Two gas companies seek review of an order of the Federal Power Commission denying a request for preclearance for a transaction, and directing compliance with section 7 of the Natural Gas Act, 15 U.S.C. § 717f(c). The companies had requested the Commission to rule that a proposed sale, transportation, and storage of liquefied natural gas (LNG)1 within Massachusetts would be outside FPC jurisdiction or, alternatively, would be exempt from most regulation under an FPC rule relating to emergency sales of gas. If the transaction were nonjurisdictional or exempt, petitioners would avoid the uncertainties and delays which accompany an application to the Commission for a certificate of "public convenience and necessity". Id.

Cape Cod Gas Company, a local Massachusetts distributor exempt from FPC jurisdiction under sections 1(b) and 1(c) of the Act,2 learned from its interstate pipeline supplier that because of the nationwide gas shortage Cape would receive less than enough gas to meet its requirements for the 1974-75 winter. At the same time Commonwealth Gas Company, a distributor also exempt under section 1(c), had a surplus of natural gas, which had been purchased from the Tennessee Gas Pipeline Company and liquefied and stored by Hopkinton LNG Corporation, an affiliate of Commonwealth. Cape proposed to purchase 500,000 McF (one McF = 1000 cubic feet) of LNG from Commonwealth, taking delivery at the Hopkinton facilities and (since Cape's own storage facilities were inadequate) trucking the LNG to storage facilities of Distrigas of Massachusetts Corporation (DOMAC). During the 1974-75 winter Cape was to have the LNG shipped by truck to its distribution system from the DOMAC facilities.

On April 12, 1974, DOMAC filed with the Commission a request for a preclearance that this transaction, and in particular its own storage facilities, would not be subject to FPC jurisdiction. On May 31, Cape requested a Commission determination as to whether the entire transaction was outside FPC jurisdiction or should be made under section 2.68 of the Commission's General Policies and Interpretations, 18 C.F.R. § 2.68, which exempts from full FPC regulation emergency sales for up to sixty days by 1(c) companies, distribution companies, and intrastate pipelines. On August 9, the Commission denied the requests. It ruled that although the Commonwealth to Cape sale was exempt from FPC jurisdiction under section 1(c) and although the Hopkinton-DOMAC-Cape transportation of the LNG by truck was exempt under FPC Order No. R-377, 49 F.P.C. 1078 (1973), the storage services by Hopkinton and DOMAC nevertheless remained subject to FPC jurisdiction. The Commission also ruled that section 2.68 was applicable only to sales of gas in vapor form, and not to this LNG transaction. The Commission denied rehearing and reconsideration, and this petition followed.

Petitioners contend that since the sale and transportation involved in this transaction are admittedly exempt from FPC jurisdiction, the Commission erred in concluding that the operations of Hopkinton and DOMAC in the same transaction were jurisdictional. It is petitioners' view that since the interstate transportation of LNG by truck is nonjurisdictional, the storage and transportation of LNG intrastate ought to be nonjurisdictional and outside the provisions of section 1(b). Petitioners would have us find support for their position from the express declaration in section 1(c) that sales exempt under its provisions are "matters primarily of local concern". See note 2 supra.

In terms of common sense, there is much to be said for petitioners' view. By asserting jurisdiction over the storage facilities in this proposed transaction, the Commission has in effect placed an otherwise exempt transaction under its regulation. Moreover, the Commission has not explained how its statutory functions are served by regulating such a transaction when storage rather than distribution follows an intrastate exempt sale.

But while common sense may be on the side of petitioners, the Act, as worded and construed, supports the Commission. The FPC has jurisdiction over all companies involved in the transportation or sale of gas in interstate commerce until the gas reaches local distribution, unless the company is exempt under the Act. See generally FPC v. East Ohio Gas Co., 338 U.S. 464, 70 S.Ct. 266, 94 L.Ed. 268 (1949); Panhandle Eastern Pipe Line Co. v. Public Service Commission, 332 U.S. 507, 68 S.Ct. 190, 92 L.Ed. 128 (1947); cf. Illinois Gas Co. v. Public Serv. Co., 314 U.S. 498, 62 S.Ct. 384, 86 L.Ed. 371 (1942). Here, the exempt status of the Commonwealth-Cape sale does not control whether the storage companies engaged in the transportation of natural gas in interstate commerce within the meaning of section 1(b). The gas supplied to Commonwealth originally moved interstate through pipelines before liquefaction and storage at Hopkinton, and petitioners have not shown that the Hopkinton and DOMAC facilities are exempt under section 1(b) or 1(c).

