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Panhandle Eastern Pipe Line Co. v. Federal Power Commission .

decided: April 30, 1953.


Author: Maris

Before MARIS, McLAUGHLIN and KALODNER, Circuit Judges.

MARIS, Circuit Judge.

Panhandle Eastern Pipe Line Company in the consolidated petitions for review now before us asks this court to set aside the same two orders of the Federal Power Commission which were involved in the two consolidated petitions for review filed by Michigan Consolidated Gas Company which we have just decided. Michigan Consol. Gas Co. v. Federal Power Comm., 3 Cir., 203 F.2d 895. The basic facts with respect to the orders in controversy are set out at length in our opinion in those cases and need not be repeated here.

The petition filed by Panhandle to No. 10,639 seeks review of the order accompanying Opinion No. 218 of the Commission insofar as it directs Panhandle within 45 days to take steps to increase the capacity of its lateral pipeline running from Louisburg, Kansas, to Liberty, Missouri, sufficiently to eliminate what the Commission found to be discrimination against customers on that pipeline, by making it possible to provide them with the maximum volume of natural gas to which the Commission found they were fairly entitled. The petition also sought other relief not now pertinent. The Liberty lateral had been built in 1928 and had been later acquired by Panhandle. It is a comparatively low pressure pipeline and the maximum volume of gas which Panhandle had been able to deliver through it in a peak day was 20,925 Mcf of which 7,741 Mcf was delivered to Central West Utility Company and 10,220 Mcf to Gas Service Company, a total of 17,961 Mcf to those two companies.

Pursuant to Opinion No. 214 Panhandle had contracted with several of its customers for gas to be delivered from the Liberty lateral but had declined to contract with Central West and Gas Service. These two customers had filed sworn statements, as authorized by Opinion No. 214, requesting maximum daily deliveries from the Liberty lateral aggregating 27,375 Mcf. These requests, if acceded to by Panhandle, would have required a maximum daily delivery from the Liberty lateral of upwards of 30,000 Mcf, approximately 50% in excess of its existing capacity.

In the case of certain other lateral pipelines in the Panhandle system, Panhandle had contracted with customers for the delivery of maximum volumes of gas in excess of the existing capacity of the particular lateral and had, with the approval of the Commission, taken steps to increase the capacity of the lateral so as to meet the obligations to its customers thus undertaken.*fn1 In the case of the Liberty lateral, however, Panhandle has declined to do so, taking the position that the enlargement of that lateral sufficiently to meet the demands of Central West and Gas Service would involve the unwarranted investment of a large amount of additional capital which it does not wish to devote to that purpose. In fact Panhandle had made application for leave to abandon its deliveries to Gas Service altogether and that application was pending when the orders here in controversy were made. The Commission, however, in Opinion No. 218 concluded that "Panhandle's failure and refusal to afford customers served from various lateral facilities the same or similar service constitutes unlawful discrimination in service among customers, and undue preference and advantage to some customers and undue prejudice and disadvantage to others." Accordingly the Commission entered the order directing Panhandle to take appropriate steps within 45 days to eliminate this discrimination which its first petition to review seeks to set aside.

The petition filed by Panhandle to No. 10,761 seeks to review the order issued by the Commission on March 5, 1952 insofar as it requires Panhandle to deliver to its customers a maximum daily volume of gas in excess of 850,000 Mcf, the approved capacity of its pipeline system, and to its customers on the Liberty lateral a maximum daily volume in excess of the capacity of that lateral. Pursuant to Opinion No. 214 Panhandle ultimately entered into contracts with all but four of its customers. These contracts called for the ultimate delivery of maximum daily amounts of gas aggregating 811,634 Mcf. The four customers, Michigan Consolidated Gas Company, Gas Service Company, Texas Gas Transmission Corporation and Central West Utility Company, had filed demands for gas aggregating 275,000 Mcf per day in respect of which there had been allocated to them by Opinion No. 218 maximum daily deliveries aggregating 196,049 Mcf. The total ultimate maximum daily delivery of gas thus contracted for by Panhandle's customers plus the amounts prescribed by the Commission for the four customers with which contracts had not been made thus totaled 1,007,683 Mcf, which was 157,683 Mcf in excess of the designed and approved capacity of Panhandle's pipeline system.

In Opinion No. 218 the Commission determined that Panhandle's designed capacity would be insufficient to meet the firm requirements of its customers during the winter 1951-1952. It accordingly allocated Panhandle's system capacity among its customers prescribing the minimum daily volumes which Panhandle would be required to deliver when the requirements of the customers exceeded 850,000 Mcf. In its order issued March 5, 1952 this allocation was made effective until March 31, 1952. The Commission reiterated the statement made in Opinion No. 218 that "The Commission does not expect, nor does it now intend, to issue further orders allocating the capacity of Panhandle's pipe-line system during ensuing winter periods." By that order the Commission put into force as of February 20, 1952 the service agreements which Panhandle had made with its 47 customers as well as the allotments of gas made by the Commission to the four noncontracting customers. Thereby the Commission in effect directed Panhandle for the winter 1952-1953 and thereafter until further order to deliver to its customers upon demand the full maximum amounts of gas called for by the contracts and by the order with respect to the four noncontracting customers, which in the fifth year of the contracts would aggregate 1,007,683 Mcf per day.

