Southern Louisiana Area Rate Cases v. Federal Power Commission

¶48THORNBERRY, Circuit Judge:

¶49This is a proceeding to review orders of the Federal Power Commission setting maximum rates for wellhead sales of natural gas produced in the Southern Louisiana area. Thirty-seven producer petitioners challenge the rates as too low.1 Eight pipeline companies are also involved in the proceedings, and they concur with the producers that the rates are too low.2 On the other hand, certain consumer interests have intervened and attack the rates as too high.3 The Federal Power Commission presents a third position by arguing that its orders should be sustained in full.4 The result of this trichotomy of conflicting positions-producers, consumers, and the Commission-is a case as complex as it is important.

¶50*415We have determined that the orders of the Commission should be sustained in full. We add, however, that this affirmance does not reflect full satisfaction with the performance that the Commission has turned in, but rather a recognition that the process of producer regulation is a difficult one that the Commission must have latitude to adapt to changing conditions. In the section of this opinion that immediately follows, we describe this process, together with the legal events that have led to its development, and set out the Commission’s actions in the cases before us. In a second section, we deal with the consumer arguments that the rates are too high. The third section takes up the producer arguments that the rates are too low. Herein, we discuss what we believe is the most serious problem presented by these cases: The possibility that the Commission has not adequately .considered the problem of new gas supply in relation to demand. There is evidence of a serious supply deficiency. Fourthly, we summarize our conclusions and indicate improvements that should be expected in the regulatory process. In this final section, we also consider the stay that has prevented the Commission’s orders from going into effect through this stage of review.

¶51I. THE PROCESS OF AREA REGULATION AND THE COMMISSION’S OPINIONS

¶52The beginnings of producer area regulation were inauspicious. Ever since the enactment of the Natural Gas Act in 1938,5 the FPC has had the responsibility of regulating sales by interstate pipeline companies, but it was not until 1954 that the Supreme Court held, in Phillips Petroleum Co. v. Wisconsin,6 that the Act also gave the Commission power to regulate sales by independent producers at the wellhead. The Commission was convinced that producer regulation would be impractical and consequently was reluctant to assume its new role.7 Congress was willing to amend the Act to exclude producers. But the aftermath of the Phillips decision, as one commentator has described it, included an accident of history that left the Commission still faced with its difficult new duty:8

Congress immediately responded [to Phillips] by passing an act declaring that the 1956 Congress did intend complete exclusion of independent producers, and suggesting rather strongly that the 1938 Congress probably did so as well. Whereupon the President, who strongly supported the 1956 act, vetoed it for reasons unrelated to the merits of the arguments of either the Court or Congress. It has taken the eight years since 1954 for the industry and the FPC to realize that they must mount this unbroken nightmare born of stalemate out of avarice and ride it if they are to move at all.

The Commission was as hopeful after 1954 that this new-found, unwanted jurisdiction would vanish as it had once been fearful of its coming. The record it has amassed that such regulation will not be successful is formidable.

¶53Both economists and lawyers have questioned the soundness of direct producer price regulation,9 but there is also sup*416port for the need for producer regulation of some type,10 and whatever its merits, the law since 1954 has imposed the duty of regulation upon the FPC.

¶54From 1954 to 1960, the Commission attempted to discharge its new responsibility in the same way that it regulates pipelines, on a company-by-company basis, setting the rates of each producer according to his costs of service. This method, however, required the Commission to repeat lengthy hearing procedures for each independent operator in the nation. It consequently led to a breakdown in the administrative process,11 a result that is easy to understand in view of the cumbersome nature even of the single consolidated cases with which we are faced here. The Commission gravitated toward lax approval of price increases. But in 1960, the Supreme Court’s CATCO12 decision reversed an FPC certification order and directed the Commission to take steps to keep prices “in line.” The Commission temporarily responded to this mandate by the “in-line” pricing policy, which stated that the Commission would not approve new *417certificates providing for gas sales at prices higher than the prevailing rate in the area, and by the “guideline” doctrine, which gave notice that the Commission would not give advance approval to price increases above certain area maxima.13 Price increases above these guidelines thus subjected the producers to the possibility of refund obligations.

¶55Also in 1960, the Commission began work on a more thorough solution to the problem with the first area rate proceeding, which covered the Permian Basin area of New Mexico and the Texas Panhandle. In subsequent years, the Commission simultaneously had examiners hold hearings on four other areas, of which the area involved in the instant case was one.

¶56A. The Permian Basin Area Rate Cases

¶57In Permian,14 the first area rate case, the FPC set maximum and minimum rates for an entire gas producing area on an industrywide basis. It did so by examining costs and setting a rate of return for the area’s gas producing industry as a whole. It engaged in a degree of economic experimentation by creating a double-tiered pricing arrangement: The maximum price for “new” gas, gas not yet under contract of interstate sale by the cutoff date of January 1, 1961,15 was set higher than that for “old” gas in order to stimulate exploration.16 Old gas was priced on a cost-recovery basis on the theory that a price incentive would not encourage development of gas that had already been sold. Having set these maxima, the Commission froze them for two-and-one-half years by imposing a moratorium on price increases in excess of the ceilings as set. It stated that extraordinary circumstances would induce it to allow petitions for relief from the ceilings but made it clear that the moratorium would not be lightly disregarded.

¶58The Commission’s decision was appealed to the Tenth Circuit. That court sustained the Commission’s power to regulate producers by setting industrywide rates and imposing moratoriums on increases, but remanded the case to the Commission because it found that the Commission had failed to include required findings as to the consequences of its order on the gas industry or to specify with sufficient exactness the circumstances under which special relief from maximum rates would be granted. The Tenth Circuit’s decision, in turn, was reviewed by the Supreme Court, which reversed the Circuit and affirmed the Commission in full. The Supreme *418Court’s Permian opinion is thus the star by which we must do most of our steering in this case.

¶59In Permian, the Supreme Court made several different types of determinations. First, it concluded that the Commission had the authority, under the Constitution and Natural Gas Act, to set industrywide rates and to impose ancillary regulations, such as moratoriums, necessary to make area proceedings work. Secondly, it sustained the Commission's use of the cost method for pricing, its determination of rate of return, and its double rate structure; or, in other words, it approved the components of the rates as set. Thirdly, it approved the overall effect of the rates, holding that Commission findings supported by substantial evidence indicated that the rates would produce adequate aggregate revenue, would generate sufficient growth, and would not create unjust results on individual producers. This approval of “overall effect” findings reflects a somewhat charitable interpretation of the Commission’s work,17 one that the .Court emphasized was warranted because the Commission was at an experimental stage in a new and difficult undertaking. At the same time, the Court apparently agreed with the Tenth Circuit that the paucity of findings as to the consequences of the order was a major deficiency, because it stated that it expected the Commission to do better in future proceedings.

