permitted by public convenience and necessity and should be approved as hereinafter ordered. The Commission orders:

(A) Permission for and approval of the abandonment by Applicant of the facilities hereinbefore described, all as more fully described in the application, are granted.

(B) Applicant shall notify the Commission of

the date of the abandonment of the facilities within 10 days thereof.

-Footnote

1 Applicant, a Delaware corporation having its principal place of business in Birmingham, Alabama, is a "natural-gas company" within the meaning of the Natural Gas Act as heretofore found by order issued October 6, 1942, in Docket No. G-296 (3 FPC 822).

On October 31, 1978, as supplemented December 7, 1978, Texas Eastern Transmission Corporation (Texas Eastern),' and Texas Gas Transmission Corporation (Texas Gas)' filed in Docket No. CP79-48 an application pursuant to Section 7(c) of the Natural Gas Act for a certificate of public convenience and necessity authorizing the exchange and transportation of natural gas, all as more fully set forth in the application.

Texas Gas has the right to purchase natural gas reserves underlying West Cameron Block 237, offshore Louisiana, which gas is remote from its pipeline system. Texas Eastern, however, has facilities in the area. Texas Gas has filed an application in Docket No. CP78-507 requesting authorization to construct and operate an undersea pipeline and related facilities to connect Block 237 with Texas Eastern's existing offshore Cameron Pipeline System in West Cameron Block 250, offshore Louisiana. Texas Eastern has the right to purchase natural gas reserves underlying High Island Block A-568, offshore Texas, which gas is distant from its existing system. Texas Gas, however, has facilities in the area. Since Texas Eastern has advised that its affiliate will not complete developing its production in the High Island area until 1980, it will not file for authorization to construct facilities necessary to attach reserves obtained in High Island, Block A-568 to the facilities of the High Island Offshore System (Texas Gas is an affiliated shipper of HIOS) until that time.

Texas Eastern and Texas Gas propose to exchange up to 20,000 Mcf of natural gas per day on a long term basis, and Texas Eastern proposes to transport on an interim basis gas for Texas Gas until Texas Eastern constructs the facilities in the High Island Offshore Area, pursuant to the terms of

an exchange and transportation agreement dated November 30, 1978. Pending the delivery by Texas Eastern of the Block A-568 volumes of gas to Texas Gas and the commencement of the exchange of gas proposed herein, Texas Eastern will transport up to 20,000 Mcf per day of natural gas for Texas Gas onshore to a point of interconnection of the facilities of Texas Eastern and Transcontinental Gas Pipe Line Corporation (Transco) near Ragley, Louisiana. The parties will utilize the Ragley receipt point to offset exchange imbalances when both companies' supplies are developed and flowing. Imbalances in deliveries shall be corrected as soon as operating conditions permit.

Texas Eastern will charge Texas Gas 9.54 cents per Mcf of gas transported during the period prior to the construction of facilities by Texas Eastern. Texas Eastern will be required to credit all incremental revenues from this transportation to its

customers.

Since the exchange and transportation of gas are to be made in interstate commerce subject to the jurisdiction of the Commission, they are subject to the requirements of Subsections (c) and (e) of Section 7 of the Natural Gas Act.

After due notice by publication in the Federal Register on November 22, 1978 (43 F.R. 54685), no notices of intervention, petitions to intervene, or protests to the granting of the application have been filed.

At a hearing held on February 14, 1979, the Commission on its own motion received and made a part of the record in this proceeding all evidence, including the applications and exhibits thereto, submitted in support of the authorizations sought herein, and upon consideration of the record,

The Commission finds:

(1) Applicants are able and willing properly to do the acts and to perform the service proposed and to conform to the provisions of the Natural Gas Act and the requirements, Rules and Regulations of the Commission thereunder.

(2) The proposed exchange and transportation of natural gas is required by the public convenience and necessity and a certificate therefor should be issued as hereinafter ordered and conditioned. The Commission orders:

(A) Upon terms and conditions of this order, a certificate of public convenience and necessity is issued authorizing the exchange of natural gas between Texas Eastern and Texas Gas, and authorizing the transportation of natural gas on an interim basis by Texas Eastern, as hereinbefore described and as more fully described in the application.

(B) The certificate issued by paragraph (A) above and the rights granted thereunder are conditioned upon Applicants' compliance with all applicable Commission Regulations under the Natural Gas Act and particularly the general terms and conditions set forth in paragraphs (a),(c)(3) and (e) of Section 157.20 and in Part 154 of such Regulations.