We find, therefore, no error in the Commission's assertion of jurisdiction.

Section 2.68 of the Commission's General Policies and Interpretations was promulgated in 1970 to permit and encourage certain exempt companies to make emergency sales of gas with only minimal FPC regulation in the form of reporting requirements. 18 C.F.R. § 2.68, Orders No. 402, 402(a), 43 F.P.C. 707, 822 (1970). The Section specifies "natural gas" and does not on its face exclude LNG, which of course is natural gas within the meaning of the Act generally. See Part I supra.

Nonetheless, giving as its reason that section 2.68 was not meant to cover LNG, the Commission refused to allow petitioners to invoke the Section with respect to the transaction in question. The Agency now argues that while the 60-day limit on emergency sales had some meaning in the case of vaporous gas traveling through pipelines at a regular rate, it could be circumvented too easily by large shipments of LNG.3 It has not, however, made any effort to amend section 2.68 to exclude LNG transactions.

If this interpretation had been enunciated and applied with consistency by the Agency, we would no doubt support it even in the absence of an amendment to the section. Congress has delegated decisions of this character to the expertise of the Commission, and while we might be troubled by the failure of the Commission, once having promulgated a rule, to foreshadow in an amendment any exception for LNG, we would not for that reason alone interfere with the Agency's determination. Indeed, so long as the instant decision fitted in with any pattern of interpretation that seemed fair and rational we would tend to sustain it. Such might be the case had the Commission first applied section 2.68 to LNG transactions but later, in light of further experience or a change in policy, adopted an opposite approach. In NLRB v. Wentworth Inst., 515 F.2d 550 (1st Cir. 1974), we recently upheld the authority of the National Labor Relations Board to reverse, after many years, a major policy determination of its own. Agencies no less than courts are entitled to reconsider their policies and views.

But what we are faced with here is something different from either rational interpretation or reconsideration. While the Agency has broad powers to regulate, and in so doing to choose between rulemaking and individual decisional processes, it also has a duty to define and apply its policies in a minimally responsible and evenhanded way. Insofar as we can determine from the Agency's other rulings, its interpretation of section 2.68 with respect to LNG transactions has been entirely fickle and capricious. The Commission has construed the regulation in other instances in precisely the opposite manner from here. Thus it has authorized applying section 2.68 to LNG transactions in letter rulings issued before at about the same time, and after the contrary ruling in this case.4

The Commission's decision with respect to petitioners indicated that it regarded the letter rulings as "factually distinguishable" as well as of little precedential significance. But the Commission has presented no information as to how or why those cases differed from the instant ones. Each of the other cases involved an LNG sale under section 2.68, which in the instant cases were held to be inapplicable because it was an LNG transaction.5 The letter rulings carried the force of law, and the Commission is not free to set policies in formal decisions and then vary from the policies in less formal rulings involving the same situation. The Commission's vacillating in applying section 2.68 has resulted in inconsistent treatment of similarly situated parties to the detriment of petitioners.6

In the circumstances, we think the Commission was not free to interpret section 2.68, as now worded, to exclude LNG transactions. Given the wording of the Section and the Commission's failure to establish in practice any coherent pattern of interpretation excepting LNG, we think fairness and consistency require that section 2.68 be applied according to its plain words and the Agency's more frequently espoused view of it. Thus we vacate the Commission's ruling in petitioners' cases, and remand for reconsideration in light of our holding that section 2.68, as now worded, is not to be read as excluding the subject transactions merely because LNG was involved. 15 U.S.C. § 717r.

If with respect to future transactions the Commission wishes to exclude LNG from the operation of section 2.68, it may do so by promulgating a new or revised rule setting forth its policies with sufficient clarity to ensure evenhanded treatment.7

Reversed and remanded for proceedings in accordance with this opinion.