We are called upon to review three orders promulgated by the Federal Power Commission in lengthy proceedings arising and conducted under the Natural Gas Act.1 The Commission has granted four producers of natural gas leave to sell their leasehold interests in substantial proven reserves to an interstate pipeline, and the pipeline authority to construct and operate facilities enabling it to take gas therefrom. These grants have, however, been conditioned upon terms which are continuing subjects of complaint by the producers, the pipeline, and others as well.

The producers are Sun Oil Company, General Crude Oil Company, M.H. Marr and Continental Oil Company. The pipeline is Texas Eastern Transmission Corporation (Texas Eastern).2 Other litigants in this court are the Public Service Commission of the State of New York (PSC) and the Philadelphia Gas Works Division of UGI Corporation (PGW).3

The orders under attack emanate from a series of Commission proceedings extending over a period of more than thirteen years. But notwithstanding its longevity, the controversy arrived here in a posture far from a final resolution. We have painstakingly examined its diffuse history, analyzed its multifaceted issues and pondered the complex problems emerging. Then, finding and identifying error in their administrative treatment, we are led to a disposition which, fortunately, will bring this long-standing litigation to a just and early end.

By contracts executed on February 1, 1957, the producers agreed to sell, and Texas Eastern to buy, their natural gas production in Rayne Field,4 in Southern Louisiana, at an initial price of 23.9 cents per Mcf.5 Shortly thereafter, the producers applied to the Commission for certificates of public convenience and necessity authorizing the sale,6 and Texas Eastern sought a certificate permitting construction of new pipeline facilities extending its system to Rayne Field.7 Because the unit price specified by the contract was high,8 the applications were opposed by PSC and nine distributor intervenors. Hearings were held and on April 15, 1958, the presiding examiner recommended that the sale and construction be unconditionally certificated.9 Exceptions to the examiner's decision were noted, but before the Commission ruled on them the Court of Appeals for the Third Circuit rendered its decision in the so-called CATCO litigation,10 reversing an earlier Commission order granting unconditional certification of gas sales at an initial price lower than the 23.9-cent price involved in the pending application.11 The Third Circuit's decisional ground was that the applicants for certification had not discharged their burden of demonstrating that the sale price they proposed was justified in terms of public convenience and necessity.12

After that pronouncement, Texas Eastern and the producers renegotiated, and on December 4, 1958, agreed upon another arrangement. Instead of a conventional well-held sale of the gas at a 23.9-cent price, the new plan provided for sales to Texas Eastern of the producers' leasehold interests in the gas reserves in place.13 The aggregate sale price was some $134 million,14 which equated during the early years15 to about 23.5 cents per Mcf for the gas, a figure out of line with prevailing prices.16 The producers terminated their original contracts with Texas Eastern and withdrew their applications for certification.17 Texas Eastern moved to amend its certificate application to reflect these developments, and to reopen the administrative hearing.

On June 23, 1959, the Commission overruled objections to the new proposal and, in its Opinion No. 322, awarded Texas Eastern an unconditional certificate to build and operate the facilities needed to effectuate the lease-sale.18 While the Natural Gas Act gave the Commission regulatory authority over the sales of gas which Texas Eastern's original contracts with the producers had contemplated,19 the Commission held that it lacked jurisdiction over sales of their gas leases,20 and that for that reason it was under no obligation to determine, as a precondition to certification of pipeline construction related to those leases, whether the $134 million price was compatible with the public interest.21 As a result, the producers' gas soon began to flow through Texas Eastern's pipelines for interstate distribution; and over the years ensuing, the flow has continued and the out-of-state prices paid to the producers have, as cost-of-service items, been reflected in the rates Texas Eastern has charged its customers.

Opinion Nov. 322 was, however brought to this court for judicial review, and was reversed.22 Our opinion predated the holding in United Gas Improvement Company v. Continental Oil Company23 that the Commission possessed jurisdiction over the sale of the leasehold interests.24 We stated that while the Commission was empowered to certificate the pipeline construction without passing on the financial merits of the lease-sale arrangement, its order indicated general approval of the terms of that arrangement; and that to the extent that the order purported to do so, it was unsupported by substantial evidence in the record.25 We realized that a determination of the reasonableness of proposed rates is not an express statutory requirement in a proceeding seeking authorization to extend pipeline facilities,26 but we also recognized that the economic fact of escalating natural gas prices "does make price a consideration of prime importance."27 We read the Supreme Court's CATCO decision "as holding that where a natural gas company seeks an unconditional certificate to make new sales of natural gas at proposed prices which are 'out of line' with existing prices, or which will tend to have an inflationary impact on the natural gas market, it is under an obligation to demonstrate upon the record the reasons why such increased prices are justified by the 'public convenience and necessary.' "28 And we held that irrespective of whether the parties' lease-sale was beyond the Commission's regulatory jurisdiction, Texas Eastern's pipeline construction and its sales of Rayne Field gas were jurisdictional matters, and the price paid by Texas Eastern to the producers was a factor demanding consideration since Texas Eastern's acquisition costs would become relevant in the regulation of sales by Texas Eastern to its customers.29 We remanded the case to the Commission with instructions to either disclaim any approval of the $245 million price or "reopen the record in the certificate proceeding to permit Texas Eastern to establish by adequate evidence that the acquisition costs which it proposed to incur will be consistent with the public convenience and necessity."30

On remand, the Commission took the latter course, and after further hearings, reached two conclusions. On February 6, 1963, in Opinion No. 378,31 it reversed its earlier position on jurisdiction over the lease-sale and held that it indeed did have jurisdiction.32 After discovering that power, however, the Commission recognized that the proceeding was not in a posture enabling final disposition. It was essential that the producers, who were not parties to the remanded proceeding, file an application for a certificate of public convenience and necessity for approval of their sale,33 and the nature of the lease-sale transaction presented novel difficulties in the way of price regulation.34 The parties were given six months to work out new arrangements and submit new rulings.35

Opinion No. 378 was subjected to judicial review in the Fifth Circuit, and the Commission's jurisdictional determination was reversed.36 On further review, however, the Supreme Court, limiting its considerations to that question, reversed the Fifth Circuit and sustained the Commission's jurisdiction over the lease-sale.37 Since no question as to the propriety of the Commission's disposition was before the Court,38 its action left Opinion No. 378 intact.