The Commission took the view that, since Panhandle had contracted with 47 customers for the delivery of their requirements totaling ultimately a maximum of 811,634 Mcf per day, it would be unduly prejudicial to and unreasonably discriminatory against the four remaining customers and, therefore, in violation of the Act for Panhandle to refuse them also their reasonable requirements. Accordingly the Commission directed Panhandle to continue in force the prior contracts of these four customers modified as provided by its orders for the delivery of maximum daily amounts of gas aggregating 196,049 Mcf. It is clear that in so doing the Commission has required Panhandle to deliver gas substantially in excess of the designed capacity of its pipeline system. The Commission contends that it is nonetheless Panhandle's duty under section 4(b) of the Act, 15 U.S.C.A. ยง 717 c(b), to do so in order to accord to its noncontracting customers the same treatment which it has under its contracts voluntarily accorded its other customers. While the Commission does not say so its position necessarily implies a duty on the part of Panhandle to enlarge its pipeline facilities, if it is necessary to do so to carry out its duty in this regard.

It will thus be seen that both petitions for review present the same basic question, namely, whether, in the case of a natural gas company which has engaged in undue discrimination by agreeing to deliver to one group of customers a larger proportion of their reasonable requirements than it is able, because of limited pipeline facilities, to deliver to other customers similarly situated, the Act empowers the Commission, for the purpose of eliminating the discrimination, to order the company to deliver to its customers substantially more gas than its pipeline system is designed to carry, thereby necessarily requiring the company involuntarily to enlarge its gas transportation facilities. In considering this question we assume, without deciding, that Panhandle was guilty of undue discrimination against its four noncontracting customers, in violation of sections 4(b) and 5(a)*fn2 of the Act, in agreeing to deliver all but about 39,000 Mcf*fn3 per day of the capacity of its pipeline system to the other customers with which it had contracted. Also we note that under section 5(a) of the Act, the Commission is empowered to eliminate such undue discrimination as this by directing, as it did in Opinion No. 218 with respect to the winter 1951-1952, that the maximum amounts of gas to be delivered to the contracting customers shall be reduced to the extent necessary to distribute the full capacity of the pipeline system fairly among all of Panhandle's customers. As we have seen, that remedy was expressly rejected by the Commission with respect to the later years here involved.

The Commission concedes, of course, that the proviso of section 7(a)*fn4 of the Act expressly deprives it of authority to compel the enlargement by a natural gas company of its transportation facilities in connection with the extension or improvement of such facilities. It argues however that this proviso relates only to the extension or improvement of natural gas transportation facilities which the Commission, acting under section 7, directs to be undertaken, and that it does not apply to an order entered by the Commission under section 5(a) directing the elimination by a natural gas company of a discriminatory practice as between existing customers which is prohibited by section 4(b).

We cannot accept the narrow construction which the Commission thus seeks to place upon the proviso of section 7(a) of the Act. On the contrary we think that the provisions of section 5(a), which confer upon the Commission power to direct the elimination of unduly discriminatory and preferential practices, must be read in the light of and construed as subject to the proviso in section 7(a) that the Commission may not compel the enlargement of the transportation facilities of a natural gas company. As the Supreme Court said in Federal Power Comm. v. Panhandle Eastern Pipe Line Co., 1949, 337 U.S. 498, 514, 69 S. Ct. 1251, 1260, 93 L. Ed. 1499:

"If possible all sections of the Act must be reconciled so as to produce a symmetrical whole. We cannot attribute to Congress the intent to grant such far-reaching powers as implicit in the Act when that body has endeavored to be precise and explicit in defining the limits to the exercise of federal power."

So here we cannot hold that section 5(a) implicitly confers upon the Commission the power to direct the enlargement of natural gas transportation facilities which Congress by section 7(a) of the Act expressly withheld. An order under section 5(a) directing a pipeline company to deliver more gas than its system has capacity to transport has the inescapable effect of compelling the company to improve its system by its enlargement to the extent necessary to carry the amount of gas required. For to improve is to augment or enhance in quantity as well as quality.*fn5 Such an order is, therefore, the equivalent of an order for the improvement of transportation facilities by their enlargement and as such is expressly within the ban of the proviso of section 7(a). Moreover, even in the absence of the proviso of section 7(a) there might well be a question whether the language of section 5(a) conferred unlimited power upon the Commission to compel a natural gas company to employ additional capital in the enlargement of its transportation facilities. Compare I.C.C. v. U.S. ex rel. City of Los Angeles, 1929, 280 U.S. 52, 50 S. Ct. 53, 74 L. ...

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