¶60The Permian decision thus indicates that a reviewing court must look to both individual components and overall effect of rates set by the Commission, but that the Commission has broad discretion that is not to be ineffectuated by either theoretical disagreement with its methods or by discovery of inadequacies that are caused mainly by the difficulty of the regulatory undertaking. The Commission is to be affirmed if it has followed the correct legal standards and acted on the basis of substantial evidence, and under any fair interpretation of Permian it appears that the legal standards themselves are to be construed liberally when applied to a regulatory effort still in the experimental stage. This “experiment” doctrine, together with the substantial evidence rule, is background for our consideration of most of the issues presented on this appeal.

¶61B. The Southern Louisiana Area Rate Cases

¶62All parties are in agreement that Southern Louisiana is the most important gas-producing area in the country. The FPC has defined this area to include all parts of the state south of the thirty-first parallel, together with all offshore territory18 in the federal domain that would be bounded by the Louisiana borders extended into the Gulf. At present, Southern Louisiana accounts for approximately one-third of the nation’s gas production, and its untapped, unproven reserves, particularly those in the offshore portion, are among the nation’s most promising. Natural gas, in turn, is the nation's most important, or at least most widely used, source of energy.19

¶63Proceedings to set rates for this area began in 1961, nearly a decade ago. The initial hearing ended in 1965 and the examiner rendered his decision in 1966, af*419ter the Commission had written its Permian opinion. The Commission rendered its final decision in 1968, a few months after the Supreme Court had decided Permian. The decision was modified in some respects by a new opinion on rehearing in early 1969.

¶64(1) The Rate Structure

¶65The Commission repeated in Southern Louisiana the multiple rate structure it had introduced in Permian, this time setting three different price levels for what it denominated as first, second, and third vintage gas. For first vintage gas, that for which contracts of interstate sale had been made prior to 1961, the Commission set a ceiling of 18.5 cents per thousand cubic feet (Mcf). For second vintage gas, that contracted for between the dates of January 1, 1961, and October 1, 1968,20 it set a ceiling of 19.5 cents. For third vintage gas, that contracted for after October 1, 1968, it set a ceiling of 20 cents. For offshore gas in the federal domain, which is not subject to the Louisiana severance tax, it set prices for each of the three vintages 1.5 cents below onshore levels. For casing-head gas (gas produced in association with oil), the Commission set prices equal to those of first vintage gas irrespective of the vintage. The Commission found that casinghead gas is discovered largely as a product of the search for oil and exploration for it thus could not be encouraged by the higher prices of second and third vintage gas.

¶66The price structure thus established is summarized in the following chart:

¶67Vintage or Type

¶68Onshore Price

¶69Offshore Price

¶70First vintage

¶7118.5 cents

¶7217.0 cents

¶73Second vintage

¶7419.5 cents

¶7518.0 cents

¶76Third vintage

¶7720.0 cents

¶7818.5 cents

¶79Casinghead

¶8018.5 cents

¶8117.0 cents

¶82The prices for new, nonassociated gas are higher than those for all other vintages and well types, because the Commission determined, as it had in Permian, that price should be used to elicit the appropriate level of future exploration and development. In order to enforce these ceilings for gas of first and second vintages that had already been produced and consumed, the Commission ordered substantial refunds of moneys collected in excess of its maximum rates.21

¶83(2) The Commission’s Cost Determinations

¶84Although the rate structure contains some noncost elements, it is closely tied to cost computations.22 The Commission used two different methods of computing costs, one of which it applied to old gas (first and second vintage) and the other to new gas (third vintage). New gas is priced to allow for the appropriate level of exploration, and the Commission determined that exploration for gas was *420and should be undertaken on a nationwide basis, so new gas costs are based upon present costs for the entire nation. Old gas is priced so as to allow recovery of costs actually incurred in its production, and therefore the costs used are historical area costs, i. e., those of the Southern Louisiana area itself during the periods covered by the earlier vintages. The bulk of the Commission’s opinion is devoted to computation and explanation of costs. Included in its total is an allowance for a rate of return of 12 percent, which is the same rate that was set and approved in Permian. We have set out the other elements of the Commission’s cost findings in tabular form in the footnote below.23

¶85(3) Moratoriums on Increases in Ex cess of Maximum Rates

¶86In establishing rate ceiling freezes, the Commission went substantially farther than it had hazarded in its earlier Permian decision. It imposed a moratorium of a little more than five years— lasting until January 1, 1974 — on rate increases for third vintage gas in excess of the maximum prices it set. For first and second vintages, the moratoriums were to last indefinitely. These moratoriums mean that the vintage ceilings are to remain in effect throughout their duration, and that producers cannot collect prices in excess of maximum rates even subject to refund.

¶87However, the Commission provided, as it had in Permian, that it would always be open to a petition to lift moratoriums for individual producers or to modify area rates as a whole in the event that changed circumstances made either of these steps advisable. Moreover, it quoted language of the Supreme Court stating that it would be “desirable” if the Commission specified more precisely the conditions for relief and, in response to this language, gave examples of changes that would cause it to lift moratoriums or change rates.24

¶88*421In addition to setting maximum rates, ordering refunds, and imposing moratoriums, the Commission took action along a number of other lines that are of lesser significance in this case.25

¶89(4) Commencement of New Proceedings for this Area

¶90On December 15, 1969, shortly before oral argument in the instant ease was heard, the Commission instituted new proceedings to reconsider all major actions it had taken in the orders before us. In other words, the Commission is now holding hearings that will probably result in substantial modifications of the rates set in this case. In its order initiating the proceedings, the Commission advised the parties that it would receive evidence concerning “the adequacy of gas supply and adequacy of service to consumers, the demand for gas, the cause of a gas shortage, if any, the effect of price on gas supply and demand, and other relevant economic evidence, together with data as to the current, nationwide cost of finding and producing nonassociated gas.”26 Similar considerations are to be taken up with respect to old gas, and the moratoriums are to be re-examined.

¶91Since the new proceeding may affect rates for all vintages, and since the data the Commission has called for reflects the possibility of a radical change in approach, this Court was naturally concerned about the effect of the new proceeding upon our disposition of the instant appeal. At oral argument, however, all parties agreed that the proceeding should have no effect upon our review, and we now agree.27 Above all, we do not view the new proceeding as a “confession of error” by the Commission as the producers have invited us to do. It is true that the Commission now recognizes the possibility of a serious supply deficiency and that it did not recognize this possibility in the decision we are reviewing.28 This awareness, however, and the Commission’s prompt action upon it, militate in favor of affirmance rather than reversal. The new proceeding is evidence of the Commission’s ability to adapt the regulatory process to changing circumstances. We conclude that the indications that there is a supply deficiency should be examined in this second-round proceeding before the Commission. The evidence that there is a deficiency seems very strong, but given the Commission’s actions we are convinced that it can now deal with the problem as effectively as present circumstances will allow.

