsin versus FPC case decided last term, that you looked -- Mr. Justice Clark particularly in the dissent, took great umbrage in what the Commission had done, stating that the facts of record didn't support the approval of the rates that have been approved for Philips.

You'll never have that opportunity again because if you approve this power, the Commission may promulgate prices without any record.

Justice John M. Harlan: What sort of a record is there?

Mr. Wahrenbrock said there was a record in this Court (Inaudible).

What is the record before the Commission?

Did they make findings of fact?

Did they say why these clauses were good or bad?

Mr. Alfred C. Decrane, Jr.: The record before this Court --

Justice John M. Harlan: No, I mean the -- the -- these administrative records.

Mr. Alfred C. Decrane, Jr.: The material in number 387 -- well, we have a problem and that some matter was lodged with the Court.

We have a dispute as to whether that is actually the record in this case.

But in number 387 presumably, the Commission has certified as the record, the comments filed by the various parties.

There's no evidence as such Your Honor.

Justice John M. Harlan: Was there an opinion written by the Commission, the findings or --

Mr. Alfred C. Decrane, Jr.: No, the only opinions -- no, the only opinion is the order.

Justice John M. Harlan: Is the order.

Mr. Alfred C. Decrane, Jr.: It's just these orders in which appear this rather --

Justice William O. Douglas: Well, that is typical, is it, the end product of a hearing or the proposed order.

Mr. Alfred C. Decrane, Jr.: I --

Justice William O. Douglas: That's the procedure that I was familiar with once.

Mr. Alfred C. Decrane, Jr.: Well, Mr. Justice Douglas, I hope that it is not --

Justice William O. Douglas: Where you put down a proposed order for a public hearing --

Justice John M. Harlan: That's what you're complaining about it.

Mr. Alfred C. Decrane, Jr.: We're complaining about the end result of the order, not the proposed order --

Justice William O. Douglas: I know.

I'm talking --

Mr. Alfred C. Decrane, Jr.: -- for in here.

Justice William O. Douglas: -- about the procedure.

I mean you don't' usually write an opinion do you if you're the agency?

(Voice Overlap) --

Mr. Alfred C. Decrane, Jr.: Well, normally, they write an order and under the Administrative Procedure Act, they must make findings based on the record.

Justice William O. Douglas: Yes.

Justice Byron R. White: Was there a public hearing on that?

Mr. Alfred C. Decrane, Jr.: There was none at all, Your Honor.

That --

Justice Byron R. White: Well, I think that's what -- what (Inaudible)

Mr. Alfred C. Decrane, Jr.: No.

Justice Byron R. White: If you have -- you have come to -- come to a certain (Inaudible)

Mr. Alfred C. Decrane, Jr.: No.

Justice Byron R. White: (Inaudible)

Mr. Alfred C. Decrane, Jr.: No.

Justice William O. Douglas: And according to you it's filed.

Mr. Alfred C. Decrane, Jr.: We had 17 days to put in writing our comments on whether the Commission should or should not promulgate this rule.

Just as the consumer of natural gas, Mr. Douglas, we'll have perhaps 17 days in which to say, "He thinks 20 cents is too high or 18 cents is not a sufficient minimum."

Justice William O. Douglas: Well, that -- if there's no -- there was no statutory irregularity.

Mr. Alfred C. Decrane, Jr.: There most assuredly was Your Honor.

Justice William O. Douglas: There was?

Mr. Alfred C. Decrane, Jr.: The statutory irregularity is that this Commission has promulgated pricing clauses.

It has promulgated contract provisions.

Justice William O. Douglas: I understand your substantive disagreement but I mean procedurally, was there ire -- irregularity?

Mr. Alfred C. Decrane, Jr.: Yes, there was no hearing.

In other words, there was no procedure.

Justice John M. Harlan: Now, isn't it more than that -- isn't it more than that.

What you're saying if I understand it is that if you've gone through a Section 7 proceeding, the Commission before it could reject these clauses, would it have to take evidence and make findings and then they would be reviewed.

Mr. Alfred C. Decrane, Jr.: That's correct.

