A natural-gas price increase estimated to have cost the public $1.49 billion to $1.78 billion in 1977 alone - the largest single increase ever granted by the Federal Power Commission - survived consumer and producer challenges in the Supreme Court yesterday.
The justices let stand a 2-to-1 ruling by the U.S. Circuit Court of Appeals for the District of Columbia that preserved orders by the FPC in 1976 that nearly tripled the nation-wide wellhead price for 1,000 cubic feet (mcf) of gas sold to interstate pipelines.
The agency, now the Federal Energy Regulatory Commission, raised the price from 53 cents to $1.42 per mcf for wells starting to produce on or after Jan. 1, 1975. For wells opened in the two preceding years, the FPC set the price at 93 cents: for gas produced under contracts that expired under their own terms, the rate was put at 92 cents. The agency also provided in each case for annual "escalations" of one cent.
The agency said the increases, were "fully cost-based," as required by the Natural Gas Act of 1938. The appeals court majority had some doubts about the support for this claim, but held essentially that the commission had acted within the law and within the "wide latitude" it has as a regulatory agency.
The American Public Gas Association (AGPA), composed of municipal untilities, and its allies (including states, cities, members of Congress, unions and the Consumer Federation of America) charged that the ruling set a "new lax standard of judicial review" by validating an agency action based on less than the "substantial evidence" required by the law. Solicitor General Wade M. McCree said the 91-page majority opinion "belied" the charge.
One of the points at issue, and the one on which Judge Charles Fahy based his dissent, was the agency's reliance on an economic "model" that, purporting to show the $1.42 rate wouldn't yield excessive profits, assumed the rate at which producers would pay Federal income taxes to be 48 percent, the maximum.
The APGA said there was no evidence in the record and none cited in the opinion for the court by Judge Harold Leventhal that the producers, mainly the major oil companies, actually will pay anything like 48 percent, which accounts for 43.05 cents of the $1.42 price.
The APGA brief also faulted the agency's reliance on estimates of reserves made by the industry's American Gas Association. Judge Leventhal had termed the agency's case for this reliance "thin" and noted that even the FPC conceded its ignorance "of some of the assumptions on which the AGA estimates are based."
A wholly different kind of attack on the appeals court decision came in a brief filed by more than 40 producers, distributors and others in the natural-gas industry.
Their central contention was that because of the "nonrenewable nature" of gas, there is no basis either in the Constitution or rationality for the FPC to set lower prices for "old" gas than for "new" gas.
In another action, the court let stand a ruling by the 5th U.S. Circuit Curt of Appeals that under the Bank Holding Company Act, the Federal Reserve Board had held correctly that the property-damage and liability insurance provided in connection with loans by the Southern Bancorporation of Birmingham, Ala., and the First National Holding Corp. of Atlanta was "closely related" to banking.