In March, 1966, in response to Opinion No. 378, the producers filed applications for certificates of public convenience and necessity, and another round of hearings ensued. The presiding examiner split his initial decision into two parts, the first dealing with the question of payments to be remitted to producers in the future, and the second, made necessary by the first, with the question of refunds on account of payments to producers in the past. In his Phase I decision, issued January 23, 1968,39 the examiner was of the view that the lease-sale did not meet the test of public convenience and necessity because uncertainties as to the volume of gas which would be produced entailed too great a risk for consumers,40 and because the imbalance in payments during earlier years was not outweighed by countervailing benefits.41 The examiner recommended modification of the transaction calculated to render it equivalent to a conventional sale of gas at 20 center per Mcf after adjustments reflecting cost incurred and benefits obtained by Texas Eastern which normally would have accrued to producers.42 The examiner's Phase II decision, issued on September 11, 1968,43 and utilizing an in-line level of 20 cents per Mcf44 as the basis for computations, recommended that the producers refund to Texas Eastern, and that Texas Eastern in turn refund to its customers, excess collections estimated at $31.5 million through 1967.45 The examiner further recommended reduction of Texas Eastern's rates.46

On August 6, 1969, the Commission issued its Opinion Nov. 565 and an order upholding in the main the examiner's decision on both phases.47 The Commission found that the lease-sale arrangement as formulated by the parties did not comport with the public convenience and necessity.48 Even with a producer guaranty alleviating the possibility of payment for gas that did not exist,49 the Commission concluded that other uncertainties generated too much risk.50 Had the lease-sale agreement come before it in an unexecuted form, the Commission declared, it might well have been rejected,51 but since almost half of the total estimated volume of gas had already flowed through Texas Eastern's pipelines, the Commission decided to modify the transaction in order to put it in its most palatable form.52 The Commission ordered Texas Eastern to limit further payments to producers to amounts not exceeding a just and reasonable rate of 18.5 cents per Mcf53 or any such superseding just and reasonable rate as might thereafter be established,54 and to cease payments when the producers received the full $134 million contract price.55 The Commission ordered the producers to refund to Texas Eastern the excess, after specified adjustments, of payments received above the 20-cent in-line level prior to October 1, 1968, and thereafter above the 18.5-cent or other applicable just and reasonable rate,56 a total of $31.5 million through 1967.57 And the Commission directed Texas Eastern to refund about two-thirds of that amount--$19.9 million through 1967--to its customers,58 and to trim its rates to reflect a cost of 18.5 cents,59 or a cost at any other area rate thereafter becoming applicable.60

Opinion No. 565 was not a unanimous decision. Commissioners O'Connor and Bagge subscribed to it fully.61 In all respects save one, they were joined by Chairman White, who dissented solely as to the use of the 20-cent in-line rate partially, instead of the 18.5-cent just and reasonable rate exclusively, as the basis for computation of producer refunds.62 Commissioners Carver and Brooke expressed the view "for decisional purposes" that the 20- and 18.5-cent refund bases were correct63 but, on the grounds that the lease-sale might yet garner approval, they would have remanded for the development of additional data.64

It so happened, however, that Opinion No. 565 and its accompanying order were not effectuated in any meaningful way. Applications for rehearing were presented to the Commission, and by orders entered September 265 and 18k66 1969, the Commission granted rehearing, and by separate order on the latter date stayed, pending reconsideration, the certificate conditions formulated in Opinion Nov. 565.67 On September 29, 1970, the Commission issued Opinion No. 565-A,68 which purported to reaffirm many of the considerations underlying Opinion 565, but also to substantially modify the solution it presented.

The modifications proposed by Opinion No. 565-A are directly traceable to significant developments in producer-rate regulation in Southern Louisiana occurring contemporaneously with the proceeding under review. In 1960, the Commission inaugurated a series of proceedings to enable determination of maximum producers' rates for major gas-producing areas and the regulation of such rates on an area-wide basis.69 Southern Louisiana, in which Rayne Field is situated, was one of those areas. A final order in the Southern Louisiana proceeding--Docket No. AR 61-2--was issued on September 25, 1968,70 establishing 18.5 cents per Mcf as the just and reasonable rate for gas of the Rayne Field vintage.71 On the same date, the Commission commenced a new proceeding--Docket No. AR 69-1--to determine whether the Southern Louisiana rates set in Docket No. AR 61-2 needed modification in light of later circumstances. in the meantime, the Court of Appeals for the Fifth Circuit reviewed and sustained the Commission's order in Docket No. AR 61-2,72 but petitions for writs of certiorari were presented to the Supreme Court.73 On applications for rehearing, the Fifth Circuit adhered to its holding, but indicated that despite its affirmance the Commission might have power to reconsider the order.74 The Commission then stayed its order in Docket No. AR 61-2 and consolidated that docket with Docket No. 69-1 for further hearing.75 Thus, when Opinion No. 565-A was handed down, a Commission order establishing just and reasonable rates for Southern Louisiana gas had been affirmed but was pending application for further review, and from the Commission's viewpoint the matter of rates for gas of Rayne Field vintage was still in flux.

Order No. 565-A reflects some shifting of portions among the Commission's members.76 A majority of the members77 reaffirmed the basic conclusion that the lease-sale in original form did not serve the public interest.78 A majority also felt, however, that the modifications imposed by Order No. 565 must undergo some changes.79 Chairman Nassikas and Commissioner Bagge were of opinion, like Chairman White before them,80 that the standard for producer refunds to Texas Eastern81 should be the just and reasonable rate exclusively, rather than a 20-cent in-line rate, partially;82 but, arguing that a just and reasonable rate had not been finally determined, they voted to defer the question of amount of the refunds.83 They also were of opinion that Texas Eastern's payments to producers should not be limited to contract price of $134 million,84 but should continue until the field was exhausted.85 These views collided with those expressed in Opinion No. 565 by Commissioner O'Connor,86 who in Opinion No. 565-A adhered to them.87 Commissioners Carver and Brooke, the dissenters in Opinion No. 565, would have granted the certificate unconditionally on the ground that the lease-sale met the requirements of public convenience and necessity,88 but as the next best alternative, concurred in deferment of refunds89 and extension of payments to producers for the life of the field.90

So it was that the Commission reached no decision as to the refund liability of either Texas Eastern or the producers, and that all issues in that regard were postponed.91 Thus the provisions of Opinion No. 565 respecting Texas Eastern's prospective payments to producers,92 the producers' refunds to Texas Eastern,93 the latter's refunds to customers94 and its rates for the future,95 together with the associated escrowing and accounting requirements,96 were all postponed indefinitely pending a new round of hearings.97 The certificates sought by Texas Eastern and the producers were issued, conditioned upon payment of an adjusted price of 20 cents per Mcf until such time as the area rate might be established.98

Petitions seeking rehearing of Opinion No. 565-A were filed,99 and on November 16, 1970, they were denied,100 again with shifts in position. Chairman Nassikas and Commissioner Bagge voted for denial without further statement.101 Commissioner O'Connor voted to deny, but appended a statement arguing that the total to be paid under the lease-sale contract should be adjusted to reflect the time value of money payments to the producers which were delayed by reason of the order requiring refunds.102 Commissioners Carver and Brooke dissented, and announced withdrawal of their "reluctant concurrence" in Opinion No. 565-A "to the end that the producers can receive" payments "for the life of the field."103 They reiterated their brief that the lease-sale contract should be approved as originally written.104 The petitions for review by this court followed.

