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04/19/79 Compania De Gas De Nuevo v. Federal Energy Regulatory

April 19, 1979

COMPANIA DE GAS DE NUEVO LAREDO, S.A., PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT ENTEX, INC., INTERVENOR., ENTEX, INC., PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT 1979.CDC.72



Before McGOWAN and LEVENTHAL, Circuit Judges, and MARKEY,* Chief Judge of the United States Court of Customs and Patent Appeals.

UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA CIRCUIT

Petitions for Review of an Order of the Federal Energy Regulatory commission.

APPELLATE PANEL:

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MCGOWAN

These consolidated petitions for review of an order of the Federal Energy Regulatory Commission (Commission) relate to the regulatory aspects of a contractual dispute growing out of the exportation of natural gas by Entex, Inc. (Entex) to Compania de Gas de Nuevo Laredo, S.A. . *fn1

In No. 78-1001, CGNL challenges the Commission's determination that, at least for regulatory purposes, the currently effective rate for the sale of gas to CGNL is that specified in supplemental agreements between the parties, rather than that specified in their original contract. In No. 78-1071, Entex seeks to overturn a condition imposed on its grant of export authority under which Entex, prior to suspending service to CGNL because of nonpayment, is required to obtain the Commission's approval. For the reasons hereinafter appearing, we affirm the Commission in No. 78-1001, but remand in No. 78-1071 for further proceedings. I

This case arises from a contractual dispute between CGNL, a privately-owned natural gas distribution company that sells gas in and near the City of Nuevo Laredo in the Republic of Mexico, and Entex, a natural gas distribution company that operates in intrastate commerce in Texas, Louisiana, and Mississippi. Entex, in addition to its intrastate operations, has a longstanding contract to export gas to CGNL.

Entex exports gas to CGNL pursuant to a Commission order issued in 1945 under section 3 of the Natural Gas Act. *fn2 That order authorized Entex's predecessor to export gas to CGNL "in accordance with the terms and provisions" of a 1944 contract between the parties and "upon the terms and conditions" of the order itself. United Gas Corp., 4 F.P.C. 840, 841 (1945). In the 1944 contract, the parties had (1) agreed to a fixed rate for the sale of gas at 27.5 cents per Mcf, (2) stipulated that Texas law was to govern any disputes arising under the contract, and (3) vested Entex's predecessor, in the event that CGNL failed to pay the balance due on its account for more than sixty days, with the right to suspend gas deliveries.

On numerous occasions after 1945, the parties hereto (or their predecessors) amended the contract pursuant to supplemental agreements. These amendments included several rate hikes and the inclusion of a "pass through" clause permitting Entex to adjust the rate upward or downward to reflect, Inter alia, its costs of purchasing gas for resale to CGNL. On no occasion, however, was the Commission called upon to review these amendments, which, with a single exception, were not even filed with the Commission.

CGNL's cost of purchasing gas from Entex rose markedly as a result of the amendments to the contract. The "pass through" provision, for example, resulted in a substantial price increase in 1973, when the Texas Railroad Commission, in voiding Entex's contract with its gas supplier, substituted a price formula that raised the cost to Entex of purchasing gas for resale to CGNL.

Beginning in late 1974, CGNL, apparently unable to pass on to its customers the higher gas costs, fell behind in paying its bills to Entex. When this debt had grown to more than a half million dollars, Entex notified CGNL and the Mexican government that, pursuant to the contract as amended, Entex intended to suspend service unless CGNL paid the balance due on its account. The Mexican government responded by informing Entex that CGNL had been urged to discharge the debt.

Rather than discharging the debt, CGNL, on the day before Entex was to suspend service, filed suit in the United States District Court for the Southern District of Texas. CGNL petitioned the court to conduct an accounting between the parties, to void certain provisions in the contract as unconscionable, and to bar Entex from suspending gas deliveries. The District Court refused to issue a preliminary injunction, and CGNL appealed. Entex, subject to a stay pending appeal, was required to continue deliveries to CGNL. In the meantime, however, Pemex, Mexico's government owned and operated petroleum and gas corporation, began to supply gas to CGNL, thereby reducing the demand for exported gas. Moreover, on July 13, 1976, the Mexican government took possession of the property and rights of CGNL.

On July 23, 1976, CGNL filed a complaint with the Commission seeking to prohibit Entex from terminating service and requesting the Commission to determine the currently effective rate for the sale of gas to CGNL. The Commission, on July 24, 1976, issued an order requiring Entex to continue its deliveries pending resolution of CGNL's complaint. Following this order, CGNL moved for, and was granted, a voluntary dismissal of its appeal to the Fifth Circuit of the denial of the injunction against Entex. On August 18, 1976, the District Court for the Southern District of Texas stayed the suit against Entex pending resolution of the matters before the Commission.

On September 3, 1976, the Commission ordered a hearing on the issues raised in CGNL's complaint and the issue whether the continued exportation of natural gas to CGNL was consistent with the public interest. After a hearing and further briefing, the administrative law judge, on February 15, 1977, issued his initial opinion, concluding (1) that, at least at the contract rate as amended, the continued exportation of natural gas to CGNL was not inconsistent with the public interest, (2) that, at least insofar as the Commission's determination of "public interest" was concerned, the "contract rate as amended by the various amendatory and supplemental agreements (was) the ...


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