¶92At this point, we proceed into analysis of the specific arguments made by the consumer interests on the one hand and by the producers on the other.

¶93*422II. THE CONSUMER ARGUMENTS

¶94There are three main arguments advanced by the intervening parties on this appeal. First, these parties contend that the Commission overstated certain of its calculated costs. Second, they argue that the record does not furnish substantial evidence to justify a rate of return as high as 12 percent. Thirdly, they argue that the Commission committed reversible error in adding noncost factors to a rate based upon the costs (including return) it had computed. We take up the consumer issues in this order.

¶95A. The Commission’s Cost Determination

¶96The consumer interests contend that the Commission overstated production operating expense for old gas by excluding casinghead gas, which is cheaper to produce, from consideration.29 They also attack the Commission’s allocation of exploration and development costs between oil and casinghead gas where oil and gas are discovered together.30 They attack the allowance for “plant gathering,” or short-distance pipelining from wellhead to the producer’s plant for the purpose of extracting salable liquids.31 Finally, they con*423tend that the Commission understated the credit for salable liquids extracted from the gas stream, which is subtracted from gas production costs.32 We consider each of these matters in footnotes appended hereto.

¶97On the whole, we find'each of these cost criticisms defective for one or both of two reasons. First, they deal mainly with amounts that are small compared to the accuracy that can be expected of computations of this nature.33 Secondly, and more importantly, they place too much emphasis upon abstract manipulation of figures. There is nothing in the substantial evidence rule that prevents the Commission from performing calculations based upon necessarily imperfect assumptions when it explains the reasons for those assumptions. Likewise, there is nothing to prevent it from re-examining and adjusting the result of a calculation based upon imperfect premises, provided it justifies its actions on the basis of the record.34

¶98B. The Rate of Return

¶99Next, the consumer interests argue that the Commission acted arbitrarily, discriminatorily, or without substantial evidence in establishing a rate of return as high as 12 percent. The argument appears to be based upon the fact that the “special circumstances” cited in Permian as justification for the 12 percent rate of return — namely, that the gas was frequently of inferior quality so that the return was likely to be lowered — are not present in Southern Louisiana, where nearly all of the gas is of high quality.35 Alternatively, it is based upon the contention that the Commission did not com*424ply with the “comparable earnings” test of FPC v. Hope Natural Gas Co., 1944, 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333.

¶100We are not impressed with the argument that circumstances present in Permian are not present here, because even if, arguendo, we concede the relevance of this proposition, we find circumstances not present in Permian that are important here. The Southern Louisiana area is a crucially important gas-producing region in which new exploration needs especially to be encouraged. A great portion of the discoverable gas in the area is far offshore. The finding that new reserves of gas can be found without a significant rise in unit costs is premised in part upon the increasing use of new technology,36 and the need to adapt production to a constantly changing technology involves risks that definitely justify a high rate of return even for an industry taken as a whole.37 Furthermore, the possibility of a supply deficiency, a possibility that has become stronger during the pendency of this review, strengthens our conviction that substantial evidence supports a return as high as 12 percent.

¶101Nor do we find any merit to the argument that the Commission failed to apply the comparable earnings test correctly.38 In discussing the required rate of return, the parties varied in their recommendations from 9-9.5 percent (presented by consumer interests) to 20-24 percent (presented by the Hunt Oil group of producers).39 The Commission considered all evidence, then made its determination by abstracting the rate of return earned by a group of unintegrated gas producers over the years 1958 to 1962.40 It adjusted this figure slightly, in ways that it thought appropriate, to allow for possible inadequacies in its data base.41 The Commission chose unintegrated gas producers because it quite reasonably decided that these companies would be most representative of the risks the industry was facing, and it chose the period 1958 to 1962 because that was the most recent for which the record furnished reliable data. In light of the standard of review, which is whether the Commission’s findings are supported by substantial evidence, we are particularly unimpressed with the argument of one intervening party that the FPC *425“erroneously failed to consider relevant evidence.” There is substantial evidence to support a rate of return as high as 12 percent, and the Commission properly applied the test expressed in Hope.42

¶102C. Noncost Elements in the Computed, Prices

¶103As was previously mentioned, the Commission added small noncost elements to several of its maximum rates. It increased the second vintage ceiling by 0.7 cent over cost, the third vintage ceiling by 1.2 cents, and the ceiling on all offshore gas by an additional 0.8 cent.43 The consumer interests attack these increments vigorously, describing them as “cushions,” “bonuses,” “lagniappes,” and other labels implying that the producers are the object of open, unvarnished FPC generosity. They cite authority purportedly to the effect that a public utility cannot add noncost elements to a cost-based rate, relying heavily upon the recent en banc decision of the Court of Appeals for the District of Columbia Circuit in Williams v. Washington Metropolitan Area Transit Commission, 1968, 134 U.S.App.D.C. 342, 415 F.2d 922.44

¶104The Williams case is part of a heavy volume of litigation concerning regulation of mass transit in the District of Columbia. The excellent opinion of the court of appeals deals with a number of issues that are remanded to the Transit Commission. The issue that relates to our case concerns a “cushion” in the computed rate of return, constituting the amount the Transit Commission thought was “required to enable [the D.C. Transit System, Inc.] to maintain a sufficient surplus to cover contingencies and to assure the financial stability of Transit.”45 The court conclud*426ed that a fair and reasonable rate of return would itself include assurance of financial stability and that under the circumstances the return added to costs was all that the Transit Commission should have allowed.

¶105Even if we were to construe this case as broadly disapproving non-cost elements, the application to the sprawling, wildcatting gas producing industry of principles developed in regulating bus and telephone companies would require major adjustments.46 But this is not the extent of our disagreement with the argument advanced by these intervening parties. We do not understand the law of industry regulation, including the Williams case,47 to prohibit noncost elements that are based upon appropriate grounds. In Permian, the Supreme Court unequivocally stated that the FPC is not bound by the sum of cost and return even if it adopts cost as the primary basis of its calculations.48 The most persuasive reason for this rule is that cost pricing is circular. Past production has taken place at a given level; if a regulatory body fixes prospective prices at the cost of that production, it may be freezing the level of production, too.49 We think that the need for dramatically increased production from Southern Louisiana justifies the noncost factors added here, and that the FPC has power to include noncost elements that reflect its assessment of the need to use price as a tool to influence such economic relations. These are propositions that apply generally to regulation of utilities and quasi-utilities.