Justice John M. Harlan: Now, the Commission is saying that you got the equivalent of that except on a wholesale basis so to speak under the rule-making power and you say it isn't the equivalent.

That is the difference in substance isn't it?

Mr. Alfred C. Decrane, Jr.: That gets very close to the difference.

It has almost all of the (Voice Overlap) --

Justice John M. Harlan: I mean, just to say a hearing, it doesn't mean much.

You got a hearing in one case and you don't get one.

But if there is substance to your position, it must be that you do not get through the rule-making power the equivalent of what the statute gives you under the Section 7.

Mr. Alfred C. Decrane, Jr.: That's correct.

Justice John M. Harlan: Isn't that this -- and --

Mr. Alfred C. Decrane, Jr.: That is correct (Voice Overlap).

And --

Justice John M. Harlan: -- that's why I asked you what this record if it's in the Court, looks like.

Whether there are findings, whether in --

Mr. Alfred C. Decrane, Jr.: There are no findings.

There are (Voice Overlap) --

Justice John M. Harlan: The Commission is using the rule-making power here to commendably, I would think, to try to short circuit what it considers to be a volume, an enormous volume of individual proceedings.

And it -- it can achieve through that whole set of proceeding if you want to call it.

The kind of result that gives you the hearing, that gives you the findings of fact, that gives the Court an opportunity to review what the Commission has done then, it seems to me, it's a question of discretion for the Commission as to way it's -- which way it's going to proceed.

Mr. Alfred C. Decrane, Jr.: Your Honor, I think that what you're asking me is a question that was asked to Mr. Gilliam earlier, and that is in fact is the waiver proceeding really --

Justice John M. Harlan: Well, that's another question.

Mr. Alfred C. Decrane, Jr.: - that's guaranteed to us the same rights that we would have under the Natural Gas Act as originally written by Congress.

And it does not do so for two reasons.

Justice John M. Harlan: Well, let me ask you another question.

What -- what help do you think the Commission gets out of the Storer case, which seems to me to be -- neither a view on your side, you've said anything about it?

Mr. Alfred C. Decrane, Jr.: We have discussed it at length in the brief --

Justice John M. Harlan: The brief, yes.

Mr. Alfred C. Decrane, Jr.: Your Honor.

And they should get very little help out of the Storer --

Justice John M. Harlan: And how --

Mr. Alfred C. Decrane, Jr.: decision in my opinion.

Justice John M. Harlan: Why is that?

Mr. Alfred C. Decrane, Jr.: Well essentially, what the Court here found in Storer was that the action of the Commission in promulgating the rules was in keeping with a fundamental statute.

But that is the exact opposite of this situation here.

In the Memphis case, this Court considered the Natural Gas Act and found that it was essential for natural gas companies to have flexibility in their pricing so that they could keep the inflow and outflow of dollars and funds generally in balance.

But what has been prescribed here as you have heard the Solicitor of the Commission phrased it, is the elimination of flexibility, the elimination of flexible indefinite pricing clauses that permit something like that, so that is one essential difference.

The holding here is completely at variance with the holding below.

Number two, this Court found in Storer that in promulgating those rules and regulations, the Commission -- the Federal Communications Commission had in fact applied the statutory standard of public interest, convenience and necessity.

There has been no application of the statutory standard of justness and reasonableness in the findings or promulgations here that certain contracts -- certain contract pricing provisions are the only pricing provisions that should be allowed.

In other words, there is this fundamental variance in the action of the Commission has taken here with the underlying statute that did not exist in Storer.

In Storer, the Federal Communications Commission, under the Communications Act, is permitted to make findings as to the public interest, convenience and necessity without a hearing.

Here, the Natural Gas Act specifically requires that there must be a hearing before that statute may be applied.

Therefore, what the Ninth Circuit in the Superior case, said that there were --

Justice Byron R. White: We are suggesting that the (Inaudible)

Mr. Alfred C. Decrane, Jr.: Yes, Your Honor, and there's an additional point of -- of substantial variance and that under the Communications Act, the FCC has absolutely no jurisdiction over rights, insofar as that section, the broadcast section is concerned.

Here, we're talking about the fundamental problem of the rate that a private party will be allowed to sell in interstate commerce.

