John Marshall Harlan II

“ But to declare that a particular method of rate regulation is so sanctified as to make it highly unlikely that any other method could be sustained would be wholly out of keeping with this Court's consistent and clearly articulated approach to the question of the Commission's power to regulate rates. It has repeatedly been stated that no single method need be followed by the Commission in considering the justness and reasonableness of rates, Federal Power Comm'n v. Natural Gas Pipeline Co., 315 U.S. 575, 62 S.Ct. ”

“ To whatever extent the matter of costs may be a requisite element in rate regulation, we have no indication that the area method will fall short of statutory or constitutional standards. The Commission has stated in its opinion in this proceeding that the goal is to have rates based on the 'reasonable financial requirements of the industry' in each production area, 24 F.P.C., at 547, and we were advised at oral argument that composite cost-of-service data will be considered in the area rate proceedings. ”

“ First, the record before us does not paint a picture of the public interest sacrificed on the altar of private profit. Indications are that at least until 1959 Phillips' jurisdictional revenues did not catch up to its cost of service. Although revenues increased substantially after that time, the Commission observed that costs have also risen dramatically, and we have no basis for assuming that current rates are grossly unreasonable. ”

“ We believe this conclusion was justified, [15] and petitioners appear to have all but abandoned the theory that some of the § 4 (e) dockets were improperly terminated merely because the particular increased rates in those dockets exceeded average cost. Rather, they now urge that the variation in the increased rates was so great as to compel the conclusion that they were 'discriminatory and preferential per se.' The Commission noted that there was nothing in the record to show unlawful discrimination, and it is clear that mere differences in rates under this Act are not per se unlawful. ”

“ Underlying petitioners' position are their claims that the result of the termination is little or no effective regulation in the interim period before the development of area rate regulation, that such regulation may take many years to evolve, and that the method may eventually be held invalid. ”

“ California, alone among the petitioners, challenges the Commission's refusal to declare void ab initio the spiral escalation clauses in Phillips' contracts on which rate increases in three of the 12 § 4 (e) dockets were based. [10] Such clauses, California contends, are manifestly inconsistent with the public interest, because they constitute a price mechanism by which ' (c) onsumers of natural gas are caught in a maelstrom.'
But we have at least grave doubts that this question may be raised by California at this time. ”

“ Whether other subsequent increases involved in separate proceedings not before us resulted in revenues exceeding cost of service in later years has no effect on the propriety of terminating these § 4 (e) dockets. Thus the factors that may have made the record stale for purposes of determining in the § 5 (a) investigation whether Phillips' present rates are unjust or unreasonable do not make the record stale for purposes of determining the lawfulness of these past increases. ”

“ See infra, pp. 304-305.↑ The phrase 'jurisdictional cost of service' as used here means the producer's system-wide cost of service (i.e., all operating expenses, including depreciation, depletion, and taxes, plus a fair return on the rate base) for its sales of natural gas subject to the Commission's jurisdiction. ”

“ Finally, the fact that the Commission in this case terminated the § 5 (a) proceedings, rather than merely holding them in abeyance as it did in Hunt Oil Co., 28 F.P.C. 623, [20] is a circumstance of no significance. At the oral argument general counsel for the Commission assured us that the Commission remains free to reactivate the investigation of Phillips' individual rates if the area proceedings are unduly delayed or if circumstances should otherwise warrant. ”

“ Fourth, it must be remembered that the problem of this transitional period would still exist if the present § 5 (a) proceeding were reopened for the taking of new evidence; there is no way of predicting how much time would be required for a final decision to be rendered, but it would inevitably be substantial. It is therefore evident that the choice is not between protection or no protection. ”

“ Petitioners claim that forcing the Commission to reopen this § 5 (a) investigation will not unduly delay area rate proceedings and will in fact provide useful information for area rate-making purposes. The Commission, with equal vigor, states that it does not have the facilities to reopen this case (and all others that have reached approximately the same stage) and at the same time to proceed expeditiously with its area investigations. ”

“ However, in order to assure adequate protection to consumers against any unreasonably high rates of Hunt which may not be subject to an early determination on an area basis we will hold in abeyance further action on the 5 (a) aspects of the case pending area rate determinations, with the understanding that 5 (a) proceedings on some or all of Hunt's rates may be subject to reactivation if future circumstances should so dictate.' 28 F.P.C., at 626. ”

“ Petitioners' principal objection appears to be that Phillips' overall, and unit (per Mcf.) , revenues increased so substantially that they may have exceeded costs during the 1955-1959 period for which the increases were allowed. But the fact is that Phillips' average unit revenues during this period never rose significantly above its test year unit revenue requirements as determined by the Commission. [14] Moreover, petitioners do not claim, nor could they on this record, that the test year cost of service was higher per unit than in subsequent years. ”

“ The 'test year 1954' means the calendar year 1954, with adjustments for certain changes in costs and increases in revenues through 1956. No challenge is here made by either side to any aspect of the Commission's determination of Phillips' jurisdictional cost of service for the test year.↑ The Statement of General Policy, as originally issued, appears at 25 Fed.Reg. ”