The threshold question we confront is the current status of Opinion Nos. 565 and 565-A and the orders respectively accompanying them as exertions of the Commission's adjudicatory authority. No one argues that either of these opinions or orders lacked Commission majority when they issued. No one suggests that Opinion No. 565-A, when announced, did not effectively modify Opinion No. 565. Rather, the dispute relates to the impact upon the substantive and procedural aspects of those decisions which may have been made by the commissioners' subsequent votes on the order denying rehearing of Opinion No. 565-A. The votes which Commissioners Carver and Brooke cast on that order are at the center of the controversy.

Opinion No. 565 and its companion order were supported by the majority votes of Chairman White and Commissioners O'Connor and Bagge in every aspect save one.105 The one divergence was on the question whether the just and reasonable rate was to be utilized retroactively as well as prospectively as the basis for computing producer refunds to Texas Eastern.106 On that issue, Chairman White took the affirmative107 and Commissioners O'Connor and Bagge the negative108 but they were joined by Commissioners Carver and Brooke "for decisional purposes,"109 although the latter two dissented for other reasons.110

Similarly, Opinion No. 565-A and the order related to it were sustained, initially at least, by the unqualified votes of Chairman Nassikas and Commissioner Bagge,111 and by the votes which two of their disagreeing colleagues, Commissioners Carver and Brooke, "reluctantly" contributed to enable the disposition dictated by that opinion and order;112 only Commissioner O'Connor voted against that disposition.113 The order denying rehearing of Opinion No. 565-A was backed by a majority consisting of Chairman Nassikas and Commissioners O'Connor and Bagge,114 with Commissioners Carver and Brooke undertaking to "withdraw [their] reluctant concurrence" in that opinion;115 and it was the purported withdrawal that bred the first controversy which we consider.

PSC,116 deeming the withdrawal effective, contends that the majority voted originally effectuating Opinion No. 565-A in its modification of Opinion No. 565 evaporated with the vote on the order refusing rehearing of Opinion No. 565-A. In other words, PSC claims that when Commissioners Carver and Brooke retracted their joinder in Opinion No. 565-A, that opinion perished and Opinion No. 565 became automatically reinstated. Texas Easter n argues similarly, though more limitedly, that after the loss--because of t he withdrawal--of a majority of the commissioners for Opinion No. 565-A, the re could no longer be the certificate condition, fashioned in that opinion, converting the responsibility for producers payments from the contract total of $134 million to a liability for continuing payments until cessation o f gas production in the transferred leasehold properties.

The Commission, on the other hand, eschewing the withdrawal, asserts that the majority vote for Opinion NO. 565-A when issued was unaffected by the subsequent voting with respect to the applications for rehearing of that opinion, and in that position the producers unite. The issue thus boils down to whether the attempted withdrawal changed the 4-1 vote for Opinion No. 565-A and its suspension of the certificate conditions to a vitiating 3-2 vote against Opinion No. 565-A, thus restoring Opinion No. 565 as the final and only decision of the Commission. It is important to resolve the dispute at the outset so that we may know just what we are legitimately called upon to review.

The authority to entertain and dispose of applications for rehearing of Commission orders is defined by the Natural Gas Act. "Upon such application," the Act provides, "the Commission shall have power to grant or deny rehearing or to abrogate or modify its order without further hearing."117 This grant, in terms, runs to the Commission is an entity apart from its members, and it is its institutional decisions--none other--that bear legal significance.118 Only as an entity can the Commission formulate valid original decisions; by the same token, only in that character can it fashion new decisions remaking those which it has already promulgated.119 Collective action is prerequisite to any alteration of a preexisting order, whether a grant or denial of rehearing,120 or a total abrogation or partial modification of that order.121

By institutional decisions, we mean, of course, a decision by a majority vote duly taken. That is the rule of the common law,122 which we have hitherto applied to administrative action,123 and the rule by which, we notice judicially, the Commission has regularly functioned. There being no statutory specification to the contrary, we have no difficulty in accepting it as the governing rule here.124 And since each of the five members of the commission125 cast a vote toward each of the three decisions relevant here, it follows that a concurrence of at least three votes was essential to constitute any given feature of the voting an aspect of commission action.126 It follows too, that the efficacy of action taken by majority vote is in no wise affected by the fact that there is also a minority.127 "[A] dissent no more reduces the legal effect of [an agency's] findings and order than does a dissenting opinion of a member of a court detract from the legal effect of the court's judgment."128

We perceive no incongruity with logic or precedent in these conclusions. On the contrary, neither the requirement of institutional action which Congress has imposed on the Commission nor the principle of majority rule which the Commission has itself impressed upon its decision-making processes could tolerate any other. Collection action, we repeat, is the only authorized means to a decision, including a decision to undo a prior decision. If an agency proceeding could be reopened by the unilateral action of a member who casts a vote for the majority, then, irrespective of the conviction of remaining members that the interest in repose outweighed their doctrinal differences, a single defection from the majority could thwart may a careful considered resolution, and wreak havoc on the stability of the agency's decision. We have not been referred to nor have we found any authority for such a novel and frightening proposition.

We do not mean to suggest that a commissioner's vote, once made, imprisons him in an intellectual strait-jacket. The point is that an individual change of mind cannot change an institutional decision unless it garners a majority vote to do so. Nor is there any requirement, statutory or otherwise, that members of administrative agencies maintain consistent positions throughout the course of lengthy proceedings. Commissioners, no less than judges,129 may cast their votes solely to void an impasse,130 or otherwise to draw the administrative phase to a close. Commissioners Carver and Brooke utilized their votes on Opinion No. 565-A to achieve an objective deemed more important than adherence to personal precept.131 Commissioner O'Connor voted against rehearing of Opinion No. 565-A despite his differences with that opinion because he felt that the litigation was ripe for judicial review.132 But, in each instance, what counted in the definition of agency action was the vote rather than the individual view.

In sum, a change of individual position, to affect the institutional decision, must occur as a part of a collective effort directed toward that decision. Once made, the decision remains the decision of the body, immune from alternation save by another collective effort of that body. Individual endeavor to modify an institutional decision, so long as it is only that, is of no consequence in the administrative process.

The petitions for rehearing of Opinion No. 565-A and its related order133 presented to the Commission the questions whether the petitions should be granted or denied, and whether the Commission should "abrogate" or "modify" that opinion.134 The Commission plainly decided those questions in the negative. The order on rehearing declares the Commission's "opinion" that "the questions raised by the Applicants are sufficiently covered by or are clear from the language of Opinion No. 565-A and order, so that further discussion is unnecessary."135 The order also sets forth the Commission's findings that "[t]he assignments of error and grounds for rehearing set forth in the applications for rehearing ... present no facts or legal principles which would warrant any change in or modification of Opinion No. 565-A and" its accompanying order.136 The sole disposition effected by the order was that "[t]he applications for rehearing ... [and] the motion for reconsideration ... are denied."137