That to me is another substantial difference and for a court, such as the Ninth Circuit did to say that there is no difference between the situation in Storer and the underlying statute than -- than there is here, is -- is completely an error.

The additional point that -- and another error of similar vain, an underlying error made by the Ninth Circuit in its decision on this -- on this similar matter was where it stated, of course the Commission has followed the procedures of the Administrative Procedure Act.

I tried to point out when I opened my remarks to the Court that they had done precisely the contrary, that the Administrative Procedure Act says that "in order to promulgate a rule," and mind you, Section 5 of the Natural Gas Act is a rule-making proceeding.

It is a proceeding whereby rates and charges for the future will be handled.

That's rule-making under the definition in Section 2 of the APA.

Thus, how the Commission can say, the rule-making statute of the Natural Gas Act says there must be a hearing before we can promulgate a price or a contract.

And then say we don't have to follow that rule-making proceeding because the APA sets it aside.

It most assuredly does not.

The Administrative Procedure Act, Your Honors, insist that where the underlying statute provides for a hearing, that hearing, that taking of evidence, that development of fact must be had, one in order to support findings that certain clauses should not be permitted.

And two, in order support -- to support a finding that only some other type of clause will be permitted.

Now, Your Honors, in the remaining minutes, I must confess that I'm the guilty party on the question of venue which intrigued the Court during Mr. Wahrenbock's argument.

Texaco filed a suit in the -- in the Tenth Circuit.

We have briefed at -- this question at length in our brief and we feel that substantially all the points are covered there.

There are perhaps two that I shall raise.

One is the question of redundancy.

The Commission places great weight on the fact that if our interpretation is sustained by this Court, there would be a redundancy in the Section 19 (b) of the Natural Gas Act.

I have two answers to that.

One, I don't believe that redundancy is inherent because the Natural Gas Act defines natural gas companies as anyone selling in interstate commerce or at least among others.

That is done by individuals as well as corporations.

So as to individuals, there -- if our -- there would be no redundancy when the -- when the Act is -- is applied insofar as this point of resides his concern.

Secondly, redundancy is not really as horrible as it seems because if you look to the general venue of the statute, 28 U.S.C. 1391 (c), corporations are described in a wholly redundant term.

They are described as where they're doing business or where they're incorporated and it -- it -- it's a complete overlap that Congress has used there but no one has knocked down the statute as being invalid or the fact that it shouldn't be interpreted as it obviously reads.

And that Section is also helpful on another point.

It is helpful on this point that -- I believe it was Mr. Justice Goldberg who asked or Mr. Justice Stewart, "What was so awkward about using the term "resides" insofar as a corporation was concerned?"

"Why do they have to switch to locate it?"

We insist they switched to located because they wanted to change the meaning.

It's not so awkward to use residence or resides in relation to corporations, thus again, 28 U.S.C. 1391, speaks only of corporations and speaks of their residence.

Chief Justice Earl Warren: (Inaudible)

Print this transcript Transcript: 

Argument of Howard E. Wahrenbrock

Chief Justice Earl Warren: Mr. Wahrenbrock, you may -- I think you had finished -- you'd --

Mr. Howard E. Wahrenbrock: I believe I have two minutes, Your Honor.

Chief Justice Earl Warren: Alright.

Two minutes, I won't argue about that.

Mr. Howard E. Wahrenbrock: Well, in those two minutes, I think that it is an opportunity after having had a few moments to let the thoughts spill on over us as they have been coming at us for two hours.

To recollect that the key issue in this case is the power of an agency directed by a statute not to promulgate any rules going to either rights or contracts which will be effective in the future without holding a hearing and developing an evidentiary record.

The issue then is the power of that agency despite that statute to hold such a hearing that does not provide for a record or the development of those facts.

This was an issue that has come up once before.

It did not get as far as this Court but it was actively litigated in the District of Columbia Circuit.

Before 1960, the Federal Power Commission issued its general policy statement in which it promulgated prices for some 23 areas in the country.

And in that general policy statement, it provided for specific prices.

And the consumers of natural gas felt that they did not like those prices and they challenged the issuance of that policy statement in the Court of Appeals.

