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TEXACO Inc. v. Federal Power Commission

decided: June 12, 1969.


Kalodner, Ganey and Van Dusen, Circuit Judges.


VAN DUSEN, Circuit Judge.

Petitioner seeks review of a regulation requiring it to pay interest "compounded monthly" on refunds ordered by the Federal Power Commission (hereinafter "Commission"). On April 2, 1968, the Commission unilaterally amended Part 154.102 (18 C.F.R. 154.102) of its Regulations under the Natural Gas Act (15 U.S.C. § 717 ff.) by promulgating its Order No. 362.*fn1 This order established for the first time a compound interest rate which would be required on amounts ordered refunded pursuant to § 4(e) (15 U.S.C. § 717c(e)) of the Natural Gas Act.*fn2 On May 1, 1968, Texaco filed with the Commission an application for rehearing of Order No. 362. The Commission took no action within 30 days and by virtue of § 19(a) of the Natural Gas Act (15 U.S.C. § 717r(a)) its application was deemed denied. Texaco then filed a petition to review order No. 362 with this court pursuant to 15 U.S.C. § 717r(b), complaining that this new rule was promulgated without giving it or any other jurisdictional natural gas company any notice or an opportunity to participate in the rule-making through the submission of written data, views, or arguments, thus violating a mandate of the Administrative Procedure Act, 5 U.S.C. § 553(b) and (c).*fn3 See Superior Oil Company v. Federal Power Commission, 322 F.2d 601, 608 (9th Cir.1933), cert. den. 377 U.S. 922, 84 S. Ct. 1219, 12 L. Ed. 2d 215 (1964).

Since the Commission's Order No. 362 specifically recognized that these are substantive amendments within 5 U.S.C. § 553,*fn4 it is clear that notice should have been given and Texaco should have had an opportunity to submit data, views, and arguments unless the Commission had good cause to find that this rule falls within an exception to § 553. The Commission contends that notice was "unnecessary" under 5 U.S.C. § 553(b) (B).*fn5

The dispositive issue is whether the Commission's Order No. 362 was lawfully promulgated even though it did not provide for notice and a hearing because the Commission had good cause to disregard the notice provision on the ground that it was "unnecessary," as that word is used in 5 U.S.C. § 553(b) (B). The rule does not fall within the "unnecessary" exception relied on by the Commission since it cannot be classified as either minor or emergency in character. That exception has been discussed in the following language in Administrative Procedure Act: Analaysis Of Its Requirements As To Rule-Making, 33 A.B.A.J. 315, 318 (1947);

"The required notice, however, may be dispensed with in any situation 'in which the agency for good cause finds (and incorporates the finding and a brief statement of the reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.' Congress has recognized thereby that there is no need for giving the public an opportunity to participate in minor amendments to rules and also that emergency situations may arise where an agency must issue a rule forthwith without any public participation. * * *"*fn6

One court has construed the language of 5 U.S.C. § 553(b) (B) to apply to situations where an agency rule is "a routine determination," "insignificant in nature and impact," and unimportant "to the industry and to the public." See National Motor Freight Traffic Ass'n v. United States, 268 F. Supp. 90, 95-96 (D.D.C. 1967).

It is clear that the new rule compounding interest cannot properly be labelled "minor" nor one in which the public is uninterested, since the compound rate would affect numerous jurisdictional natural gas companies and potentially involves large sums of money.*fn7 Respondent concedes that ten natural gas companies, in addition to petitioner, and one attorney on behalf of "smaller independent operators" filed requests for reconsideration of Order No. 362 and one other such company filed objection to that order (p. 4 of respondent's brief).

We reject the argument of respondent that Order No. 362 is a general policy statement under 5 U.S.C. § 553(b) (A) and, hence, not subject to the notice requirements of 5 U.S.C. § 553. We agree with petitioner that a "general statement of policy" is one that does not impose any rights and obligations on an operator,*fn8 [cf. Public Service Comm'n of State of N.Y. v. Federal Power Comm'n, 126 U.S.App.D.C. 26, 373 F.2d 816, 826-827 (1967), reversed in part on other grounds, FPC v. Sunray DX Oil Co., 391 U.S. 9, 88 S. Ct. 1526, 20 L. Ed. 2d 388 (1968)] and that Order No. 362 adopts a substantive rule imposing such rights and obligations which an operator has the burden of proving should not apply in any waiver or similar proceeding.*fn9

Section 553 was enacted to give the public an opportunity to participate in the rule-making process. It also enables the agency promulgating the rule to educate itself before establishing rules and procedures which have a substantial impact on those regulated. See Pacific Coast European Conference v. United States, 350 F.2d 197, 205 (9th Cir.), cert. den. 382 U.S. 958, 86 S. Ct. 433, 15 L. Ed. 2d 362 (1965). These procedures must be followed when an agency is exercising its legislative function in order that its rules have the force of law. Cf. N.L.R.B. v. Wyman-Gordon Company, 394 U.S. 759, 89 S. Ct. 1426, 22 L. Ed. 2d 709, where the plurality opinion used this language:

"The rule-making provisions of that Act, which the Board would avoid, were designed to assure fairness and mature consideration of rules of general application. See H.R.Rep. No. 1980, 79th Cong., 2d Sess., 21-26 (1946); S.Rep. No. 752, 79th Cong., 1st Sess., 13-16 (1945). They may not be avoided by the process of making rules in the course of adjudicatory proceedings. There is no warrant in law for the Board to replace the statutory scheme with a rule-making procedure of its own invention. Apart from the fact that the device fashioned by the Board does not comply with statutory command, it obviously falls short of the substance of the requirements of the Administrative Procedure Act. The 'rule' created in Excelsior was not published in the Federal Register, which is the statutory and accepted means of giving notice of a rule as adopted; only selected organizations were given notice of the 'hearing,' whereas notice in the Federal Register would have been general in character; under the Administrative Procedure Act, the terms or substance of the rule would have to be stated in the notice of hearing, and all interested parties would have an opportunity to participate in the rule-making."

The Commission contends that the new amendment does not impose any burden "upon the persons affected thereby that may not now be imposed upon them by ad hoc orders in each case initiated pursuant to § 4(e) of the Natural Gas Act, whereby a suspended rate becomes effective subject to refund at the expiration of the period of suspension." However, the crucial fact is that the Commission elected to proceed in this case by making a general rule*fn10 and, when engaged in rule-making, it must comply with the procedural requirements imposed on rule-making by the Administrative Procedure Act, which it failed to do in promulgating Order No. 362.*fn11

We hold that the Order does not fall within the exception embodied in 5 U.S.C. § 553(b) (A) or (B), and, therefore, is ineffective because the Federal Power Commission did not have good cause for its failure to comply with the above-mentioned notice requirements of the Administrative Procedure Act. We need not, and do not, express any opinion on the merits of the challenged rule.

For the foregoing reasons, at our No. 17379 we will set aside Order No. 362, without prejudice to the right of the Federal Power Commission to proceed in accordance with 5 ...

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