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FPC V. TEXACO, INC., 417 U. S. 380 (1974)

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U.S. Supreme Court

FPC v. Texaco, Inc., 417 U.S. 380 (1974)

FPC v. Texaco, Inc.

No. 72-1490

Argued February 19, 1974

Decided June 10, 1974*

417 U.S. 380


Following its notice of proposed rulemaking "propos[ing] prospectively to exempt from regulation under the Natural Gas Act all existing and all future jurisdictional sales made by small producers . . . ," and the filing of comments and informal conferences, the Federal Power Commission (FPC) issued Order No. 428, which exempted all existing and future sales by "small producers" from direct rate regulation, and provided that they could thereunder contract for the sale of their gas at any obtainable rates, without refund obligations with respect to increased rates, if any, collected for sales regulated thereunder to the pipelines. The FPC asserted that the order did not amount to "deregulation of sales by small producers," but was intended to regulate small producers' sales in the course of regulating the rates of pipeline and large producer customers of the small producers. Pipelines purchasing from small producers above ceiling prices were to be allowed "tracking increases" in their rates, but those rates would be subject to refund

"with respect to new small producer sales, but only as to that part of the rate which is unreasonably high considering appropriate comparisons with highest contract prices for sales by large producers or the prevailing market price for intrastate sales in the same producing area."

The FPC asserted its intention of reviewing small producer prices to maintain reasonable rates, and specified that small producers remain subject to § 7(b) of the Natural Gas Act. The Court of Appeals set aside the FPC order, holding that the small producer blanket certificate procedure contravened the FPC's statutory responsibilities under §§ 4 and 5 of the Act to ensure "just and reasonable rates." It viewed the order as merely calling for rates that were not unreasonably high as compared with the highest contract prices for large producer sales or the prevailing market price in the intrastate market, and chanroblesvirtualawlibrary

Page 417 U. S. 381

the court held unacceptable the possible contention that market prices themselves would produce just and reasonable rates.


1. The scheme for regulating small producer rates indirectly did not exceed the FPC's statutory authority. Pp. 417 U. S. 386-393.

(a) Order No. 428 is not invalid because it does not initially consider each company and the reasonableness of its rates, or because it has a two-tier system for small producers and large producers. Cf. Permian Basin Area Rate Cases, 390 U. S. 747. P. 417 U. S. 390.

(b) Since pipeline rates are subject to refund to the extent that the purchased gas component of their rates is excessive, there is an incentive "to bargain prices down." Pp. 417 U. S. 390-391.

(c) Requiring the pipelines and the large producers to assume risks in bargaining for reasonable prices from small producers that might entail refunds unrecoverable from the small producers, is not an abuse of the FPC's discretion under § 4(e) in balancing the interests involved. Pp. 417 U. S. 391-392.

(d) It is premature to assert that the indirect regulation contemplated by Order No. 428 is confiscatory, especially since the FPC is to maintain a close review of the avowedly experimental scheme. Pp. 417 U. S. 392-393.

2. But it is not clear from the wording of Order No. 428 that it satisfies the statutory requirement that the sale price for gas sold in interstate commerce be just and reasonable; at the least, the order is too ambiguous to satisfy the standard of clarity that an administrative order must exhibit, and the implication that the reasonableness of the small producers' rates would be judged by the assertion that the FPC "would consider all relevant factors" in determining whether the proposed rates comported with the "public convenience and necessity," is insufficient to sustain the order. Pp. 417 U. S. 394-397.

3. The FPC lacks authority to rely exclusively on market prices as the final measure of "just and reasonable" rates mandated by the Act; moreover, the FPC order made no finding as to the actual impact the market price increases would have on consumer gas expenditures. Pp. 417 U. S. 397-399.

154 U.S.App.D.C. 168, 474 F.2d 416, vacated and remanded.

WHITE, J., delivered the opinion of the Court, in which all Members joined except STEWART, J., who took no part in the consideration or decision of the cases. chanroblesvirtualawlibrary

Page 417 U. S. 382

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