And there the court said, “But this is only a matter of policy.

There has been no hearing.

The Commission cannot promulgate prices without a hearing.

The avenues of recourse and the development of facts must be kept open as they are here under this policy statement.”

“But the statement, “said the court, “may stand.”

So, these rules may stand as policy only.

Thank you.

Justice Tom C. Clark: How do you reconcile Wisconsin with your position?

Mr. Howard E. Wahrenbrock: The lower court in Wisconsin held exactly this --

Justice Tom C. Clark: Not in the -- this Court on those general policy statements.

Mr. Howard E. Wahrenbrock: This Court merely affirmed what the lower court had said Your Honor that the policy statement prices were no more than guidelines just as the Tenth Circuit below here has permitted these prices that I held up earlier to be statements of the Commission's policy to let the industry know generally how the Commission feels about these clauses.

But obviously --

Justice Tom C. Clark: They are ceilings (Inaudible)

Mr. Howard E. Wahrenbrock: Excuse me Your Honor?

Justice Tom C. Clark: They are in effect the ceiling on the price, aren't they?

Mr. Howard E. Wahrenbrock: The prices?

Justice Tom C. Clark: The -- general policy.

Mr. Howard E. Wahrenbrock: No, Your Honor, they are not.

Justice Tom C. Clark: They won't let them file them by that ceiling?

Mr. Howard E. Wahrenbrock: Oh, they will -- they will permit a filing and they will permit hearings as to why you should have a right.

And this is the only reason that the court -- the District of Columbia Court, where the policy statement was specifically challenged permitted the policy statement to stand.

Justice Byron R. White: This is just a guarantee that there's going to be a hearing.

And everybody knows that to file -- higher those rates, there's bound to be a hearing?

Mr. Howard E. Wahrenbrock: That's correct, Your Honor.

And it was also where the consumers really got concerned about it was, that -- that it appeared, put on both a ceiling and a floor.

And they were concerned that if -- if a price filed below the ceiling were submitted to the Commission, the Commission would automatically stamp it and approve it and the Commission has not allowed that.

A challenge can be put in even for prices below the policy statement and a hearing held.

But as you say Mr. Justice White, if it's over, you're certainly going to get that hearing.

Justice Tom C. Clark: Well, I understood that the -- well, the policy statements say they fixed the price in a certain field.

Then they had applications subsequent to that that were in excess of that ceiling on that price.

That they reduce them to the ceiling price before they would certi -- certificate them.

Mr. Howard E. Wahrenbrock: No, Your Honor, yes and no.

Number one, the -- the policy statement did promulgate prices for certain producing areas rather than specific fields as they are designated in the industry.

Justice Tom C. Clark: Yes, just an area.

Mr. Howard E. Wahrenbrock: That within an area such as a certain large number of counties and railroad in Texas.

Justice Tom C. Clark: They are (Inaudible)

Mr. Howard E. Wahrenbrock: If you file for a price that exceeds the policy statement, make a certificate application, the Commission consolidates a great number of these applications and has the statutory hearing to determine the public convenience and necessity.

And it may condition the certificates if it -- on the basis of that record, finds that they do not need the test of the public convenience and necessity.

They do not reject your application in that instance.

The policy level is just that.

It is a policy.

Justice Tom C. Clark: Is that in addition to --

Mr. Howard E. Wahrenbrock: Excuse me Your Honor?

Justice Tom C. Clark: And that's your additional price.

Mr. Howard E. Wahrenbrock: But only when there is a record which will support it in a court of review which you have a right to, under Section 19 (b) of the Natural Gas Act, permits you to bring that record before a competent court of review to see whether there are findings which support the Commission in its cut.

And there must be findings of record and there must be facts of record to support the finding that a condition should issue.

And they have not just cut them to the policy level, Your Honor.

In some cases, the Commission had stated that the facts of record require even a further reduction in the policy.

Justice Tom C. Clark: I understand, of course you'd have a right there to -- I suppose on the permanent -- permanent certifications to have a hearing, isn't it?

Mr. Howard E. Wahrenbrock: Absolutely.

And that hearing has been permitted in those cases but it has been permitted in the cases of these contract clauses.

