McLAUGHLIN, Circuit Judge.
In this proceeding to review an order of the Federal Power Commission the basic question is whether the Commission is correct in holding that under the Natural Gas Act
Mobile Gas Service Corporation, the petitioner, is an Alabama distributor of natural gas. It receives its entire supply of that fuel from the intervener, United Gas Pipe Line Company, a Delaware corporation.
In 1946 United agreed with Mobile to a proposed arrangement between Mobile and Ideal Cement Company whereby the latter could be supplied with its industrial gas needs by Mobile for 12¢ per MCF for a period of ten years provided total deliveries remained between 100,001 and 400,000 MCF per month. In accordance with this United consented to accept the percentage rate of Mobile's sales to Ideal though this would be less than the minimum of 16¢ per MCF. United also agreed at that time to reduce the price of industrial gas to Mobile from 90% of the latter's gross resale revenues to 80% up to 41,667 MCF per billing month and 90% in excess thereof. Those agreements were filed with the Commission as Supplements No. 9 and No. 10 to United's Rate Schedule No. 20. Mobile then consummated its proposed contract with Ideal Cement Company to supply gas to the latter for ten years at 12¢ per MCF. The Alabama Public Service Commission approved that contract. Not only United but the Commission recognized the contract as late as July, 1952 when the Commission allowed United to substitute in its filed tariff a flat rate of 10.7¢ per MCF in place of the percentage rate Mobile had been paying. As United advised Mobile, this substitution was made under the Commission directive to convert from percentage to fixed sum and was almost identical with the amount the Mobile percentage rate actually figured.
Mobile's main point is that its United contract with respect to Ideal is a valid agreement which cannot be set aside by United's unilateral action of filing an increased rate schedule. It frankly recognizes the Commission's paramount authority and concedes that if after a proper proceeding the Commission found the contract rate to be against the public interest it could modify it or set it aside entirely.
The Commission contends that where a natural gas company files a rate schedule under 4(d) of the Act that rate is to be charged unless suspended initially or disapproved finally by the Commission after investigation and hearing; rates for industrial use not being subject to suspension when filed become effective thirty days thereafter until finally passed upon by the Commission. The latter insists that even where as here the rate conflicts with an admittedly preexisting filed contract the distributor is given no chance to defend its contract, on which it has made approved commitments, before
It is undisputed that under the ordinary 4(e) proceeding which the Commission has instituted with reference to the new rate schedule involved, the dispositive question before the Commission is whether the increased rates are just and reasonable. 4(e) makes this plain when it says:
In other words if in the pending hearing United can show that its new filed rate for Mobile is reasonable that ends the matter and the new rate stands. No consideration will be given to the accepted contract, the circumstances under which it was entered into, the long term commitments sanctioned by the Commission and whether the rate fixed by it is unreasonable and against the public interest under the facts. What petitioner is endeavoring to do is have its contract passed upon in the first instance prior to authorization for filing of United's new rate and the consideration of whether that rate is currently reasonable.
The Commission maintains that 4(d) of the Act
The Commission and intervener rely to a large extent upon Union Dry Goods Co. v. Georgia P. S. Corp., 1919, 248 U.S. 372, 39 S.Ct. 117, 63 L.Ed. 309, and Midland Realty Co. v. Kansas City Power & Light Co., 1937, 300 U.S. 109, 57 S.Ct. 345, 81 L.Ed. 540. The first case is quoted by the Commission as holding in 248 U.S. at page 375, 39 S.Ct. at page 118: "That private contract rights must yield to the public welfare, where the latter is appropriately declared and defined and the two conflict, has been often decided by this court." The principle stated is of course sound law and is expressly uncontroverted by petitioner. In the Union litigation there had been a
Midland does lend some support to the position of the Commission and the intervener. But there the rates filed by the utility were not opposed and were permitted by the Missouri Utility Commission without hearing.
Another case involving a state court explanation of a state law is Wichita R. & Light Co. v. Public Utility Commission, 1922, 260 U.S. 48, 43 S.Ct. 51, 67 L.Ed. 124.
The Kansas procedure as to rates bears great similarity to the Natural Gas Act formula. Under Section 20 of that state's public utility statute
Section 5(a) was before the Tenth Circuit in Colorado Interstate Gas Co. v. Federal Power Commission, 1944, 142 F.2d 943, 954, affirmed 1945, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206. In that case on complaint of the City and County of Denver and the State of Wyoming the Commission held that existing rates and contracts were unreasonable. The gas companies claimed that the finding was not founded on substantial evidence.