¶106The Commission explained the reasons for its noncost additions as *427follows. The 0.8-cent cushion added to offshore gas prices was a reflection of the growing importance that offshore will have to assume if future development of reserves is to meet demand and also of the unavoidable uncertainty of cost data concerning offshore, since offshore drilling in deep water is a relatively new undertaking.50 The noncost increments on second and third vintage gas prices were cushions against the possible adverse effects of cost changes or inaccuracies during a lengthy price ceiling freeze.51 The Commission found that price stability over a longer period of time would be more in the public interest than a rate that was lower by a few percentage points, and we conclude that the length of these proceedings by itself furnishes substantial evidence to support this finding. We have no hesitation, moreover, in holding that this purpose is an appropriate one for inclusion of noncost elements in a cost-based price.52 However, the Commission’s fulfillment of its procedural duty of making findings leaves much to be desired 53 In view of the Commission’s failure to relate its noncost additions to specific probabilities concerning influences upon supply or to make any showing as to the demand they are needed to meet,54 we are hesitant to sustain the use of these increments and do so only because the Commission is still in the experimental stages of area regulation. We shall have more to say about these deficiencies below. At this point, we emphasize the fact that the Commission has justified the noneost factors by reference to considerations that ostensibly affect not private but broad public interests.55

¶107We conclude that the arguments advanced by these intervening parties are without merit.

¶108III. THE PRODUCER ARGUMENTS

¶109The producers present the following four major arguments to this Court: First, that the moratoriums are unlawful ; secondly, that the Commission failed to follow the comparable earnings test in assessing a rate of return as low as 12 percent; thirdly, that the Commission’s cost determinations are unlawful or erroneous; and finally, that the Commission failed to make the findings necessary to relate supply, demand and price according to the “end result” test of the *428Hope and Permian cases. We take up the issues in this order, with particular emphasis on the supply problem presented in the last argument.

¶110A. The Moratorium Provisions

¶111The producers’ attack on the moratoriums is based upon the fifth amendment to the Constitution, the Natural Gas Act, the Administrative Procedure Act, and factual issues pertaining to the case. In Permian, as we have noted, the Supreme Court affirmed the Commission’s imposition of a two-and-one-half year moratorium on rate filings in excess of ceilings. However, it did so only for the limited circumstances before it, and left the question of longer moratorium legality almost completely open:

We cannot, given the apparent stability of production costs, the Commission’s relative inexperience with area regulation, and the administrative burdens of concurrent area proceedings, hold that this arrangement was impermissible. We need not attempt to prescribe the limitations of the Commission’s authority under §§ 5 and 16 to impose moratoria upon § 4(d) filings; in particular, we intimate no views on the propriety of moratoria created in circumstances of changing costs. These and other difficult issues may more properly await both clarification of the Commission’s intentions and the necessities of the particular circumstances. We hold only that this relatively brief moratorium did not, in the circumstances here presented, exceed or abuse the Commission’s authority,56

¶112Considering this language, we think it incumbent upon this Court to meet the producers’ arguments against these lengthier moratoriums as undecided questions.

¶113At the outset, we find little merit to the producers’ Constitutional complaints. The possibility that they may be deprived of property without due process of law is speculative and remote, and if such a deprivation occurs both courts and Commission will stand ready to remedy it. For the present, we find no such deprivation. Economic regulation under the commerce power, affecting an industry generally, is not a taking of property if the value of property is thereby reduced or business risks increased.57 The producers have a fifth amendment right not to be forced to sell or surrender their property without either due process or just compensation, but the Constitution gives them no right to raise prices irrespective of Commission approval in the absence of a deprivation of property.

¶114Similarly, we find no merit to the producers’ argument under the Administrative Procedure Act.58

¶115The moratorium provisions were validly promulgated after adequate notice when the rate proceeding began 59 With *429these considerations disposed of, we turn to the more difficult questions presented under the Natural Gas Act.

¶116The procedure contemplated by Section 4 of the Natural Gas Act60 is designed to protect sellers from the possibility of property deprivation through confiscatory rates that might not be increased quickly enough under ordinary hearing procedures. Section 4 provides that “[u]nless the Commission otherwise orders,” a natural gas company must file a notice of rate increase thirty days before the effective date if it increases its rate unilaterally. The Commission may suspend the rate increase for a period of no more than five months, during which time it must begin hearings to determine whether the increased rate is just and reasonable. If the hearings are not completed by the end of five months, the gas company may collect the increased rate subject to refund. Limited encroachments upon this procedure have been permitted the Commission when they were necessary to effectuation of other requirements of the Act, the most notable being the Supreme Court’s approval of the Permian moratorium.61

¶117In considering the legality of moratorium provisions generally, we begin with the proposition that under section 5(a)62of the Act the Commission may determine rates and prescribe the

¶118“rule, regulation, practice, or contract to be thereafter observed.” Thus section 4 does not give producers an “invincible right to raise prices subject only to a six-month delay and refund liability.”63 The section provides only that “a change cannot be made without the proper notice to the Commission; it does not say under what circumstances a change can be made.”64 Thus the Commission is not required to follow the procedure that section 4 contemplates for each individual producer. Moreover, once a just and reasonable rate has been established, the Commission has a responsibility to prevent rate increases in excess of that rate without changes in circumstances. The Supreme Court recognized this Commission responsibility with regard to gas producers in the Phillips and CATCO cases, and it recognized that the Natural Gas Act contemplates FPC power to carry out its purposes realistically.65 If the Commission is to discharge its duty of regulating production, it must use the area rate ceiling method or some analogous industrywide approach. It cannot regulate individual producers simply because the strain that approach would put upon its time and resources would be prohibitive. And moratoriums are necessary if the area regulation method is to work at all. Unilateral producer price increases in excess of the ceilings would otherwise involve the Commission imme*430diately in the task of determining whether each increased rate was just and reasonable in terms of the financial position of each individual producer, which is precisely the problem the Commission faced before area regulation and so badly needs to avoid.66 By putting a ceiling on rates in such a manner that the ceiling is likely to cover the just and reasonable rate for a number of years, and imposing a moratorium that lasts no longer than the period that the ceilings are likely to be adequate, the Commission can discharge its regulatory responsibilities with minimum encroachment on the salutary procedures contemplated by section 4.67

¶119It remains to consider whether the moratoriums actually imposed here are factually supportable— whether they are in fact reasonable and based upon substantial evidence. Our discussion above indicates that these factors should be examined in light of two considerations: First, whether the moratoriums as ordered are necessary to effective area regulation, and second, whether substantial evidence indicates that they are unlikely to result in inadequate ceilings later in their duration.68 If moratoriums may be approved in principle, we have little difficulty in approving a moratorium of five years under the circumstances here. In Permian, the two-and-one-half year moratorium was exhausted before the Commission’s order was finally affirmed by the Supreme Court.69 To prescribe a moratorium of five years on a finding that stable prices for the area are desirable, we think, is within the discretion of the Commission, especially when the proceeding to establish those rates has been longer than five years and appellate review promises to lengthen the period substantially. A five-year moratorium in this case is also justified by the Commission’s observance of recent trends and its conclusion that costs are remarkably stable or even slightly declining. This finding, together with the noncost factors, makes it reasonable to conclude that the rates will not in the future become unfairly low provided they are set at just and reasonable levels now. Of course, the practical effect of our approval of this moratorium is minimal, however, since the Commission is reviewing all mora*431toriums in the new proceedings, and supply problems, if they exist, will require quick remedies.