It is also evident that the Commission's decision to deny rehearing of Order No. 565-A was supported by the votes of a majority of the commissioners. Chairman Nassikas and Commissioner Bagge subscribed fully to the order of denial.138 Commissioner O'Connor concurred in the denial,139 and while he filed a statement expressing a change of view as to the amounts which the producers should receive from Texas Eastern,140 he announced categorically his position that "[t]he granting of rehearing at this time would not serve any constructive purpose,"141 and that "an additional rehearing would not be fruitful."142 Only Commissioners Carver and Brooke dissented, adhering to their thesis that the lease-sale transaction should be approved as it was.143

We hold, then, that Opinion No. 565-A was not abrogated or modified by the vote on the petitions to rehear it.144 Three commissioners--a commission majority--concurred in refusing rehearing of Opinion No. 565-A, and that was the only action which commanded a majority vote. Although the coalitions spawning Opinion No. 565-A were altered by the poll on the petitions for rehearing, the only proposal garnering a majority was the denial of rehearing; and the vote of the majority was, unequivocally, to leave Opinion No. 565-A intact. It bears repeating that the order recited the decision that "[t]he assignments of error and grounds for rehearing set forth" by the applicants for rehearing "present no facts or legal principles which would warrant any change in or modification of Opinion No. 565-A" or the order effectuating it.145 Hardly could the Commissioners comprising the majority have made plainer their purpose not to change Opinion No. 565-A in any respect whatsoever.

In consequence, the matters before us for review are Opinion No. 565 as modified by Opinion No. 565-A, and Opinion No. 565-A without modification, and the orders respectively accompanying those opinions. To the issues tendered for review we now turn.

Opinions Nos. 565 and 565-A each express the finding of a majority of the Commission146 that the lease-sale transaction, in the form agreed to by the parties, did not survive the test of pubic convenience and necessity.147 For that reason the Commission, in awarding the parties the certificates requested, conventionalized some aspects of the lease-sale to more nearly conform it to a normal gas-sale contract.148 Both the producers and Texas Eastern contend that the Commission's adverse finding on public interest is insufficiently supported by the evidence, and that the administrative record demonstrates that the lease-sale is more favorable to consumers than a conventional sale could be.

The Commission faced a novel situation in the lease-sale arrangement presented to it, for the lease-sale was not readily amenable to administrative supervision in the Commission's accustomed mode of regulating prices between producers and pipelines.149 The problems which the lease-sale presented come into sharper focus when the process of certificating conventional sales for gas is first examined.

A. Certification of Conventional Natural Gas Sales

A conventional gas-sale contract sets a price for each unit--each Mcf--of gas to be supplied, frequently with a provision escalating the price. When a sale is sought to be certified, the price is subject to scrutiny by the Commission in the exercise of its authority, under Section 7 of the Natural Gas Act,150 to attach such conditions to the certificate as are necessary in the public interest.151

The Supreme Court's decision in Phillips Petroleum Company v. Wisconsin152 opened the door to Commission regulation of sales by producers to interstate pipelines, and Sections 4153 and 5154 of the Act armed the Commission with general authority to establish just and reasonable rates for the gas sold. But full-fledged rate proceedings are, by their very nature, unsuited to the needs of price review when a producer seeks certification of a sale.155 Such proceedings are extraordinarily time-consuming,156 and any relief from excessive rates emanating from those under Section 5 is prospective only.157 Consumers were thus exposed to irremediable excessive charging while rate-reform proceedings were pending.158 Even when area rate proceedings came into vogue as the preferred method of setting producer rates,159 the exigencies of interim price protection remained.160

In the CATCO litigation,161 the Supreme Court focused on the problem, emphasizing the vital importance of price regulation under Section 7:

[T]he inordinate delay presently existing in the processing of Sec. 5 proceedings requires a most careful scrutiny and responsible reaction to initial price proposals of producers under Sec. 7 ... The fact that prices have leaped from one plateau to the higher levels of another ... [makes] price a consideration of prime importance. This is the more important during this formative period when the ground rules of producer regulation are being evolved .... The Congress, in Sec. 7(e), has authorized the Commission to condition certificates in such manner as the public convenience and necessity may require. Where the proposed price is not in keeping with the public interest because it is out of line or because its approval might result in a triggering of general price rises or an increase in the applicant's existing rates by reason of "favored nation" clauses162 or otherwise, the Commission in the exercise of its discretion might attach such conditions as it believes necessary.163

Following CATCO, the Commission undertook to assure that the prices at which producer sales were certificated did not exceed in-line prices--the field prices at which the bulk of contemporaneous gas transaction not "suspect" took place.164 The Supreme Court, in turn, approved the practice as a means of holding the line on prices in the interest of consumer protection until the Commission could determine just and reasonable rates for the gas.165 This technique streamlined the Section 7 certification process, and the Commission was enabled to certificate sales on the basis of comparative pricing alone, without need to delay the process by indulgence in orthodox rate-making.166

The Act spells out the processes by which producer rates set at in-line levels may be altered. After Section 7 certification, a producer may, under Section 4, vie for a higher price by the simple expedient of a 30-day notice to the Commission and the public.167 The Commission may, however, suspend the proposed increase for a maximum period of five months while it investigates and acts on the application.168 Before it may finally approve the increase, the Commission must find that it does not exceed the just and reasonable rate for gas of its vintage,169 and the burden of proof on that issue is on the applicant.170 Pending the outcome of the proceeding, the producer remains under a liability to refund the excess of any increase above the eventual just and reasonable price.171 And should the Commission see a need to launch its own investigation of a producer's initial rates, it may institute a proceeding for that purpose under Section 5 of the Act.172

Case-by-case determination of just and reasonable producer rates on the traditional cost-of-service basis, however, proved to be an intractable process which threatened to inundate the Commission's regulatory function.173 The solution which the Commission eventually devised was the previously-mentioned scheme of area-wide rate determinations.174 The scheme won Supreme Court approval in the Permian Basin Cases175 and, in the Court's words, "began a new era in the regulation of natural gas producers."176 The Commission's regulatory effort with respect to Rayne Field, as we have seen, was destined to reach that era.177

Upon a conventional gas-sale transaction, then, the ratemaking aspect of a Section 7 certification proceeding has as its purpose the fixing of an initial price in line with prices in other jump-free transactions pending the establishment of a just and reasonable rate.178 The Rayne Field lease-sale transaction, however, could not easily be subjected to the in-line price concept. Although the total price which Texas Eastern was to pay to the producers was fixed by the contract, the eventual volume of gas which the field would produce was necessarily an estimate, and so also any cost per Mcf of the gas which would be extracted. Nonetheless, it was clear that until the late years of production from the producers' holdings in Rayne, Field, the price to be paid would exceed the in-line cost of gas actually delivered.179 Since the purchase price of $134 million was to be remitted in full by 1975 but production was expected to continue until 1986,180 the parties and Commission alike were seemingly reconciled to the conclusion that the price of the gas would run considerably higher than the 20-cent in-line price during most of the production period.181

Adherence to the Supreme Court's CATCO182 ruling demanded that the Section 7 certification process not develop into a protracted affair bogged down in the mire of intricate cost calculation.183 The in-line price measure was an available index of price tends, and so a ready reference to a price that might shield consumers against exorbitance.184 Producers could secure reasonable protection under Section 4 by immediately filing for rate increases, subject to refunds contingent upon the just and reasonable rate ultimately determined.185 Consumers, on the other hand, got no refund protection under Section 5 against the contingency that the initial price might turn out to be too high.186 It was against this need to safeguard the interest of consumers that the Commission was summoned to determine whether the lease-sale merited unconditional certification.