Justice Tom C. Clark: Because that's a directive.

It operates directly on the price though, doesn't it?

Or rates, doesn't it?

Mr. Howard E. Wahrenbrock: Well, the -- the certificate proceeding?

Justice Tom C. Clark: Yes.

Mr. Howard E. Wahrenbrock: Yes.

Well, first of all, these clauses --

Justice Tom C. Clark: This doesn't operate directly on the rates.

Mr. Howard E. Wahrenbrock: These clauses go obviously directly to the price that you will be able to file for.

And secondly, the authority of the Commission over a contract and price is spelled out in the same sections of the Act.

They have no greater authority over price than they have over contract, exactly the same statutory limit is placed on them.

Price and contract appear in the same section of the Natural Gas Act in the same sentence.

There can be no greater authority over one than the other.

No -- no permission to do something without findings as to one but the necessity for findings as to the other.

Justice Tom C. Clark: Wisconsin case first speaks for itself.

But on page 299, that statement is what the case hold, not quite what you state because its -- Commission stated in that case absence of compelling evidence, it will certificate, an issue would raise and suspend increase of rates which exceeded those price level.

Mr. Howard E. Wahrenbrock: That's correct but you have the opportunity to put on the evidence, Your Honor.

The hearing is held and the evidence is taken.

Justice Tom C. Clark: I suppose --

Mr. Howard E. Wahrenbrock: And in the absence of the compelling evidence, you -- you can't --

Justice Tom C. Clark: Well, there's no -- there's no barrier into the statute for your company to propose rate at any time and get a hearing.

Mr. Howard E. Wahrenbrock: The very barrier is the fact that this rule and regulation --

Justice Tom C. Clark: Is actually --

Mr. Howard E. Wahrenbrock: -- precludes us from having contracts that will permit us to come before the Commission.

This is our essential complaint Your Honor.

Justice Tom C. Clark: You -- you -- you're talking about a contract, we're talking about rates.

I was talking about rates.

Mr. Howard E. Wahrenbrock: But -- well, the rate is the product of the contract terms that we have, Your Honor.

And as Mr. Justice White asked this morning --

Justice Tom C. Clark: What I'm -- comes back to whose -- was this an Act to -- for the protection of pipeline companies or is it the Act for protection of consumers?

Mr. Howard E. Wahrenbrock: Well, that it -- I don't see how the Commission can -- can ever protect the consumers if it is permitted.

If any agency is permitted to promulgate prices, contracts or anything else without evidence, without a hearing in which the consumer can appear to state what he thinks the price ought to be.

Justice Tom C. Clark: Of course your -- your only objection is that -- this right that there might be a deterioration in the Btu's that therefore, you'd have to readjust.

Is that your position?

Mr. Howard E. Wahrenbrock: Your Honor there --

Justice Tom C. Clark: That's -- that's a -- is that the only provision that you have in your contract that they've struck out?

Mr. Howard E. Wahrenbrock: No, not at all.

They had in our contract -- oh, we had in contract also, Your Honor, the result at the end of -- of 10 years and 15 years to negotiate -- renegotiate the contract price on the basis of quality, quantity and all the other pertinent provisions as to delivery conditions in the 10 and 15th year.

The problems which might come up as to costs of value of the commodity, the supply and demand situations, all of the facts which necessarily will go into a determination of the justness and reasonableness.

It's not just one clause that we're complaining about.

What must be remembered is that Commission has stricken all clauses, the fertility of the businessman's mind to provide for the sale of his commodity over 20, 30 or 40 years, has been completely set aside and he is restricted to the half page of pricing provisions which are spelled out in Order 232A, that were spelled out.

Well, this Commission still insist it doesn't know how or what is the test of a just and reasonable rate.

Justice Tom C. Clark: Of course, you could go under 4 and -- and (Voice Overlap) --

Mr. Howard E. Wahrenbrock: We have no contract rights, Your Honor.

Justice Tom C. Clark: And after 20 years, you could.

Mr. Howard E. Wahrenbrock: In our case, we would be able to because our contract would expire and under the holding of this Court, we would be able to file.

Pan American does not have that situation as I'm sure you'll recall there is this, a life of production.