¶120We have greater difficulty with the indefinite moratoriums imposed upon first-and-second-vintage prices. Our trouble is based not only upon the fear that these provisions could some day result in inadequate ceilings — even though the Commission has made findings based upon substantial evidence that cost increases in the near future are unlikely— but also upon our apprehension that they are in excess of what is reasonably necessary for area regulation to function. Consequently, although we have determined that the Commission should be affirmed in full, we limit our approval of the indefinite moratoriums to the circumstances present on this appeal. We stress the fact that the Commission is holding hearings now to determine whether the moratoriums should be modified, and that the result of this determination should be reviewed without reference to approval on this appeal.70

¶121We also emphasize that the experimental nature of producer regulation makes us as yet reluctant to reverse the Commission on a matter which has little present impact71 and which can be corrected, if experience shows it erroneous, in the future. These considerations, together with the Commission’s findings and its demonstrated willingness to use the avenues of relief it has provided, elicit our qualified affirmance of the moratorium provisions.

¶122B. The Rate of Return

¶123The producers attack the rate of return mainly on the ground that the Commission failed to follow properly the comparable earnings test expressed in Bluefield Water Works & Improvement Corp. v. PSC, 1923, 262 U.S. 679, 43 S.Ct. 675, 67 L.Ed. 1176, and FPC v. Hope Natural Gas Co., 1944, 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333.71A They particularly claim that the period chosen by the Commission was unrepresentative, and present persuasive evidence to that effect.72 The trouble is that we have already determined, in our discussion of the consumer-interest contentions concerning this issue, that there is also persuasive evidence to support the Commission’s findings and the Commission followed proper legal standards. Reliance upon returns earned by unintegrated pro*432ducers during the latest period for which the Commission felt it had reliable data was appropriate, in light of the widely divergent evidence presented in this case. Producer contentions to the contrary amount to an attack on the Commission’s choice as to which evidence to believe.

¶124C. The Commission’s Cost Determinations

¶125Producer attacks on the cost computations are many and varied. Most are cognizable under the substantial evidence standard. At the outset, however, we are met with the contention that the very method of cost pricing is too imprecise to be used in regulating the gas-producing industry. We must reject this contention. In a situation wherein the Commission has found that market imperfections tend to force price to excessive levels, it would be self-defeating to regulate on the basis of market forces, and the most logical alternative is usually cost pricing. Thus the fact that it cannot be made absolutely precise is not grounds for rejecting cost pricing when market conditions make its use advisable.73 Indeed, some courts have held that costs must be at least the starting point for fixing just and reasonable rates in the gas industry. E. g., City of Detroit v. FPC, 1955, 97 U.S. App.D.C. 260, 230 F.2d 810. Even more persuasive is the fact that the Supreme Court upheld the use of cost pricing on a record similar to ours in its Permian decision.

¶126Similarly, the producers make a broad attack on the use of average rather than individual producer costs. We reject this attack as the Supreme Court rejected it in Permian.74There is nothing in either the Constitution or the Natural Gas Act that prevents the Commission from adopting price ceilings under which some producers will make more money than others or even under which some producers may be in danger of going out of business. The gas-producing industry, as the producers have pointed out to us, is not a true public utility, and one of its characteristics is the possibility of exit from the market.75 This being the case, we find from the record that the use of average costs, whether it provides a fair return for all businesses or not, is lawful and based upon substantial evidence.76

¶127In addition to these arguments, which are considerably weakened by their rejection in Permian, the producers have pressed one novel argument of a general nature against the cost determinations. They contend that the use of national costs to fix the price of new gas in this ease is not substantial evidence because national data contain elements that seriously distort the costing of gas in Southern Louisiana. The producers’ authority of strongest reliance is the Supreme Court’s post -Permian decision in Baltimore & Ohio R.R. v. Aberdeen & Rockfish R.R., 1968, 393 U.S. 87, 89 S.Ct. 280, 21 L.Ed.2d 219. The case condemns the use in railroad price regulation of average costs for an aggregate region when cost elements from part of the region may distort the calculation.77 There are several reasons, *433however, why we find that decision inapplicable to the case before us. In the first place, the use of national figures here is based in part upon findings that these costs are the best available index to costs in Southern Louisiana,78 despite inclusion of areas that are not of the same character as this region.79 Secondly, the Commission has found that new exploration and development is national in scope. The operation of a particular piece of railroad trackage, on the other hand, is local to the place to be served; the supply of railroad service cannot be moved wherever it can be provided at least expense.80 We accordingly hold that Aberdeen & RocJcfish does not modify Permian approval of national costing in gas producer regulation and that it does not require reversal in this case.

¶128 Next, we must deal with the producers’ contention that the Commission relied upon stale, unrepresentative data in making its cost findings. The staleness of the record is a serious problem. It is now 1970, and we are reviewing a case in which the record before the examiner closed in 1965. It is a case setting rates for a fast-growing, changing industry in a changing economy. The full Commission, which rendered its decision in 1968, was able to consider some data covering years as recent as 1966, and even this is data that there is reason to expect may already be stale.81 Staleness of the record, however, is not itself a reason for reversal. ICC v. Jersey City, 1944, 322 U.S. 503, 514-515, 64 S.Ct. 1129, 1134-1135, 88 L.Ed. 1420;82see also United States v. ICC, 1970, 396 U.S. 491, 90 S.Ct. 708, 24 L.Ed. 2d 700. Much of the problem is attributable to the difficulty of the regulatory undertaking in light of the procedures currently available. Procedures must improve as the experiment of area regulation becomes better understood. Turning to another type of staleness argument, we are not impressed with the producer’s complaint that the Commission chose to base some of its findings on older data than the most recent available. These choices were based upon findings as to greater reliability or representativeness of the data used.83 Moreover, in such cases the Commission did not fail to consider the most recent data in the record, and it adjusted its findings to allow for rising or falling cost trends. Most importantly, it made a finding that costs as a whole during this decade had been remarkably stable (or were even declining slightly) and were likely to remain so, and this finding is based upon substantial evidence.84