(C) The authorization granted Texas Eastern herein for the transportation of natural gas is conditioned upon the receipt of appropriate authorization by the producers for the sale of the gas to be transported.

(D) The authorization granted Texas Eastern herein for the transportation of natural gas is

conditioned upon the Commission's approval of Texas Gas's application filed in Docket No. CP78-507 for authorization to construct and operate certain pipeline and related facilities.

(E) The authorization granted Texas Eastern herein for the transportation of natural gas is conditioned upon Texas Eastern's crediting all incremental revenues from the proposed transportation to its customers.

(F) Texas Eastern's transportation rate is conditioned upon the final determination in the pending proceeding in Docket No. RP78-87 and the proposed charge shall be consistent therewith.

(G) The authorization granted Texas Eastern and Texas Gas herein to exchange gas is conditioned upon Texas Eastern's filing for and receiving Commission's approval to construct the necessary facilities to connect reserves in the High Island Area to HIOS' system and the issuance of any related producer authorization prior to the implementation of the proposed exchange.

(H) Imbalances in deliveries shall be corrected as soon as operating conditions permit. -Footnotes

Texas Eastern, a Delaware corporation having its principal place of business in Houston, Texas, is a "naturalgas company" within the meaning of the Natural Gas Act as heretofore found by order issued October 11, 1947, in Docket No. G-880 (6 FPC 171).

2 Texas Gas, a Delaware corporation having its principal place of business in Owensboro, Kentucky, is a "natural-gas company" within the meaning of the Natural Gas Act as heretofore found by order issued April 2, 1948, in Docket No. G-855 (7 FPC 213).

On October 20, 1978, Texas Gas Transmission Corporation (Texas Gas)' filed in Docket No. CP79-37 an application pursuant to Section 7(c) of the Natural Gas Act for a certificate of public convenience and necessity for authorization to retain in place approximately 1,681 feet of pipeline previously authorized to be constructed and operated for temporary use during a pipeline reconditioning project, all as more fully set forth in the application.

Texas Gas and others2 were authorized' to install approximately 2,500 feet of various diameter

pipeline together with metering and regulating facilities in order to deliver temporarily up to 30,000 Mcf of natural gas per day for Texas Gas during a reconditioning project on its HerbertCannelton 8-inch line located in Ohio and Hancock Counties, Kentucky. The facilities were necessary to maintain deliveries to high priority customers ordinarily served by the Herbert-Cannelton line.

The reconditioning work has been substantially completed and Texas Gas now requests authorization to retain in place approximately 1,681 feet of the pipeline in Hopkins County, Kentucky, for use

during possible emergencies on the Herbert-Cannelton Line. All other temporary facilities installed under authorization from Docket No. CP78-408 have been or will be removed. The pipeline to be retained connects a Texas Gas 12-inch pipeline with 12-inch intrastate pipeline owned by National Pipeline Company and operated by Orbit Gas Company.

To insure that no natural gas will flow between Texas Gas' and the intrastate systems, during nonemergency situations, Texas Gas has installed a blind flange between the two systems.

The actual $19,200 cost of the facilities to be retained was financed with cash on hand.

The recent reconditioning of the HerbertCannelton line makes it unlikely that a facility failure will occur. However, any accident could interrupt service to high priority customers inasmuch as it is a single line system and the only source of natural gas in the area. Therefore, retaining the subject pipeline will assure service to high priority customers should an emergency situation arise.

Since the proposed facilities could, in the event of an emergency, be used in the transportation of natural gas in interstate commerce subject to the jurisdiction of the Commission, the retention in place and operation therefore is subject to the requirements of Subsections (c) and (e) of Section 7 of the Natural Gas Act.

After due notice by publication in the Federal Register on November 7, 1978 (43 F.R. 51839), no petition to intervene, notice of intervention, or protest to the granting of the application has been filed.

At a hearing held on February 14, 1979, the Commission on its own motion received and made a part of the record in this proceeding all evidence, including the application and exhibits thereto, sub

mitted in support of the authorization sought herein, and upon consideration of the record, The Commission finds:

(1) Texas Gas is able and willing properly to do the acts and to perform the service proposed and to conform to the provisions of the Natural Gas Act and the requirements, Rules and Regulations of the Commission thereunder.

(2) The retention in place and operation of the facilities proposed by Texas Gas are required by the public convenience and necessity and a certificate therefor should be issued as hereinafter ordered and conditioned.