They would never --

Justice Byron R. White: What about a contract that's for 20 years, except that --- except that as in yours, the rate provision expires in 10?

Mr. Howard E. Wahrenbrock: The rate provision doesn't expire, Your Honor.

Here, they -- there is a fixed escalation.

Justice Byron R. White: (Voice Overlap) --

Mr. Howard E. Wahrenbrock: Each five years and the alternative --

Justice Byron R. White: Assuming you had a contract that's said at the end of 10 years, the -- this rate expires and we shall -- we will renegotiate it.

Mr. Howard E. Wahrenbrock: That's what Pan American has.

Justice Byron R. White: That's not permitted?

Mr. Howard E. Wahrenbrock: That's not permitted.

Justice Tom C. Clark: Well, if you make it 10 years.

Justice Byron R. White: (Voice Overlap) --

Mr. Howard E. Wahrenbrock: They can't make the contract for 10 years?

Justice Tom C. Clark: Yes.

Mr. Howard E. Wahrenbrock: Because if you read these rules and regulations, Your Honor, you'll find that the Commission has also found in them that long term contracts, 20 years and more are in the public interest and are necessary in order to put together a pipeline project and have financing and then get gas to market.

Justice Byron R. White: But then --

Mr. Howard E. Wahrenbrock: So on one hand, we must have them but we can't have any (Voice Overlap) --

Justice Byron R. White: Well, you have them in less than 20 years or don't you?

Mr. Howard E. Wahrenbrock: Once in a while, you'll get a distressed sale where you will have a small patch of gas and the pipeline will -- will take it at -- at some distressed price for a period of five years or something like that.

But normally, in any pipeline project, they have got to have affirmed commitment in order to get their certificate from the Commission.

And the Commission has normally -- these long term contracts are actually the product of regulation.

We have been given the requirement on one hand to negotiate a long term contract and had taken back on the other hand, the ability to get any flexibility, any sound business prospects for the future while we do this.

Chief Justice Earl Warren: Well, Mr. Wahrenbrock.

Mr. Howard E. Wahrenbrock: Mr. Chief --

Justice William J. Brennan: Mr. Wahrenbrock, before you begin, I want to (Inaudible) if I could ask you.

We wanted to find out why the Commission concluded that only those forms of chain clauses combined with 232 was good and everything else was bad, where will we go?

Mr. Howard E. Wahrenbrock: The Commissions rules Orders 232 -- 232A and 242 appear in the record in this case --

Justice William J. Brennan: I -- I know they're here, but what -- where -- why -- where will we find the -- the groundwork upon which the conclusion is reached that this order ought to be in here?

Mr. Howard E. Wahrenbrock: Principally, in the Pure Oil decision of the Commission which was issued at the same day as Order number 232, the Pure Oil decision is reported in the Commission's reports in Volume 25, it's cited in our brief.

That -- the -- the Order 232 on page 13 of the record refers to the Pure Oil opinion as for the discussion of the problem with which the Commission was dealing.

Justice William J. Brennan: Then that's starts to which this (Inaudible) terms --

Mr. Howard E. Wahrenbrock: Yes, I don't --

Justice William J. Brennan: -- to find out why this was done.

Mr. Howard E. Wahrenbrock: Yes.

Now I --

Justice William J. Brennan: Well, that -- that suggests another question.

Then whatever record there maybe in 387 would not help this -- in this respect, correct?

Mr. Howard E. Wahrenbrock: 387 which was an attempt to review Order 242 itself directly.

Justice William J. Brennan: 339?

Mr. Howard E. Wahrenbrock: 242, the last order --

Justice William J. Brennan: Yes.

Mr. Howard E. Wahrenbrock: -- prescribing these regulations, in which the Tenth Circuit granted our motion to dismiss.

In that case, when our motion to dismiss was put over to the merits, we did then certify the record in the rulemaking proceeding in which 242 was issued.

Not the record in the rulemaking proceeding in which 232 was issued and not the or -- in the yet earlier rulemaking.

Justice William J. Brennan: Well then -- what then -- the answer is that the record on 242 would not be helpful to us, the 233?

