The Customer Comes First

OIL & GAS

"This ruling could be a real economic disaster for the pipeline companies." So last week said Willard W. Gatchell, general counsel for the Federal Power Commission, as the $1.8 billion-a-year natural gas pipeline industry began to feel the impact of a precedent-setting court decision. Handed down recently by the U.S. Court of Appeals for the District of Columbia, the little publicized ruling would i) greatly curtail FPC's authority to control interstate natural gas prices, and 2) give every major gas consumer the power to block a rate increase.

The case started in 1955, when the United Gas Pipeline Co. of Shreveport, La. asked the Federal Power Commission for permission to boost the rates for the 600-plus cities and industries it serves. Since FPC raised no objections during the usual six months' waiting period, United raised its rates. But then the city of Memphis, one of the cities that was hit by the raise, appealed to the federal court. The court held that United's increase was invalid because the company failed to get the consent of its customers. The court ordered United to return the millions it had collected in rate increases since it put the raise into effect.

The ruling was based on a 1956 U.S. Supreme Court decision that rate changes may not be made without the consent of the consumer if the supplying company is under contract to the consumer. It brushed aside United's argument that its contract in the disputed case had stated that "All gas shall be paid for under the seller's rate schedule, or any effective superseding rate schedules on file with the FPC." The appeals court decision means that any superseding schedules, i.e., higher rates not objected to by the FPC, may be upset by a customer's objection. In jeopardy is about $300 million in recent rate increases.

Taking heart from the decision, other consumers began to protest. Two subsidiaries of California's Pacific Lighting Corp. objected to a $10,000,000 yearly rate increase proposed by El Paso Natural Gas Co., urged the FPC to refuse it on grounds of the appeals court decision.

As long as the ruling stands, gas suppliers will have to negotiate separate rate scales with every industrial or municipal consumer, rather than setting a flat rate for all of them. As for the FPC, not only will its rate-regulating powers be cut, but it will have to hire about 1,200 new employees to handle the job of examining the legality of each individual rate contract. Gas suppliers and the FPC both said that they would ask the U.S. Supreme Court to review the decision.

This file is automatically generated by a robot program, so reader's discretion is required.