¶129Having made these determinations, and having inspected the producer’s objections to specific cost calculations, we find that detailed discussion of these calculations would be of little value at this point. The producers point to. *434and adopt in part, the dissent of Commissioner Carver to the Commission’s opinion on rehearing, which raises disturbing criticisms as to nine different types of cost determinations, which, if they had been determined differently, could be aggregated to increase the total by about 4.0 cents.85 We think this imprecision in cost pricing is completely unavoidable, but the law allows the Commission to use cost pricing nevertheless. Moreover, Commissioner Carver did not present his four-cent increase for general approval, but instead stated that “it is certainly evident that not all of the above adjustments should be accepted.” The thrust of the dissent, we think, is that the Commission should not have relied upon cost calculations floating in a vacuum but should have reviewed its computations in light of supply, demand, and other market forces (a proposition with which we definitely agree), and should have given greater attention to the settlement agreement proposed by several of the parties.86 We reject the contention that cost pricing is so imprecise as to make its use unlawful and hold that the Commission’s findings here are based upon substantial evidence. We proceed next to the important issues of supply and market, which we consider to be the key to the producer’s attacks on the imprecision of cost pricing.

¶130D. Commission Findings as to the Consequences of Its Orders on the Gas Industry and Market: The Supply Problem

¶131(1) Commission Findings and the Legal Standards

¶132We have reserved the most serious issue in this case for last. The

¶133*435producers contend that the Commission improperly failed to consider projected consumer demand for gas in relation to supply and that it thus violated the “end result” test of the Hope and Bluefield eases. These contentions are closely related to the argument that the Commission’s cost determinations are imprecise, for the “end result” test is simply that whatever method a regulatory body uses, the result of its effects must be demonstrably in keeping with the purposes of regulation.87 The FPC must evaluate each rate set against policies as broad as the Natural Gas Act itself. Colorado Interstate Gas Co. v. FPC, 324 U.S. 581, 605, 65 S.Ct. 829, 840, 89 L.Ed. 1206. The purposes of the Act encompass not only reasonably low rates but maintenance of adequate service for the consumer, and the latter objective is the reason for the Hope requirement that rates must be “sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital.” 88

¶134The Supreme Court, while affirming the Commission in Permian, made it clear that adequate findings along these lines would be required in the future: “Judicial review of the Commission’s orders will therefore function accurately and efficaciously only if the Commission indicates fully and carefully the methods by which, and the purposes for which, it has chosen to act, as well as its assessment of the consequences of its orders for the character and future development of the industry.”89

¶135In this case, as in Permian, the Commission refused to make findings as to overall demand for gas either in the nation or from the Southern Louisiana area, and it likewise declined to estimate future supply under its order. Similarly, the Commission refused to make findings as to the advisable level of the RP (reserves to production) or FP (findings to production) ratios, or to assess the consequences of its orders on these ratios.90*436The closest that the Commission came to direct exploration of these problems is in its discussion of the FPC Staff’s Econometric Studies, a lengthy set of calculations based upon empirical economic relations and designed to show how price, supply and demand are interrelated in the national economy. The Commission rejected these studies as unreliable.91 Having rejected this quantitative approach, however, the Commission failed to approach supply and demand in either a semi-quantitative or qualitative way.

¶136Instead, the Commission made less extensive findings as to the effect of its rates on the industry. It found, for example, that the costs it had calculated were likely to remain stable for some time to come. This finding is supported by substantial evidence, since costs had, in the past, shown a pattern of stability or even a slight downward trend, and all components of cost, except possibly production operating expense, were shown unlikely to change significantly.92 Also, the Commission found that the rate of return it had set was commensurate with that of industries with similar risks, and it concluded that consequently the industry should be able *437to attract capital sufficient to satisfy demand.93 Its overall assessment of the revenues that would be produced under its rates and their effect was as follows:

¶137Annual revenue reduction from Gas-well and oil-well gas under

¶138pre-1961 contracts $41.4 million

¶139Oil-well gas under post-1960

¶140contracts $ 0.1 million

¶141Gas-well gas under subsequent

¶142contracts $ 7.5 million

¶143Total $49.0 million

¶144We also estimate that under the maximum rates here allowed … [annual revenues] would amount to $519 million, or about 18.4 cents per Mcf (not including sizeable revenues from condensates and entrained liquids) and that these revenues will rise steadily ….

¶145In our judgment, the revenues allowed … should foster an active exploratory program consistent with both the financial needs of the industry and the protection of the public interest.94

¶146The Commission did not explain the reasoning by which it arrived at this conclusion. Finally, the Commission examined the place of natural gas in the economy as a whole and concluded that although other energy sources are growing in importance, “there seems no doubt that natural gas will be a major and vital source of energy for many years to come and nothing should be done at this time which would prevent the exploration and development necessary to make available this clean, convenient, economical and increasingly popular energy source.”95

¶147(2) The Current Supply Situation

¶148Despite the Commission’s optimistic conclusion, the circumstances that have developed since its decision indicate a possibility, indeed perhaps a certainty, that the supply of gas is dangerously low. A serious shortage, in fact, may already be unavoidable because present conditions may render any remedial action ineffective in light of the lag time between remedy and result. Thus the producers point out to us that the FP ratio, for the first time since World War II, shows that findings have declined below production. In other words, the gas industry in 1968 took more gas out of the ground than it discovered. Together with a growing production curve, this fact is alarming, especially since it is likely that the FP ratio will remain below 1.0 for the foreseeable future.96 The producers also contend that the RP ratio is dangerously low, and despite the frequency with which this argument has been effectively categorized as a “cry of *438wolf,”97 we are concerned about it here. A majority of the Commissioners on the FPC have alluded in public speeches to the seriousness of the supply problem.98 And an even more persuasive indication of the immediacy of the problem is the recent FPC Staff Report on National Gas Supply and Demand, issued October 1, 1969, which concludes that “only a few years remain before demand will outrun supply.”99

¶149The Staff Report is, at least from appearances, a careful, considered document. The record in this case does disclose instances in which Staff has been egregiously in error,100 but we think there is something to its supply and demand report. The report is based upon quantitative projections of demand and several indicia of supply- — precisely the kind of “assessment of consequences” that we find lacking in the Commission’s decision here. Demand for Southern Louisiana's gas, according to the Staff report, will be double its 1969 level in 1975. The FP ratio will remain below 1.0. The RP ratio will decline below 11 by 1973 even under the best of circumstances, and there is nothing that can be done at this time to maintain the ratio at its present level. The report further argues, and argues persuasively, that the inevitable decline in the RP ratio will probably cause regional supply deficiencies to come into existence as early as 1973.101 And aside from probable short-*439term deficiencies that cannot be prevented, Staff concludes that “[a] major new government-industry program is needed immediately to insure the continued growth of natural gas service during the next decade.”102

¶150The projection in the Report focuses on the next five years, and Staff announces its intention to update it at five-year intervals, but some predictions are made for longer terms. It is not too early to begin considering the effect of present gas use on our resources in the far future.103 The Staff Report, if it is correct, shows that unavoidable gas supply problems in the near future, the middle future, and the far future are not only possible but probable.104 This prospect needs only to be considered against the huge and growing importance of natural gas in this nation’s energy mix.