Mr. Howard E. Wahrenbrock: There -- there -- only the record on 242 was certified in the other case to the Tenth Circuit.

The Tenth Circuit, we feel could in any of these cases, have judicially noticed that --

Justice William J. Brennan: No.

No, I'm sorry, I guess I'm not making myself clear.

I'm trying to find out whether there's anything in the record in 387 which as you said involves Review Order 242, will help us find out why the Commission promulgated 232.

Mr. Howard E. Wahrenbrock: That record does not contain Commission analysis -- Commission -- Commission appraisal.

It is the comments and data and arguments that were submitted.

And most of those comments and argument and data that were submitted were like the argument that is made here, it's argumentative.

There was no request by either of these petitioners in any of these rulemaking proceedings, in the rulemaking proceedings for a trial like hearing for an opportunity to present evidence.

Justice William J. Brennan: I (Inaudible) -- but I'm still trying to make clear to myself at least --

Mr. Howard E. Wahrenbrock: I'm sorry, I've --

Justice William J. Brennan: -- while I look at to find out why the Commission promulgated this order.

Now, you told me if I look at the Pure Oil decision --

Mr. Howard E. Wahrenbrock: Yes.

Justice William J. Brennan: -- I'll find help there.

Mr. Howard E. Wahrenbrock: Yes.

Justice William J. Brennan: Will I find anything in the record in 242 -- at 242 and find it in 387?

Mr. Howard E. Wahrenbrock: You will find there only the comments and data which were submitted in response to the invitation.

Justice William J. Brennan: As I know, it may not as a Board's appraisal which underlies the -- the 232.

Mr. Howard E. Wahrenbrock: That's right.

Justice William J. Brennan: Alright.

Mr. Howard E. Wahrenbrock: That's right.

Justice Byron R. White: Where is the Board' appraisal except in the Pure Oil case?

Mr. Howard E. Wahrenbrock: In the -- Pure Oil and in the -- these three orders, 232 -- 232 --

Justice Byron R. White: Just in the text of the orders you've served.

Mr. Howard E. Wahrenbrock: That's right, yes.

Justice Byron R. White: Now, did the -- the Pure Oil case cover -- cover all types of proscribed contracts or all -- of all types of proscribed clauses?

Mr. Howard E. Wahrenbrock: The one that was immediately involved in the Pure Oil case was a -- a favored-nation clause.

Justice Byron R. White: That's right, that's right.

Mr. Howard E. Wahrenbrock: And that was the basis for the consideration of the general question of these indefinite clauses.

Justice Byron R. White: But to take -- take a provision where a contract provides for a definite price for 10 years and then the -- the price clause expires and there's a provision for renegotiation at the end of 10 years.

Mr. Howard E. Wahrenbrock: Yes.

Justice Byron R. White: Now, the Commission proscribes that.

Mr. Howard E. Wahrenbrock: Yes.

Justice Byron R. White: That is out, that's impermissible.

Mr. Howard E. Wahrenbrock: Now if --

Justice Byron R. White: But now --

Mr. Howard E. Wahrenbrock: It proscribes it if the basis for the redetermination are other prices that themselves have not been subjected to Commission scrutiny.

Justice Byron R. White: So that -- so that if -- if you had a contract that's set after 10 years, the rate shall be a just and reasonable rate.

Is that permitted, the -- your -- of your (Voice Overlap) --

Mr. Howard E. Wahrenbrock: No.

Justice Byron R. White: -- its --

Mr. Howard E. Wahrenbrock: It's -- it's -- you're coming very close to the Memphis type of provision and that was --

Justice Byron R. White: (Voice Overlap) --

Mr. Howard E. Wahrenbrock: -- what I was going to start talking about because you had asked about that before.

That provision, that type of indefinite had never -- I think never been used, that was -- that was not known of.

It would -- we weren't aware of it.

Justice Byron R. White: Isn't that in a sense what they --

Mr. Howard E. Wahrenbrock: At the time --

Justice Byron R. White: -- have here?

Mr. Howard E. Wahrenbrock: No, no.

Let me come to that.

The one we have here is for redetermination upon the basis of other prices at the time, an average of three, something of that kind.

