747 DOUGLAS, J., dissenting. whether they be labeled a risk of production or a cost would seem to be irrelevant. That is a matter of semantics as far as the standards of Hope are concerned. For the question is whether we can reasonably determine the end result from the computations of the Commission, including both risk and cost factors. Any unknown cost is a risk. But the Commission should not be permitted to excuse its failure to solicit or proffer appropriate evidence concerning the cost of converting gas into pipeline quality by labeling that cost a "risk." The Court of Appeals recognized this point. See 375 F. 2d, at 31-32, 35. Commissioner O'Connor noted in his opinion concurring in the denial of rehearing that: "To bury the quality impact in our rate of return determination is to overlook the basis for the 12 per cent allowance: comparable return on equity of 10-12 per cent by the far less risky operations of transmission companies." 34 F. P. C., at 1081. And, as one commentator recently observed: "The Commission stated that the rate of return also reflected the risk of finding gas of less than pipeline quality-a clever way of avoiding the quality discount problem. Since there was no evidence in the record as to what those discounts would be, one can only say that 'risks' were involved. It is a novel doctrine, indeed, that the rate of return should be adjusted to reflect the risk that the regulatory cost computations are incorrect." " The Court concedes that the lack of specific findings concerning the effect of the quality adjustments upon the rate of return was "an unfortunate omission." Ante, at 812. But it proceeds to scratch about for evidence 3 Kitch, The Permian Basin Area Rate Cases and the Regulatory Determination of Price, 116 U. Pa. L. Rev. 191, 201 (1967) (footnote omitted). DOUGLAS, J., dissenting. 390 U.S. to support the Commission. With all respect, there is no competent evidence in the record to permit a meaningful determination of the impact of the quality deductions. The Court of Appeals was clearly correct in 4 Counsel for the Commission observe in their brief to this Court that "[n]o more precise determination was possible in the state of the record" than the 0.7¢ to 1.5¢ range for the average adjustment for quality predicted by the Commission in its opinion denying rehearing. See 34 F. P. C., at 1073. Counsel also cite to certain record testimony and exhibits to support the Commission's determination of this 0.7¢ to 1.5¢ range. It should be noted first that the 0.7¢ to 1.5¢ prediction is an average. I have already discussed the misleading nature of averages not found to be typical and representative, and those observations are equally pertinent here. Moreover, we have no idea whether the Commission relied in making its prediction on any of the sources cited by Commission counsel to this Court. In computing the 0.7¢ to 1.5¢ range in its opinion denying rehearing, the Commission apparently relied on Commissioner O'Connor's statement in his concurring opinion to the initial decision that the average adjustment would be between 1.0¢ and 1.7¢, and then adjusted those figures to allow for certain changes made with respect to quality standards in the decision denying rehearing. But at the time of the Commission's initial decision, Commissioner O'Connor did not and could not know the costs incurred by the pipelines in bringing gas up to pipeline quality, for the pipelines' processing costs were not in the record. Commissioner O'Connor based his estimate in large part on contract exhibits, as is evident from his opinion; and he noted that a precise adjustment for quality could not be ascertained from those exhibits. See 34 F. P. C., at 266. His view of the evidence on this point was clearly stated in his opinion concurring in the denial of rehearing, in which he observed that the record "does not permit a meaningful determination of the impact." 34 F. P. C., at 1081. Commission counsel also note the Examiner's finding that le represented a reasonable estimate for bringing new gas-well gas up to pipeline quality and 14 to 1.5¢ for old gas-well gas. But, as counsel admit, this finding was not made in conjunction with defining pipeline quality standards on which the costs of conforming the quality of the gas would be based. In fact, the Examiner con H 747 DOUGLAS, J., dissenting. remanding to the Commission for proper findings on this point. Behind the veneer of the Court's opinion may be an unstated premise that the complexity of the task of regulating the wellhead price of gas sold by producers is both so great and so novel that the Commission must be given great leeway. But the permissible bounds, so far as judicial review is concerned, are passed when guesswork is substituted for reasoned findings, when the Commission can avoid finding "costs" by the convenience of calling them "risks," when