¶151(3) Disposition of the Supply Problem at this Stage of Review

¶152The possibility of severe gas shortages, together with the Commission’s failure to make thorough findings on the matter, present by far the most important and most difficult question in this case. We have serious misgivings about affirming the Commission. Nonetheless, after having considered all factors we find relevant, we have determined that affirmance is the best course.

¶153First, reversal or even a limited remand would serve little purpose in this case. We think our opinion, and indeed probably the circumstances themselves, will notify the Commission that it cannot in the future set prices by cost considered in a vacuum. The Commission has itself recognized the possibility that its prior orders were inadequate and has set new proceedings that will consider precisely the questions troubling us and may well modify the entire scheme here reviewed. If there is a need to do so, the Commission may, and has in part, set aside the present order pending further determination. The long and the short of it is that the Federal Power Commission is vested with the responsibility to make certain that the gas industry serves the public interest, and insofar as we can tell it would perform this function equally competently whether we affirmed this case or reversed it. Indeed, if immediate action is called for here, we think a reversal in this ease would unduly interfere with the Commission’s performance.

¶154Secondly, we can understand the circumstances that led to the Commission’s order, and we are not sure that its making thorough findings in the instant case would have avoided entirely the possibilities that Staff has raised. It is certain, for example, that Staff did not communicate these possibilities to the Commission in any coherent way during the consideration of this case; in fact, Staff appears to have made major errors that would have aggravated the situation ex*440cept for the Commission’s refusal to adopt them.105 Furthermore, the producers, who are possessed of most of the information essential to effective regulation, have not always actually advanced the goal of effective regulation. All in all, indications that suppy deficiencies are probable were not nearly so clear at the time of the decision we are reviewing as Staff makes them seem now. Certainly, the Commission is now as aware of this new information as we are. We therefore think it appropriate, rather than inspecting the Commission’s decision by hindsight, to allow the Commission to proceed with its new hearings with the benefit of the new information that has been presented to us.

¶155Thirdly, this Court cannot itself evaluate the supply situation or determine what action is needed. We do not know whether the information that has reached us is correct or not. Staff states that, “For purposes of this report we have accepted at face value all industry-furnished data. Our conclusions must therefore be weighed against the assumed accuracy of our data base.”106 It also states that it is setting forth only one of several possible forecasts, albeit it is the one it thinks most probable. Clearly, even if immediate, decisive action is needed, this Court cannot take it. Since we have concluded that the Commission is on the right course now, our best course is to keep within the proper sphere of a reviewing court. The point is that the probability of shortage based on new evidence is not before us for review; all that is before us is the legal adequacy, and not the wisdom, of the Commission’s orders.

¶156Finally, and most importantly, in light of Permian we think we are required to hold that the Commission’s orders in this case are procedurally and substantively adequate under the law. Whether they are ultimately wise is a question to be presented not to this Court but to the Commission. In Permian, the Supreme Court affirmed the Commission on a record similar to the one we have before us. It reversed the Tenth Circuit, which expressed concerns similar to ours. It is true that in sustaining the Commission, the Court indicated that it expected the Commission to perform its procedural duty of fact finding better in the future. We do not think that a great deal of improvement can be expected over the Commission’s Permian opinion, however, since hearings in this case had been going on for seven years when the Supreme Court issued its opinion, and the decision here came out a few months after that decision. Proceedings over those seven years inevitably caused the Commission to focus on certain issues to the exclusion of others. In other words, we think that the “experiment” doctrine of Permian is still relevant to our evaluation of the legal sufficiency of the Commission’s efforts. It should be added that the Commission has responded to the difficult task mandated by the Phillips and CAT CO cases by creating a regulatory procedure that is at least potentially workable, and that in itself is no mean accomplishment.107

¶157At the same time, we emphasize that our affirmance should not be taken in any manner as a judgment that the supply problem is not serious enough to require immediate modification of the order herein sustained. We do not reach this question. It is possible that the Commission may find it advisable to make such an immediate modification or that it might set aside the order affirmed here. The Commission has power to take these actions if it finds them appropriate. We can only reiterate our concern over what we consider to be strong evidence that a supply deficiency is imminent, but we think it especially important, at this uncertain time, to resist hasty action and to place some degree of faith in the body to which Congress has entrusted this question.

¶158*441IV. CONCLUSIONS AND RECOMMENDATIONS

¶159Throughout this discussion, we have been forced to navigate between the Scylla of disobeying Permian and the Charybdis of condoning inadequate Commission findings in the face of a possible supply deficiency. We think Permian requires affirmance. However, we are disturbed by what we consider to be excessive reliance by the Commission upon the mere result of the Permian decision.108 This reliance shows that the Commission has not read Permian carefully enough. At numerous points in its opinion, the Supreme Court indicated that it was affirming the Commission on an inadequate record and that it was doing so only because area rate proceedings were new. Here, we think it appropriate to place a greater emphasis on the ways in which we hope the Commission will do better.

¶160The most serious problem, as we have said, is that of possible supply deficiencies, together with the correlative, failure of the Commission to consider supply and demand. Our discussion of the issues should be understood in light of this order of importance.

¶161A. Needed Improvements in the Commission’s Presentation of Cases for Review

¶162(1) Identification and Explanation of Rate Components

¶163As the Supreme Court stated in Permian, “we would expect that the Commission will hereafter indicate more precisely the formulae by which it intends to proceed.”109 In computing costs, as we have stated, we think the Commission has adequately explained its findings. It should be more precise, however, about its noncost elements and the reasons for their use. Noncost elements influencing a cost-based rate should be clearly labeled as such and their basis explained as specifically as possible.110 Non-cost factors may be used to influence market variables such as supply and demand, to create price stability, to influence industry structure, to simplify a rate schedule, and for many other purposes,111 but only if they are clearly identified and explained. If the Commission approaches these matters forthrightly, it can expect a reviewing court to give great deference to its expertise, even when it ventures into new territory.