The Commission orders:

(A) A certificate of public convenience and necessity is issued authorizing Texas Gas to retain in place and operate approximately 1,681 feet of pipeline, for use in emergency situations only, on its Herbert-Cannelton pipeline, as hereinbefore described and as more fully described in the application, upon the terms and conditions of this order.

(B) The certificate issued by paragraph (A) above and the rights granted thereunder are conditioned upon Texas Gas' compliance with all applicable Commission Regulations under the Natural Gas Act and particularly the general terms and conditions set forth in paragraphs (a), (e), (f) and (g) of Section 157.20 of such Regulations.

I

These oil pipeline rate cases relate to different time periods. Their procedural histories also differ. Nevertheless, they are facets of a single controversy

between the Williams Pipe Line Company and a group of petroleum shippers.

When that controversy began and for some years thereafter, oil pipeline rates were regulated by

the Interstate Commerce Commission (“ICC"). After protracted proceedings, that body found the challenged rates permissible. The case in which it did so bore ICC Docket No. 35720. At this Commission, its docket number is OR79-1.

The ICC's decision in OR79-1 having been adverse to them, the complaining shippers appealed to the Court of Appeals for the District of Columbia Circuit. While their appeal was pending, the Department of Energy Organization Act took effect. That statute vested us with "all functions and authority of the Interstate Commerce Commission

where the regulatory function establishes rates or charges for the transportation of oil by pipeline." Hence this Commission was substituted for the ICC as the respondent agency.

We took no position on the merits. But we asked the court to remand the case to us so that we might fashion our own approach to this new area of responsibility. It did so. Farmers Union Central Exchange, et al. v. F.E.R.C., 584 F.2d 408 (D.C. Cir. 1978).'

The court's decision to remand did not turn solely on its desire to accommodate our wishes. The court's lengthly opinion expressed a profound unease with the body of administrative oil pipeline lore on which the ICC had relied.' Thus, for example, "the tradition of fair value ratemaking" to which the ICC had attached great significance was found "weak and outmoded."

The ICC was also censured for relaying "on its antiquated precedents in determining a reasonable rate of return." The court found this as irrational as “a rule that would require modern automobile accident damages to conform to those awarded by juries in 1940." Attempts to justify the methodology used by reference to its alleged suitability to an inflationary environment were found unpersuasive because of apparent double counting.' The court's concern went not only to the result reached in the concrete case but to "The lack of viable precedents in this area and thus of some semblance of established ratemaking theory.""

Hence the Court of Appeals found “it * logical to allow the relevant administrative agency to attempt for itself to build a viable precedent for use in future cases that not only reaches the right result but does so by way of ratemaking criteria free of the problems that appear to exist in the ICC's approach."

That is a sweeping mandate. Moreover, the language of the governing statute is broad and flexible. It leaves much to our discretion. And save for the opinion of the Court of Appeals in this very case, there are no judicial precedents in point. So we have to build a body of basic regulatory principle that makes sense for this important industry. A big part of that job will have to be done in the instant

case.

So we want as full and as enlightening a record in this matter as we can possibly get. Moreover,

fairness to the parties requires that they be permitted to adduce whatever additional evidence they deem appropriate to what has now become an extremely important case of first impression. We also note that our staff has never heretofore participated in the proceedings. It deserves a chance to show what it can contribute.10

For these reasons we shall send OR79-1 to one of our Administrative Law Judges for the receipt of additional evidence.

II

What has just been said of OR79-1 is also applicable to its companion, I&S-9089. The cases differ from each other in these respects:

(A) I&S-9089 is younger than OR79-1. It relates to a time period subsequent to that embraced by OR79–1.

(B) Unlike OR79-1, I&S-9089 never went to court. Nor was I&S-9089 ever the subject of an ICC decision. However, an extensive evidentiary record was made in I&S-9089. And an ICC Administrative Law Judge rendered an Initial Decision. That Initial Decision followed ICC precedent. Hence the result favored the carrier. The shipper-protestants' appeal from that Decision was pending before the ICC when the Department of Energy Organization Act brought the matter here.

For present purposes, these differences make no difference. What is important here and now is that the basic issues in these cases are identical. Because of that identity of issues, it would have been futile for us to deal with I&S-9089 before the courts disposed of its ancestor, OR79-1. To keep the two cases separate at this juncture would be an even more egregious exercise in futility.