In reviewing action by the Commission within its jurisdiction under the Natural Gas Act, we exercise an "essentially narrow and circumscribed" function.187 The Act provides unequivocably that "[a] finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive."188 And, equally plainly, a Commission ruling on a nonfactual question is to be sustained if there is a rational basis for the conclusion it achieves.189 It is by these standards that we must test the Commission's decision to condition the certificates of public convenience and necessity awarded Texas Eastern and the producers so as to conventionalize some of the features of the lease-sale.

As early as 1963, when Order No. 378190 addressed the requests for certification of the lease-sale, it was "clear" to the Commission "from the record of this case that it is not in the public interest for this Commission to certificate a transaction such as the one presented to us on this record."191 And as the presiding examiner observed in his Phase I decision in 1968, "[t]he reason ... was that it would be impossible to regulate, or even ascertain, what the producers were getting for the gas or what the cost to the pipeline would be."192 For, in the beginning, a major unknowable was the volume of gas which the transferred reserves would ultimately yield, and consequently the eventual unit price which Texas Eastern would pay for the yield.193

After opinion No. 378 was announced, the producers sought to eliminate the risk of possible over-estimation of the reserves by guaranteeing that they would supply Texas Eastern with a designated minimum volume of gas.194 With this single change in the transaction, the parties again presented the lease-sale to the Commission with requests for unconditional certification.195 The examiner decided that certification should be accompanied by an imposition of conditions,196 and the Commission adopted and has consistently adhered to that position.197

Like the examiner, the Commission in Opinion No. 565 was of the view that the reserve guaranty did not reduce much of the cost-price hazard inherent in the lease-sale.198 "[T]here are," the Commission said, "numerous other factors which can have a substantial impact upon the cost of the gas to Texas Eastern and its customers under the lease-sale, such as the value and quantity of the liquids, the rate of production of the gas and liquids, the rate of return Texas Eastern is entitled to throughout the life of the wells, and associated taxes, variations in operating expenses and uncertainty of delivery."199 So great was the peril that the Commission felt that were the lease-sale still executory, it might well reject it.200

When, however, the Commission came in Opinion No. 565 to again consider the lease-sale on its merits, it had long since ceased to be entirely executory. By the end of 1968, almost half of the estimated recoverable gas had been taken, and most of the contract price had been paid to the producers.201 In this milieu, the Commission deemed it "appropriate to compare the estimated cost of the lease-sale as a whole to Texas Eastern and its customers with the cost of a conventional gas purchase arrangement."202 The Commission admonished that "[i]n making this comparison, however, we must keep in mind the continuing substantial uncertainties as to the lease-sale arrangement and could only find it is required by public convenience and necessity, as contrasted with a conventionalized sale, if the comparison were significantly in its favor."203 And on scrutiny the Commission found that "the comparison is not favorable to the lease-sale, even without considering the uncertainties thereof."204

Opinion No. 565, as we read it, predicated that finding on two bases. One was a cost comparison of the lease-sale with a conventional gas-sale, which disclosed a difference of some $6 million in favor of the latter.205 To the purchase price of $1XX-XXX-XXX the Commission added Texas Eastern's other net Rayne Field costs and, using the producers' estimates of gas and liquid takes, computed a total cost to Texas Eastern of $1XX-XXX-XXX over the expected life of the reserves.206 On the other hand, the Commission ascertained that a conventional sale of the gas priced at 20 cents per Mcf from the start of the flow until October 1, 1968,207 and at 18.5 cents thereafter, would cost Texas Eastern a total of $1XX-XXX-XXX.208 But when these two totals were discounted at 5 percent for the time value of Texas Eastern's advances to the producers, the Commission learned that the effective cost was $1XX-XXX-XXX under the lease-sale and $1XX-XXX-XXX by a conventional approach.209 As the Commission noted, the difference would be greater if a discount rate of 6 percent were employed.210

This difference in cost was not, however, the only consideration motivating the Commission to disapprove the lease-sale as presented. A second factor which loomed large was the Commission's belief that despite the reserve guaranty, the lease-sale was fraught with uncertainties which precluded a confident evaluation of its economic impact, and that the public interest would hardly be served thrusting the risk of an excessive price on consumers. Opinion No. 565 set forth a summary of the uncertainties, to which we have adverted,211 and the Commission's overall conclusion:

[T]he lease-sale arrangement produces a lack of certainty over the life of the field and, as the record indicates, a higher cost than a conventional sale at 20 cents per Mcf. Because of these features of the lease-sale transaction, it is imperative for the Commission to take steps within its jurisdiction, which will protect consumers from paying excessive rates. This can be done, we believe effectively, through regulating the payments made by Texas Eastern to the Producers by conditioning the lease-sale arrangement.212

The uncertainty factor reappeared as a topic of discussion in Opinion No. 565-A. The producers contended that uncertainty is an element in many projects submitted for Commission approval, and that the uncertainties remaining in the lease-sale transaction after the reserve guaranty was made did not exceed reasonable bounds. The Commission disagreed, responding:

While, of course, there is always uncertainty, more is involved here, for the proposal is to commit Texas Eastern to a fixed price of $1XX-XXX-XXX for the life of the field, and that is not true in the conventional certificate proceeding where the price is subject to regulation. The essence of our objection to the lease-sale transaction is its inflexibility. If the price turns out to be too high in the light of changing circumstances, it fails to protect the consumers; if it is too low the producers will not receive an adequate return and this, in turn, may affect their ability to serve the market.213

Before the Commission the producers also argued, as they have here, that the advantageous features of the lease-sale demanded consideration conjunctively with cost data in determining whether it was that arrangement or a conventionally-converted sale that best served the public convenience and necessity.214 We agree that the price of the Rayne Field gas was not the only relevant criterion, and that the Commission was required "to evaluate all factors bearing on the public interest,"215 but we cannot agree that the Commission was derelict in that duty. On the contrary, the Commission, in both of its opinions on the subject of conventionalization,216 addressed the noncost factors which the producers advanced and found them insufficient to warrant unconditional approval of the lease-sale.217 In addition to the reserve guaranty,218 the producers pointed out that Texas Eastern and its customers obtained a large supply of gas in a single package close by its pipeline, with resultant savings in gathering and transportation costs. The Commission felt that that did not make for a unique situation, since large and well located reserves are features of many conventional sale transactions.219 The producers pointed to the further fact that Texas Eastern secured the Rayne Field gas at a firm price, and to the potential saving from the absence of price escalations; but, as the Commission responded, the price was in any event subject to the Southern Louisiana area rate.220 The producers also called attention to the flexibility of operations--another cost saver--which Texas Eastern gained under the lease-sale arrangement. As the Commission responded, however, Texas Eastern was taking the gas at a normal rate, and would be required to continue to do so in the future.221 "These factors," said the commission, "do not justify the price of gas to Texas Eastern under the contract which may be excessive even on the basis of the entire life of the field."222

When this litigation was previously before this court, we extended to the Commission the option to "reopen the record in the certificate proceeding to permit Texas Eastern to establish by adequate evidence that the acquisition costs which it proposes to incur will be consistent with the public convenience and necessity."223 And when the Commission elected to do so and properly asserted jurisdiction over the lease-sale,224 it concluded that the public interest would be ill-served by certification of a transaction in which the unit cost of the involved gas could not be accurately determined.225 Conventionalization of the lease-sale developed for the Commission as the appropriate, and we think as a rational, method of enabling the Commission to discharge its statutory responsibilities.