The Court said:
The Commission suggests that the Colorado decision is not applicable because the proceedings were under Section 5 but we fail to note any contradiction of the court's statement that filed contract rates and charges can only be set aside on an express finding of unreasonableness which in turn specifically follows the very opinion (Wichita) that the Commission asserts turns on a peculiar Kansas law. Actually the Commission time and again insists that it does not claim that the Congress in the Natural Gas Act intended to set aside contracts completely. It states flatly that the Act shows no such thought. Nevertheless on the theory of "scheme of regulation" it argues that it be permitted to construe Section 4(d) so that in reality that consequence is obtained. In F.P.C. v. Niagara Mohawk Power Corp., 347 U.S. 239, 74 S.Ct. 487, 493, the Supreme Court made it abundantly clear that such authority "requires clear authorization", which is absent from the Natural Gas Act. In the Niagara Mohawk litigation the query was whether the Federal Water Power Act of 1920, 16 U.S.C.A. § 791a et seq., had abolished private proprietary rights, existing under state law, to use waters of a navigable stream for power purposes. The Supreme Court interpreting that statute said, 347 U.S. at page 251, 74 S.Ct. at page 494:
So here, the Natural Gas Act does not expressly permit existing contract rights to be abolished by a mere unilateral filing of new rates. The plan of the Natural Gas Act is likewise one of reasonable regulation, as evidenced by the fact that the Commission itself cannot change an existing contract rate under Section 5 (a) without first finding that such rates are unreasonable.
Beyond question the Commission's action in this instance would result in further impairment of petitioner's common law rights. As the Supreme Court stated in Texas & Pacific Ry. v. Abilene Cotton Oil Co., 1907, 204 U.S. 426, 437, 27 S.Ct. 350, 354, 51 L.Ed. 553, a case cited by intervener but interpreting the Interstate Commerce Act:
See Shaw v. Railroad Co., 1879, 101 U.S. 557, 565, 25 L.Ed. 892; American District Telegraph Co. v. Kittleson, 8 Cir., 1950, 179 F.2d 946, 953; 3 Sutherland, Statutes and Statutory Construction (3rd ed. 1943) 164-182.
Nor is a rate contract automatically nullified merely because the return is low. In this instance there seems no doubt but that the Ideal Cement account represented important new business to Mobile and to United and that the long range price concession was made in order to obtain it. Cf. Arkansas Natural Gas Co. v. Arkansas Railroad Commission, 1923, 261 U.S. 379, 43 S.Ct. 387, 67 L.Ed. 705; Wichita Railroad & Light Co. v. Court of Industrial Relations, 1923, 113 Kan. 217, 214 P. 797. And the fact that the Commission can change the contract does not render it void for lack of mutuality. Southern Utilities Co. v. City of Palatka, 1925, 268 U.S. 232, 45 S.Ct. 488, 69 L.Ed. 930; Hinkel Dry Goods Co. v. Wichison Industrial Gas Co., 10 Cir., 1933, 64 F.2d 881.
With reference to the pertinent legislative history regarding such contract as before us, all three of the parties quote the colloquy between Congressman Halleck and Mr. Booth, appearing for the Illinois Public Service Commission on the bill which immediately preceded the Natural Gas Act. The accurate report of this reads:
Hearings, House Committee on Interstate and Foreign Commerce, 75th Cong. 1st Sess., on H.R. 4008, at page 43.
The reasonable inference from the above is identical with petitioner's theory, namely, that the Commission has the power to eliminate a private contract; not that the latter is automatically
There is no mention in the debates of Congress that the Act was ever intended to permit a contracting party to eliminate its existing contracts simply by giving thirty days' notice to the public and to the Commission. Instead the Act was stated to contain the "usual provisions * * * such as we find in all regulatory measures enacted by Congress",
The Commission itself in its brief says:
This being so one would think that there would be at least some debate on a provision which provided for the lawful unilateral cancellation of that type of agreement if Congress had that in mind.
The Commission also makes much of the provision in Section 4(e) which prohibits the Commission from suspending rates for the sale of natural gas for resale for industrial use. The purpose of this provision, however, as stated by the Congressman who introduced the amendment, was "to prevent suspension in cases of industrial use where there are short term contracts * * *."
The Commission's order under review refers to Part 154 of the Commission's Regulations under the Act. Those Regulations give no assistance to the Commission's interpretation of Section 4. The very section of the Regulations under which United filed its conversion schedules
United's filing on June 24, 1953 did attempt "to effect a change" in an unexpired contract without "the execution of a form of service agreement contained in the tariff." This case is therefore distinguishable from Mississippi River Fuel Corp. v. Federal Power Comm., 3 Cir., 1953, 202 F.2d 899, where we held that all the filing requirements had been complied with and where there was apparently no existing filed contract. Moreover, we assumed for the purposes of that case "that the Commission has the power, implied from its authority to make rules and regulations, to reject a proposed filing which does not conform to such rules and regulations." Mississippi River Fuel Corp. v. Federal Power
In view of the above language in the Commission's own Regulations and of the complete absence of suggestion in the statute or in the legislative history that the Act was intended to authorize the abrogation of existing contract rights by means of the unilateral substituted rate procedure, we hold that the Commission erred in not rejecting United's Revised Sheets Nos. 39 and 40 in so far as they affected the Ideal contract. To do otherwise would be an attempt by us to legislate judicially since the construction of 4(d) as contended for by the Commission and the intervener is not warranted by the statutory language. F.P.C. v. Niagara Mohawk Power Corp., supra. Any changes in 4(d), particularly of the radical nature urged, would be for the consideration of the Congress, not for this court.