rates of return are computed for those mythical producers who happen to meet the "average" specifications. If the task of regulating producer sales within the framework of the Natural Gas Act is as difficult as the present cases illustrate, perhaps the problem should be returned to Congress. But certainly we do little today to advance the cause of responsible administrative action. With all respect, we promote administrative irresponsibility by making an agency's fiat an adequate substitute for supported findings. IV. New Mexico and Texas, in which the Permian Basin is located, have comprehensive oil and gas conservation codes. A substantial portion of their taxes on the pro cluded that: "This record does not permit the determination of a complete set of quality and value differentials." 34 F. P. C., at 370. The percentage calculations translating the 0.7¢ to 1.5¢ range into terms of rate of return, which are relied upon by the Court, were presented by Commission counsel to this Court and do not appear in the Commission's opinion or in the record. 5 See N. M. Stat. Ann., c. 65 (1953); Tex. Stat. Ann., Art. 60046066d (1962). In 1935, Texas, New Mexico, Kansas, Oklahoma, Illinois, and Colorado agreed upon an interstate compact for the conservation of oil and gas. Congress subsequently gave its consent DOUGLAS, J., dissenting. 390 U.S. duction of natural gas within their boundaries goes into school funds. They say that the "public interest" entrusted to the Commission by 15 U. S. C. § 717 (a) includes the interest of the States where the gas is found. They claim that pricing can be disastrous to the producing States and urge the need for threefold findings by the Commission to ensure an adequate supply of natural gas for future use: "First, the Commission must determine the quantity of gas needed to constitute an adequate future supply. Secondly, it must make a conclusion as to the level of exploration and development which will produce the needed gas supply. Finally, it must prescribe a rate which will elicit that level of exploration and development." They argue that where Commission rates are lower than existing contract rates, continued operation is uneconomical in many so-called "stripper fields": "Although daily per well production from these fields is relatively low, their combined remaining recoverable reserves nevertheless constitute a considerable percentage of the total reserves for the area which will be forever lost if it becomes necessary to plug and abandon these fields for economic reasons." The Court of Appeals did not entertain these objections (375 F. 2d, at 18) because it read the Hope case as foreclosing them. Hope, however, did not involve regulation of producers of natural gas, only interstate pipelines. At that to the compact on August 27, 1935, for a period of two years. Pub. Res. No. 64, 49 Stat. 939. The compact has been extended by the compacting States, with the consent of Congress, for successive periods without interruption, the latest extension being from September 1, 1967, to September 1, 1969. Pub. L. No. 90-185, 81 Stat. 560. time, Phillips Petroleum Co. v. Wisconsin, 347 U. S. 672, giving the Commission authority over these producers, had not been decided. In Hope we assumed that the Act meant what it said in § 1 (b) when it did not extend federal control to the "production or gathering of natural gas." We were not then reviewing a federal order fixing wellhead gas prices for producers. Wellhead gas was not even involved in the Hope case. We were concerned there with abuses and overreaching by pipeline companies. We said: "If the Commission is to be compelled to let the stockholders of natural gas companies have a feast so that the producing states may receive crumbs from that table, the present Act must be redesigned. Such a project raises questions of policy which go beyond our province." 320 U. S., at 614. Now that Phillips has put the prices of producers under federal control, the interests of the producing States must be considered, appraised, and weighed as an important ingredient of the "public interest." Regulation of wellhead prices by the Commission directly influences the level and feasibility of production, and can significantly affect the producing States' regulation of production. See Phillips Petroleum Co. v. Wisconsin, supra, at 689-690 (dissenting opinion)." As the Court today says in another context, price in functional terms can be "a tool to encourage" the production of gas. Ante, at 760. The effect of price on the regulatory responsibilities of the several States must therefore be weighed, unless contrary to the mandate of the Act regulation of production is to pass into federal hands. What the merits may be on this issue we do not know. The matter is complicated. For example, it seems See also H. R. Doc. No. 342, 84th Cong., 2d Sess., 2 (1956). |