In reviewing the Commission's decision to conventionalize, we have remained advertent to the difficulty of the problem which it faced and to the appeal which some of the parties' arguments had for a minority of its members.226 Those arguments, in large measure, have been repeated here in a forceful effort to persuade us to a result opposite to that thrice reached by a Commission majority.227 But "Congress has entrusted the regulation of the natural gas industry to the informed judgment of the Commission, and not to the preferences of reviewing courts."228 And "[a] presumption of validity ... attaches to each exercise of the Commission's expertise, and those who would overturn the Commission's judgment undertake 'the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences.' "229 We have witnessed ample support in the evidence for the Commission's factual findings,230 and ample support in reason for its nonfactual conclusions.231 We hold that the Commission's action on this branch of the litigation must stand.

In Opinion No. 565, the Commission effectuated its decision to equate the lease-sale to a conventional gas sale by attaching to the certificates of public convenience and necessity which it awarded a set of conditions designed to achieve that end.232 The Commission's central effort in the formulation of the conditions, as it would have been had the gas been conventionally sold, was the setting of an initial unit price which would serve the public interest until such time as a just and reasonable rate might be established.233 The conditions we consider now are those which concern pricing. We will have occasion to examine others later.

Utilizing as a base price the area rate of 18.5 cents per Mcf effective October 1, 1968,234 which was to remain subject to change in any future area rate proceeding,235 the Commission subtracted the costs assumed by Texas Eastern which normally are borne by producers and added the economic advantages which normally accrue to producers.236 Since under the lease-sale arrangement Texas Eastern was paying royalties and state taxes, and was making capital investments and incurring expenses in developing and operating the field,237 the Commission directed that these outlays be deducted from the 18.5 cent unit price.238 These adjustments, the Commission ordained, would continue in effect until Texas Eastern paid the $134 million purchase price in full.239 On the other hand, since producers selling gas conventionally ordinarily realize the benefit of liquid revenues and salvage, which under the lease-sale contract inured to Texas Eastern, the Commission specified that after payment of the purchase price the 18.5 cent price would be increased by those items.240 The Commission also imposed conditions calculated to afford the producers protections which they would have enjoyed under a conventional arrangement.241

In conventionalizing the lease-sale, the Commission felt it unnecessary to reject all of its features, some of which the Commission felt had tax advantages for the contracting parties.242 One of the features retainable, the Commission held, was the $134 million price specified in the lease-sale contract as the total of the consideration to be paid to the producers by Texas Eastern. The Commission proposed, in that connection, to "require that the payments to be made by Texas Eastern for the Rayne Field gas until the purchase price of $1XX-XXX-XXX has been paid be the equivalent of a purchase of gas under a conventional contract."243 The Commission elucidated:

[We] shall adjust the arrangement so that, up until the entire purchase price of $1XX-XXX-XXX is paid by Texas Eastern, it will be equivalent in economic effect to a conventional sale at the just and reasonable price of 18.5 cents per Mcf. After that, as proposed by the Applicants, Texas Eastern would make no further payments, for if we required continued payments until the Field was exhausted the lease-sale would be, in effect, converted into a conventional sale, presumably with the corresponding tax consequences. To accomplish these ends will clearly involve a reduction of the payments for gas and an extension of the paying period, but the Producers would eventually receive the full purchase price of $1XX-XXX-XXX, although over a longer period, even after making the refunds which [Opinion No. 565 directed].244

After the end of the production payment until the entire purchase price is paid, the price should continue to be reduced by royalties, state taxes, investments and expenses, but should be increased by liquid revenues and salvage, for the producers in a conventional sale would receive the benefit of both of these items.

Eventually, even though the payments are reduced, as long as gas continues to flow from the Rayne Field, Texas Eastern will pay the full purchase price of $1XX-XXX-XXX albeit over a longer period of time. In our opinion the Producers, providing there is sufficient gas, should receive the full amount for which they contracted even though they have been required to make a refund for the period prior to this order. After the full payment has been completed Texas Eastern will pay the Producers no more for gas taken from the Rayne Field. Since it will then have fully paid for the properties transferred, Texas Eastern, alone, should bear the cost of the royalties, state taxes and costs of operating the Field, but it should receive the benefit of all liquid revenues. Texas Eastern, however, should pay the Producers for any salvage realized on property installed before the purchase price has been fully paid, since the cost of such property under the opinion and order will be deducted from the price of gas of 18.5 cents per Mcf. Of course, salvage realized from property installed after the payments have been completed and not charged against the Producers should benefit Texas Eastern.245

In Opinion No. 565-A, however, the Commission changed its treatment of the purchase price completely. The producers had contended that Opinion No. 565, in partially conventionalizing the lease-sale, had unfairly and confiscatorily placed burdens on them without conferring the benefits of a conventional sale.246 Attention was directed particularly to the provision that after Texas Eastern paid the $134 million contract price, it would get any additional gas and liquids free of charge.247 Attention was also called to the fact that while under the lease-sale agreement the entire purchase price would be remitted during the first 16 years of production, Opinion No. 565 enlarged the payment period to the extent required to absorb the $134 million at the adjusted 18.5 cent rate.¹⁴⁸

The Commission was persuaded by these arguments. In Opinion NO. 565-A, it declared that "while the Producers, under the arrangement we prescribed, [in Opinion No. 565] will be getting the contract price it will not be of the same value because they will receive it over a much longer period, and they will not receive the benefit of all the gas and liquids produced by the Field as they would under a conventional contract."249 In these circumstances, the Commission felt "that it is only equitable that they be paid for the gas and receive credit for the liquids produced until the Field is exhausted."250 The Commission added:

Texas Eastern will retain the leases conveyed to it, and will continue to be responsible for operating expenses and necessary investments.

