Pan American Petroleum Corp. v. Federal Power Commission

ON PETITIONS FOR REHEARING

PER CURIAM.

The Federal Power Commission and others petition for rehearing in these cases pointing out to us quite properly that our factual recitation pertaining to the tax reimbursement question contains several misstatements relating to the history of Louisiana’s tax structure and the Commission’s application thereof in its earlier in-line determinations and further contending, and we believe improperly, that we have totally misconceived the Commission’s determination of the amount of the in-line price.

We erroneously stated in the main opinion that an initial severance tax of 1.5 cents per Mcf was increased in 1958 to 2.5 cents. Prior to 1958, the tax imposed by the State of Louisiana on natural gas production was 1.3 cents, consisting of a 0.3-cent severance tax and a one-cent gathering tax. In August 1958, the gathering tax was increased to two cents, but when the entire gathering tax was challenged as being unconstitutional, the severance tax was simply increased on December 1, 1958 to 2.3 cents per Mcf.

Also in the main opinion, we observed that the Commission gave the same tax reimbursement in this case that it had given in the previous in-line cases without even acknowledging that there had been a change in the tax itself. As far as the present record is concerned, this statement is accurate. But we should note that the Commission did in fact acknowledge the change in its earlier inline decisions, all of which were made after the effective date of the tax increase. Thus, although the contracts in Continental (CATCO on remand) 1 and Placid2 were negotiated and executed when the total tax was only 1.3 cents, it appears that the tax reimbursement in those cases reflected the contract allowances in effect at the time of the Commission’s decision. In Continental, the contracts permitted a tax reimbursement of 1.5 cents which the Commission accepted as “in the public interest and required by the public convenience and necessity.” 27 F.P.C. at 594. In Placid, the Commission looked to comparable contracts for the same dates containing two-component prices and concluded that there was no reason to provide a tax reimbursement greater than that allowed in Continental.3

The evidence shows a definite increase in contractual tax reimbursement allowances where the contracts were negotiated and executed after Louisiana in*174creased its severance tax.4 While we do not hold that the producers are necessarily entitled to all of this increase, in absence of a justification in the record for a tax reimbursement below prevailing contract allowances in the area we have no choice but to conclude that the imposition of the Continental and Placid allowances was arbitrary. The purpose of the remand is to give the Commission an opportunity to show that there was in fact a reasonable basis for its action in this matter.5

In our main opinion we pointed out that the trial examiner had recommended an in-line price of 20 cents per Mcf but that the Commission’s determinative words were:

“18.5 cents per Mcf at 15.025 psia, plus reimbursement for Louisiana severance tax, where applicable, of not more than 1.5 cents per Mcf.”

The Commission now argues that we misread its decision as determining an on-shore price line having two parts: an 18.5-cent base price plus 1.5 cents for tax reimbursement, and urges that the decision set, or meant to set, a total in-line price of 20 cents, including tax reimbursement. This is a complete about-face in reasoning. The Commission’s entire presentation in its two opinions, in the brief,6 and in the transcript of oral arguments before this Court was premised on the finding that the two-component price established in the three previous in-line cases had not changed over four contract periods. It was upon this premise that we accepted the Commission’s findings with respect to the 18.5-cent base price. The inadequacy of the record on tax reimbursement certainly cannot be rationalized simply by turning the amount into an unknown part of a total in-line price. Indeed, a strong argument could be made supporting the desirability of a two-component in-line price as an exercise of the Commission’s expertise in anticipation of the potential ease of determining future adjustments in view of tax changes.

The Commission also infers in its brief on rehearing that we should affirm the decision of the Commission because the allowance of 1.5 cents for tax reimbursement has ample support in the record. But to do so would require this Court to resort to reasoning not advanced nor apparently relied on by the Commission. This we cannot do even though we might subjectively think a remand to border on futility in changing the ultimate results of a case. This Court exhausts its authority when it points out an error to the Commission. Sunray Mid-Continent Oil Co. v. FPC, 353 U.S. 944, 77 S.Ct. 792, 1 L.Ed.2d 794.

Except to the extent that we here correct factual errors in our main opinion as specifically noted, the petitions for rehearing, including those of The Superior Oil Company and J. Ray Mc-Dermott & Company which re-argue the validity of the basic 18.5-cent price, are severally denied.

. 27 F.P.C. 96, 27 F.P.C. 592.

. 30 F.P.C. 283, 30 F.P.C. 682, aff’d sub nom. United Gas Improvement Co. v. Cal-lery Properties, Inc., 382 U.S. 223, 86 S.Ct. 360, 15 L.Ed.2d 284.

. The Commission and the intervenors advise us that footnote 9 of the main opinion is inaccurate where it states that the tax reimbursement question was not before the Supreme Court when Gallery was originally submitted. But inasmuch as the Court’s opinion does not mention the propriety of the tax reimbursement and accepts without comment the 1.5-cent figure, we find no merit to the argument that the decision is sufficiently broad in scope to dispose of the question as it is presented here.

. Contrary to the statement in the main opinion, this evidence was certified to us by the Commission. We failed to notice the certification in sifting out the mass of exhibits and other materials submitted in connection with the case.

. The contracts in the third in-line case, United Gas Pipeline Co., 30 F.P.C. 329. were executed after the tax increase and called for a tax reimbursement of the full 2.3 cents. The Commission’s opinion there is no more enlightening than the one here. It stated simply:

“In conformity with our decisions in OATOO [Continental] and Placid we shall permit Gulf and Tidewater to collect an additional 1.5 cents per Mcf for partial reimbursement of the Louisiana severance tax.” 30 F.P.C. at 333.

. In its original brief the Commission consistently refers to the subject price as “18.50¢ per Mcf (plus a tax reimbursement of 1.50¢ per Mcf for gas produced within the jurisdiction of Louisiana and subject to the Louisiana severance tax).”