With this holding it becomes unnecessary for us to consider Mobile's alternative contention that even if the revised schedule be accepted for filing a subsequent separate hearing be held on the lawfulness of the filing at which time the reasonableness of the prior contract rate would be passed upon. Nor do we reach Mobile's contention that the Commission should have ordered under Section 4(e) that any monies collected after the acceptance of such filing be held subject to refund. Since we are specifically holding that the pertinent part of the order of July 10, 1953 was void because the Commission had no right to accept the filing of the new schedule without first determining the reasonableness or unreasonableness of the existing contract rates any monies, if any, collected on the basis of the erroneous order were unlawfully collected and should be returned to Mobile. Baltimore & O. R. Co. v. United States, 1929, 279 U.S. 781, 49 S.Ct. 492, 73 L.Ed. 954; Restatement, Restitution, Section 74 (1937); cf. Arkadelphia Milling Co. v. St. Louis S. W. Ry. Co., 1919, 249 U.S. 134, 39 S.Ct. 237, 63 L.Ed. 517.
Those parts of the Commission's order which dismissed Mobile's petition and which denied Mobile's request that the order of July 10, 1953 be amended to reject the filing of the Revised Sheets in so far as they affected the Ideal contract and which rejected Mobile's request for the Commission to issue an order amending Paragraph D of its order of July 10, 1953, which paragraph permitted the revised schedule to take effect, will be reversed.
HASTIE, Circuit Judge (dissenting).
The Commission's order of July 10, 1953 was lawful and proper under the terms and scheme of the Natural Gas Act. This court now is requiring that order to be changed in a way which, in my view, causes the Commission to exceed its authority under the Act. Accordingly, I dissent.
In that suit there was a denial of an application for an injunction to prevent United from moving before the Commission for permission to collect its new rate for domestic use gas until the reasonableness of that rate had been finally determined by the Commission. There was a contract involved but it had already been modified in what seems to have been an adversary proceeding. According to the opinion of the district judge the "* * * plaintiffs concede that the Commission on final hearing may fix the rates at a figure which it determines to be reasonable, which may be at variance with and in complete disregard of the contract rates, * * *." The all important question before us of whether there should be a hearing on the reasonableness of an existent unchanged approved contract prior to the acceptance for consideration of the new rate and prior to the determination of the reasonableness of that new rate was not before the court.
It should be emphasized also that the fact that Tyler concerned a rate for sale of gas for domestic use of itself sets that action apart from the issue of this appeal. In Tyler under Section 4 (e) the Commission could and did suspend the effective dates of the increased rates for five months after which period it could order any subsequent collections to be held subject to refund in the event the new rates were ultimately found to be unlawful.
"Unless the Commission otherwise orders, no change shall be made by any natural-gas company in any such rate, charge, classification, or service, or in any rule, regulation, or contract relating thereto, except after thirty days' notice to the Commission and to the public. Such notice shall be given by filing with the Commission and keeping open for public inspection new schedules stating plainly the change or changes to be made in the schedule or schedules then in force and the time when the change or changes will go into effect. The Commission, for good cause shown, may allow changes to take effect without requiring the thirty days' notice herein provided for by an order specifying the changes so to be made and the time when they shall take effect and the manner in which they shall be filed and published."
"Mr. Lea: * * *
"There are the usual provisions. Without attempting to go into detail, what I call usual provisions are those such as we find in all regulatory measures enacted by the Congress. This bill contains, for instance, administrative provisions; for rules affecting just and reasonable rates; for the power of the Commission to fix maximum or minimum rates or a specific rate after hearing; for the rule against discriminations and preferences as between consumers or localities; for the requirement that the schedules be kept open for public inspection; for the power of the Commission to suspend the rates where deemed unduly high. The bill covers the question of accounting, following standard lines; of giving the Commission the power to control the accounts, including the depreciation account; and of requiring the gas companies under the regulation of this bill to conform to those accounting practices.
* * * * * *
"The bill makes provision for complaints and provides for hearings and has the usual provisions in reference to the production of testimony and rehearings by the Commission on petition, court review of the orders of the Commission, and, a rule, that the findings of the Commission, if supported by substantial testimony, are conclusive upon courts in connection with questions that may be taken to courts.
"Those are what might be called the principal provisions of the bill."
"Mr. Mapes: Mr. Chairman, as far as I know, there is no opposition to this bill. I do not know of any member of the House or anyone else who opposes it. It is supported by the public utility commissions of the States and by all public bodies, as far as I know, who have anything to do with or have given any particular attention to the question of the distribution and sale of natural gas to the consuming public. As a matter of fact, my attention has not been called to any opposition to it, even on the part of the gas companies themselves."