This means that the conditions prescribed in this Opinion and order with respect to future pricing of the gas from the Rayne Field will be extended until the exhaustion of the field. Thus Texas Eastern shall pay the Producers the appropriate area rate for the gas produced less royalties, state taxes and investments and expenses for the development and operation of the Field. Under the least-sale arrangement before the termination of the production payments revenues from liquids are used to reimburse Taxes Eastern. Therefore, the area price should be reduced only by unreimbursed investments and expenses, and, after the termination of the production payment, the price should be increased by the liquid revenues.251

This modification of Opinion No. 565 was supported in Opinion No. 565-A by four of the five members of the Commission,252 and when rehearing of Opinion No. 565-A was sought, the Commission adhered to that position.253

The Commission's reversal of position as to the continuing efficacy of the $134 million contract price as a ceiling on Texas Eastern's payments to the producers for Rayne Field gas engendered an issue which is hotly contested in this court. Texas Eastern argues that the condition extending its payments over the life of the field will compel an expenditure of many millions of dollars over the maximum price agreed to by the producers, and that the Commission exceeded its authority in imposing that requirement. The producers and the Commission, with equal vigor, defend the requirement as a lawful and appropriate exercise of regulatory power under Section 7 to condition certificates of public convenience and necessity. Our starting point will be a comprehensive analysis of the Natural Gas Act in its relation to the Commission's authority to alter contract prices to which the parties have voluntarily subscribed.254 The remaining point we will consider is the Commission's power to effect the alteration of which Texas Eastern complains.255

Two decisions of the Supreme Court, read conjunctively, make it crystal clear that the commission possesses only limited power to raise prices for natural gas above those contractually fixed by the parties. In United Gas Pipe Line Company v. Mobile Gas Service Corporation,256 a regulated pipeline supplying natural gas to a distributor filed with the Commission a new rate schedule purporting to increase the price of its gas above that specified in its contract with the distributor. The Commission rejected the latter's complaint but, on review, the Court held that the Act did not empower the pipe line to unilaterally change the contract rate.257 The Act, the Court stated, "evinces no purpose to abrogate private rate contracts. To the contrary, by requiring contracts to be filed with the Commission,258 the Act expressly recognizes that rates to particular customers may be set by individual contracts."259 Rejecting the contention that Sections 4(d) and (e)260 and 5(a)261 are alternative rate-changing procedures, the court said:

These sections are simply parts of a single statutory scheme under which all rates are established initially by the natural gas companies, by contract or otherwise, and all rates are subject to being modified by the Commission upon a finding that they are unlawful. The Act merely defines the review powers of the commission and imposes such duties on natural gas companies as are necessary to effectuate those powers; it purports neither to grant or to define the initial rate-setting powers of natural gas companies.262

Section 5(a), authorizing the Commission to set aside or modify any rate found to be "unjust, unreasonable, unduly discriminatory, or preferential[,]" the Court continued, "is neither a 'rate-making' nor a 'rate-changing' procedure. It is simply the power to review rates and contracts made in the first instance by natural gas companies and, if they are determined to be unlawful, to remedy them."263 And since the Act does not define the power of natural gas companies either to make or change rates and contracts,264 "[t]he obvious implication is that, except as specifically limited by the Act, the rate-making powers of natural gas companies were to be no different from those they would process in the absence of the Act: to establish ex parte, and change at will, the rates offered to prospective customers; or to fix by contract, and change only by mutual agreement, the rate agreed upon with a particular customer."265 So, the Court concluded, "there is nothing in the structure or purpose of the Act from which we can infer the right, not otherwise possessed and nowhere expressly given by the Act, of natural gas companies unilaterally to change their contracts."266

In Mobile, the Court also noted, however, "that this interpretation, while precluding natural gas companies from unilaterally changing their contracts simply because it is in their private interests to do so, does not deprive them of an avenue of relief when their interests coincide with the public interest."267 The Court explained:

Section 5(a) authorizes the Commission to investigate rates not only "upon complaint of any State, municipality, State Commission, or gas distributing company" but also "upon its own motion." Thus, while natural gas companies are understandably not given the same explicit standing to complain of their own contracts as are those who represent the public interest or those who might be discriminated against, there is nothing to prevent them from furnishing to the Commission any relevant information and requesting it to initiate an investigation on its own motion. And if the Commission, after hearing, determines the contract rate to be so low as to conflict with the public interest, it may under Sec. 5(a) authorize the natural gas company to file a schedule increasing the rate.268

On the same day Mobile was decided, the Court announced its opinion in FEderal power Commission v. Sierra Pacific Power Company.269 The question there was whether the Commission could increase the rate specified in a contract by which an electric utility agreed to supply power to a distributor. The Commission allowed the increase solely on the ground that the contract rate yielded less than a fair return on the utility's net invested capital.270 The asserted basis for the increase was Section 206(a) of the Federal Power Act271 which, similarly to Section 5 of the Natural Gas Act, authorizes the Commission to fix the just and reasonable rate for electricity if the existing rate is "unjust, unreasonable, unduly discriminatory, or preferential."272 The Court pointed out that "while it may be that the Commission may not normally impose upon a public utility a rate which would produce less than a fair return, it does not follow that the public utility may not itself agree by contract to a rate affording less than a fair return or that, if it does so, it is entitled to be relieved of its improvident bargain."273 "In such circumstances," said the Court, "the sole concern of the Commission would seem to be whether the rate is so low as to adversely affect the public interest--as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory."274 Observing that "the purpose of the power given the Commission by Sec. 206(a) is the protection of the public interest, as distinguished from the private interests of the utilities,"275 the Court deemed it "clear that a contract may not be said to be either 'unjust' or 'unreasonable' simply because it is unprofitable to the public utility."276

These decisions furnish the standard by which the administrative action under scrutiny must be gauged. In recent years, the Supreme Court has applied them to uphold the Commission's refusal to fix minimum area rates for producers at levels above their contract prices.277 "The regulatory system created by the Act" the Court declared, "contemplates abrogation of these agreements only in circumstances of unequivocal public necessity."278 We ourselves have applied the Mobile-Sierra doctrine,279 and the Commission has relied on it to justify its refusal to override Southern Louisiana producers' contract prices with higher minimum area rates.280

The plan by which the Commission conventionalized the lease-sale arrangement involved contractual deviations of three major types. The first was the substitution of an initial unit price for the original price which the parties had fixed at the lump-sum figure of $1XX-XXX-XXX.281 The second consisted in a series of requirements, to which the parties had not themselves previously agreed, which implemented the unification of the initial price.282 The third was the elimination, in Opinion No. 565-A, of the $134 million contract price as the amount to be remitted to the producers by Texas Eastern, and the direction that Texas Eastern pay a to-be-established just and reasonable area rate for all gas realized from the beginning to the end of production.283 As is evident, each of these changes portended a problem in terms of the Mobile-Sierra doctrine.284

--The Unit Price

We may readily resolve any problem arising from the setting of the initial unit price for the gas. As we have seen, the restriction on contract-alteration by the Commission is not total; the Commission is authorized--indeed, is required--"to review" the parties' "rates and contracts ... and, if they are determined to be unlawful, to remedy them,"285 and to change them "in circumstances of unequivocal public necessity."286 This is the power which the Commission exercises when it imposes upon a Section 7 certificate of public convenience and necessity a condition that a designated initial price be observed.