Now, the Commission had not explicitly considered that in Pure Oil.

It invited comments after 232 so that in effect, there was another rulemaking proceeding.

Justice Byron R. White: Yes.

Mr. Howard E. Wahrenbrock: And 30 comments were received to argue this.

And on the basis of that, the Commission adhered to the position that it had originally taken, accepted and modified it to permit these -- these indefinites that are now permitted, redeterminations.

Once, not more than once in a five-year period if they are based on rates that the Commission has had a chance to look at and hasn't questioned.

Now --

Justice Byron R. White: But we --

Mr. Howard E. Wahrenbrock: Pan American can have what it wants at the -- in 8 -- in 1983 or in 1965, if it will provide that the redetermination shall be upon the basis of three jurisdictional rates or one, if they want to make it for that which the Commission has and which has been filed with the Commission and the Commission has not suspended it and hasn't been -- hasn't questioned it --

Justice Byron R. White: But on --

Mr. Howard E. Wahrenbrock: -- in a certificate case.

Justice Byron R. White: But on 242, the -- there is nothing available to show why the Commissioner arrived at this conclusion other than just the text of the order itself.

Mr. Howard E. Wahrenbrock: The text of the order, that's right.

Justice Byron R. White: That's all.

Mr. Howard E. Wahrenbrock: Now that complies with Section 4 (b) of the admin -- the -- of the Administrative Procedure Act which says that in issuing the rules, the Commission shall state the basis of the rules and the purpose sought to be achieved.

Justice Byron R. White: Are you suggesting --

Mr. Howard E. Wahrenbrock: And there has been no suggestion that it did not.

In Order 242, state the basis or that it did not state the purpose.

Justice Byron R. White: But now, you suggested that these -- that the -- that the companies didn't request a trial-type hearing.

Are you -- are you suggesting that they had a right to request it or that it -- that he would've granted (Inaudible) --

Mr. Howard E. Wahrenbrock: It is what --

Justice Byron R. White: -- accountability if they -- it would have been granted?

Mr. Howard E. Wahrenbrock: Under the Administrative Procedure Act, it is solely within the Commission's discretion whether two and if anyone asks it and there were -- and if there had been factual questions raised, the past practice of the Commission indicates that if a trial-type hearing is the best way to resolve that question, it will follow that method.

Justice Byron R. White: For --

Mr. Howard E. Wahrenbrock: It has voluntarily done so and times passed.

Justice Byron R. White: For a rulemaking -- for a rulemaking --

Mr. Howard E. Wahrenbrock: Yes sir.

Justice Byron R. White: -- purposes?

Mr. Howard E. Wahrenbrock: Yes sir.

It has --

Justice Byron R. White: Is there any instance where this has had a trial (Inaudible)?

Mr. Howard E. Wahrenbrock: I can't say them to you.

My definite impression and I've -- and I'm -- I'm sure that I could verify this, is that it has on occasion used trial like proceedings to resolve questions when it did not have to have a room at such proceeding so far as the statute was concerned.

It certainly can use that and whether that is an effective way of doing, so it will.

But here, the provision of the rules permitting petitions for waiver to be filed enables a company in the case of a Memphis-type provision or in the case of such a provision as Mr. Gilliam referred to for an adjustment on account of rising costs due to the necessity for eliminating contamination which may occur if they have circumstances like that that the Commission has not considered, that are not within the ambit of the -- of the general problem, which it has resolved or -- or which it was dealing with, then it can apply for a -- a waiver and the Commission will grant it an app -- a hearing as it has in the of the case of the -- the Memphis-type clause itself, which Atlantic presented in a petition for amendment -- for waiver of the rule.

And the fact that there has been delay in that Atlantic proceeding to which Mr. Gilliam referred as though this were a sham.

This was a run around, the Commission was giving the companies is I submit, perfectly explained by the fact that when the examiner took that case under consideration, he was immediately confronted by the fact that the rule which was sought to be waived was one which the Tenth Circuit has said was an invalid rule.

And the court examiner, I would suppose is waiting up to see what the outcome of this decision is.

Thank you.

Chief Justice Earl Warren: Very well, Mr. --