III

Docket Nos. IS79-4, FS79–1 and FS79-2 have no ICC history. Nor have any hearings been held in them. They involve:

(A) The general rate increase filing that Williams made on November 30, 1978; and

(B) The two applications that Williams filed on that same date for permission to charge less for certain long hauls than it charges for short hauls on the same lines.

Those requests are opposed by the shippers that challenged Williams in the earlier proceedings. In the newer cases as in the older ones those shippers charge that Williams's rate base is inflated, that its earnings are excessive, that its depreciation allowances are unreasonably high, that its rates are impermissibly discriminatory, that such discrimination is detrimental to them, and that the ICC precedents sanctioning these alleged abuses have no rational basis.

After reviewing the matter, our Oil Pipeline

Board entered an order on January 18, 1979, 6 FERC 62,025, that:

(1) Accepted Williams's rate increase filing, but suspended its effectiveness for some months;

(2) Permitted the rates in question to become effective on August 1, 1979, subject to refund;"

(3) Consolidated the rate increase case with the two applications seeking relief from the Interstate Commerce Act's long-haul and short-haul restrictions;

(4) Directed an administrative inquiry into the legality of William's proposals;

(5) Further directed that a public hearing with respect to those proposals be held before an Administrative Law Judge;

(6) Required Williams to "file its case-in-chief fully justifying the proposed general rate increase and *** [the] applications [for special relief that accompanied that proposal] on or before April 2, 1979";

(7) Stated that such "case-in-chief shall contain a schedule setting forth net original cost investment with details";

(8) Added that Williams “may [emphasis added] propose an appropriate working capital allowance to be included in rate base and may [emphasis added] propose a rate of return to be applied to this rate base";

(9) Set June 29, 1979, as the date on which our staff is to serve its top sheets;

(10) Directed the Administrative Law Judge to hold a settlement conference on July 17, 1979;

(11) Noted that the cases with which it dealt were closely intertwined with those previously litigated before the ICC;

(12) Expressed the view that the whole batch of cases "should be consolidated for purposes of hearing and decision";

(13) Observed that the Board had no authority to effect the recommended consolidation; and (14) Certified that consolidation issue to us.

IV

We agree with the Board that all of Williams' pending rate cases should be heard and disposed of together."2

V

We are also in accord with the general outlines of the Board's order. In two areas, however, our views differ from those of the Board. The first of those areas is the sequence in which the steps needed to move the proceeding forward should be taken.

As previously noted, the Board directed a filing by the carrier in April, a filing by the staff in June, and a conference before the Administrative Law Judge in July. The shipper-protestants consider this schedule much too leisurely. They seek acceleration

and ask us to direct the carrier to file its case-inchief forthwith.

We agree with the shippers about the need for expedition. However, it is not clear to us that the course they urge would actually serve that end. In a case as complex and as multi-faceted as this, we think it best to begin with a pre-hearing conference. That conference should, we believe, be held no later than 30 days from the date of this order. Enlightened by what transpires at that meeting, the Judge will be in a position to prescribe a realistic schedule that counsel can be expected to meet."

Hence we leave the timing to the hearing officer. His task will be difficult. In managing the case he shall have to balance our desire for a full record as well as the need to give the parties every reasonable opportunity to present their positions in detail against the equally pressing need for expedition.

VI

The other area in which we find it appropriate to modify what the Board did relates to the content of Williams' case-in-chief. The Board required Williams to file a "case-in-chief fully justifying" its rates and its related requests for special relief. We agree that this is essential. In our view, however, the Board did not go far enough.

The present controversy both in this specific case and in oil pipeline regulation generally revolves in large measure around the rate base question. Is the original cost rate base that regulators normally employ when they set rates, suited to the needs of the oil pipeline situation? Or is there something very special about oil pipelines that makes original cost inappropriate for them? If the answer to that be in the affirmative, how should oil pipeline rate bases be computed?

These are the crucial threshold questions in this litigation. No rational decision can be reached unless those matters are explored in depth. Hence detailed original cost data are essential. The Board recognized that.

But more is needed. In order to resolve the rate base issue we have to know how much working capital Williams has to have in order to function adequately. Hence we think that the Board erred when it failed to direct Williams to present evidence on that point. True, it said that Williams "may propose an appropriate working capital allowance to be included in rate base." We alter that by changing "may" to "shall".

That same change from the permissive to the mandatory is also needed on the rate of return question. What rate of return on an original cost rate base does Williams deem itself entitled to earn? And why?

It is not enough to say, as the Board did, that Williams "may" come forward with evidence on these questions. To justify the challenged rates, it