As the Supreme Court said in CATCO,

The purpose of the Natural Gas Act was to underwrite just and reasonable rates to the consumers of natural gas287 .... As the original Sec. 7(c) provided, it was "the intention of Congress that natural gas shall be sold in interstate commerce for resale for ultimate public consumption for domestic, commercial, industrial, or any other use at the lowest possible reasonable rate consistent with the maintenance of adequate service in the public interest288 .... The Act was so framed as to afford consumers a complete, permanent and effective bond of protection from excessive rates and charges. The heart of the Act is found in those provisions requiring initially that any "proposed service, sale, operation, construction, extension, or acquisition ... will be required by the present or future public convenience and necessity,"289 ... and that all rates and charges "made, demanded, or received" shall be "just and reasonable"290 .... The Act prohibits such movements unless and until the Commission issues a certificate of public convenience and necessity therefor291 .... Section 7(e) vests in the Commission control over the conditions under which gas may be initially dedicated to interstate use.292

Moreover, said the Court in CATCO, "[i]n view of [the statutory] framework in which the Commission is authorized and directed to act, the initial certificating of a proposal under Sec. 7(e) of the Act as being required by the public convenience and necessity becomes crucial."293 This is partly "because the delay incident to determination in Sec. 5 proceedings through which initial certificated rates are reviewable appears nigh interminable."294 Undeniably, "the Act does not require a determination of just and reasonable rates in a Sec. 7 proceeding as it does in one under either Sec. 4 or Sec. 5,"295 nor is "a 'just and reasonable' rate hearing ... a prerequisite to the issuance of producer certificates."296 But "the inordinate delay presently existing in the processing of Sec. 5 proceedings requires a most careful scrutiny and responsible reaction to initial price proposals of producers under Sec. 7,"297 and "[t]heir proposals must be supported by evidence showing their necessity to 'the present or future public convenience and necessity' before permanent certificates are issued."298 And [w]here the application on its face or on presentation of evidence signals the existence of a situation that probably would not be in the public interest, a permanent certificate should not be issued."299

The certificate-conditioning power of the Commission exercisable upon a Section 7 producer application is the vehicle by which the Commission is summoned and enabled to protect the public interest.300 It is the "method by which the applicant and the Commission can arrive at a rate that is in keeping with the public convenience and necessity."301 For "[t]he Congress, in Sec. 7(e), has authorized the Commission to condition certificates in such manner as the public convenience and necessity may require;"302 and "[w]here the proposed price is not in keeping with the public interest ... the Commission in the exercise of its discretion might attach such conditions as it believes necessary."303

From the regulatory scheme, thus analyzed, it is apparent that the establishment of an initial price in a Section 7 certificate proceeding does not ordinarily implicate the Mobile-Sierra rule. As in CATCO the Court explained:

This is not an encroachment upon the initial rate-making privileges allowed natural gas companies under the Act, ...304 but merely the exercise of that duty imposed on the Commission to protect the public interest in determining whether the issuance of the certificate is required by the public convenience and necessity, which is the Act's standard in Sec. 7 applications. In granting such conditional certificates, the Commission does not determine initial prices nor does it overturn those agreed upon by the parties. Rather, it so conditions the certificate that the consuming public may be protected while the justness and reasonableness of the price fixed by the parties is being determined under other sections of the Act. Section 7 procedures in such situations thus act to hold the line awaiting adjudication of a just and reasonable rate. Thus the purpose of the Congress "to create a comprehensive and effective regulatory scheme,"305 ... is given full recognition. And Sec. 7 is given only that scope necessary for "a single statutory scheme under which all rates are established initially by the natural gas companies, by contract or otherwise, and all rates are subject to being modified by the Commission...."306 .... On the other hand, if unconditional certificates are issued where the rate is not clearly shown to be required by the public convenience and necessity, relief is limited to Sec. 5 proceedings, and ... full protection of the public interest is not afforded.307

In Opinion No. 565, the Commission found that the lease-sale, even as amended by the reserve guaranty,308 did not comport with the public convenience and necessity;309 and that, in order that it might do so, it was essential that it be altered in certain respects.310 In Opinion No. 565-A, the Commission adhered to that finding.311 In Opinion No. 465, the Commission fixed as initial price,312 and in Opinion No. 565-A, though it abrogated that price, it specified that the future area rate would become the initial price between Texas Eastern and the producers.313 In Opinion No. 565, the commission imposed a set of additional requirements to adjust the lease-sale arrangement to the pricing prescribed.314 While in Opinion No. 565-A, the Commission suspended some of those requirements, it was not because they lacked an intimate connection with the initial price which Opinion No. 565 had set.315 To the extent that these specifications changed the parties' lease-sale contract, they were manifestly designed to serve the public convenience and necessity316--a necessity born of the great difficulty, if not the impossibility, of otherwise ascertaining and effectuating an initial price for the gas, and consequently of protecting consumers against excessiveness.317 In these modifications, we perceive no impingement upon the Mobile-Sierra doctrine.

--The Total Price

As we have stated, Texas Eastern argues strenuously that the Commission's decision to eliminate the $134 million lease-sale contract price as the ceiling of its monetary liability to the producers for their Rayne Field gas stands on entirely different ground. We find, upon careful examination of this particular change, that Texas Eastern's position is well taken. We accordingly hold that the Commission's action in that regard cannot be supported as an appropriate exercise of its contract-revision authority under the narrow exception to the Mobile-Sierra rule.

Before elucidating the reasons persuading us to that conclusion, we pause to address two preliminary considerations. The producers and the Commission point to the uncertainties as to the volume of gas in the filed, the quantity and value of liquids that may be extracted, the amount of future state taxes and the size of salvage recoveries; and on that basis they argue that the displacement of the contract price by a unit price payable throughout the life of the field does not absolutely forebode an increase of the cost of the gas to Texas Eastern. In the view of three members of the Commission--a majority in Opinion No. 565-A, in which the displacement was directed--such an increase would indeed follow. Commissioner O'Connor estimated that the producers would gain "an additional $XX-XXX-XXX."318 Commissioners Carver and Brooke put the gain in current dollars at between $XX-XXX-XXX and $XX-XXX-XXX.319 All three commissioners recognized that these figures would go higher if the area rate for Southern Louisiana producers were raised prospectively above 18.5 cents per Mcf.320 Neither of the two remaining Commission members indicated in Opinion NO. 565-A any belief that the linking of Texas Eastern's payments to the full period of productive activity was not an extracontractual financial boon to the producers.321 Moreover, the Section 7 certification proceeding does not tolerate the kind of cost figuring which a more solid determination on the matter of increase, if possible at all, would unavoidably necessitate.322 In these circumstances, we feel bound to accept the premise that the contract price was substantially raised.

Beyond that, the fundamental teaching of Mobile and Sierra is that the parties' agreement, and not the Commission's bent, sets the price of gas for purposes of administrative regulation unless overriding considerations of public convenience and necessity unmistakably appear.323 We deem this the governing rule not only where, in consequence of the Commission's action, a raising of th