¶164(2) Assessment of Consequences upon the Industry

¶165We have already cited the Supreme Court’s language calling for more specific assessment of consequences upon the industry. This assessment should encompass the following three variables, among others: (1) The character and number of individual enterprises that will remain when the order has had its effect (i. e., industry structure); (2) the capital actually available to the industry as a whole; and (3) most importantly, the industry’s probable conduct and performance as a result of the order.

¶166*442Maintenance of a healthy industry structure is an important FPC responsibility.112 We have heard producer complaints that the use of unexamined average costs will prevent large segments of the industry from recouping investment and will lead to greater concentration in the industry, particularly since small producers as a class are subject to higher risks than large ones. We do not know whether this dire prediction represents truth or an overactive imagination, and more importantly we cannot tell from the Commission’s opinion whether it knows.113 The Commission could have cleared up the problem by a few simple findings that should have been a part of its determination — findings as to the approximate number of producers, if any, who might abandon business as a result of the rates as set and as to the subsequent degree of concentration in the industry. If concentration is increasing, the increase should be justified in terms of the public interest.

¶167As to the crucial issue of sources for adequate financing, the Commission’s findings, and for that matter the evidence, are almost nonexistent. The Commission has made only conclusionary statements to the effect that capital from outside sources will be available at the rate it has set. This is a tenuous basis for our affirmance. Another court reviewing a regulatory commission stated, with regard to adequate financing, that a commission must make

inquiries and findings — judgmental as the latter may often be because rate-makers must be prophets of the future as well as historians of the past — into such things as the capital programs in prospect, what such programs entail in terms of down-payments as well as financing, the cost of borrowing money, working capital needs, the desirable ratio of debt to equity, the incentives required by a stockholder to keep his money in the business and the dividends and growth rates requisite to supply these incentives, the opportunities in these respects provided in comparable businesses, and the related matters which must be prayerfully explored by the conscientious regulator before he can begin to say why he fixed upon 4.87 rather than 6.5 or 3.2.114

¶168The Commission has considered few of these matters in this case either prayerfully or otherwise, and this deficiency is of great concern to a reviewing court.

¶169With regard to conduct and performance, the Commission must assess how circumstances other than structure and capital will affect the orderly development of the industry. These concerns necessarily involve some consideration of supply and demand, which is the subject we consider next.

¶170*443(3) Findings as to Market Variables: Supply and Demand

¶171The Commission must discuss the effect its order will have upon the ability of the gas industry to serve its market. There is no doubt that the Commission has the power to set prices on the basis of cost and that market variables do not necessarily have to influence the calculation, but it must examine even a cost-computed rate against the ultimate statutory purposes it is supposed to be carrying out. This is not a novel proposition. A classic statement of it appears in Colorado Interstate Gas Co. v. FPC, written in 1945:

Far-sighted gas-rate regulation will concern itself with the present and future, rather than with the past, as the rate-base formula does. It will take account of conditions and trends at the source of the supply being regulated. It will use price as a tool to bring goods to market — to obtain for the public service the needed amount of gas. Once a price is reached that will do that, there is no legal or economic reason to go higher; and any rate above one that will perform this function is unwarranted. … On the other hand, if the supply is not too plentiful and the price is not sufficient incentive to exploit it and fails to bring forth the quantity needed, the price is unwisely low, even if it does square perfectly with somebody’s idea of return on a “rate base.” 115

¶172In Permian, the Supreme Court stated that the Commission would be expected in the future to explain “the purposes for which, it has chosen to act.”116

¶173From the Commission’s findings we cannot know whether the demand for Southern Louisiana’s gas is going to double, sextuple, or increase tenfold over the next decade, or whether it is going to remain stable or even decline. From data as to past demand, we have a fair idea that if current conditions hold it will grow at about five percent a year.117 Predictions along this line are subject to obvious infirmities, but at least the possibilities can be identified and probabilities assigned to them.

¶174Such predictions are necessary because the supply of natural gas must be considered in light of demand. Some areas are more promising than others. The Commission appears to assume, without so stating, that a rate that gives adequate return will elicit enough drilling to satisfy future demand even though some reservoirs are harder to find, but we find somewhat more persuasive the producers’ argument that producers will meet demand only if there are enough reservoirs that promise sufficient return at the rate set.118 The Commission should make findings as to the increased difficulty of finding greater volumes of gas.119 From this finding, it should esti*444mate the supply that a given rate will elicit.120

¶175We do not mean to imply that the Commission must set rates according to supply and demand. In a situation where the market leads to excessive prices, that would of course be self-defeating. We do not think even that the Commission is necessarily bound, as the producers contend, to set rates that will “satisfy” demand; demand is itself a function of rates, and there might be good reason for not matching it to supply.121 All that we are holding is that the Commission must explain the relationship between the level of service, the demand for service, and the price it sets, a reviewing court contemplating the “end result” test cannot in good conscience affirm the Commission unless it knows what the Commission is trying to do.

¶176In evaluating its rate, then, the Commission should go through the following three steps relating to industry performance. It should first estimate the needs of consumer service — in this case, the demand for gas. Next, it should use this determination to fix the level of service at which it is aiming, explaining how that level is related tó actual demand in the event demand is not to be fully satisfied. It must then make findings, as specifically as possible, as to how the rate it has set will affect the industry’s tendency to meet that level of service. This last step means estimating the gas supply that the rate will bring forth. These are difficult matters to predict, but that is more reason why a reviewing court should not be required to guess at them. More importantly, if the Commission sets a rate on a cost basis and does not itself consider these questions carefully, its conclusionary statements to the effect that the rate is adequate or that there will probably be no need for changes in the future (these are statements that the Commission has made here) amount only to so much whistling in the dark.

¶177(4) Reconciliation of Conflicting Statements

¶178Consistency is the hobgoblin of small minds, and we have tried to avoid undue concern when we have found implications in the Commission’s findings to be in conflict with each other.122 The Supreme Court faced the same problem in Permian and commented upon it.123 We think, however, that the Commission ought at least to recognize inconsistencies and explain why they are present. Unexplained, they cause the efforts of a reviewing court to be wastefully consumed.

¶179B. Disposition of the Case

¶180The orders of the Commission are sustained in full. The mandate of this Court should not, however, be interpreted to interfere with Commission *445action that would change the rates we have approved here. We specifically and emphatically reject the contention advanced by the MGD that the Commission has no power to set aside rates once determined by it to be just and reasonable when it has reason to believe its determinations may have been erroneous.124 In fact, the existence of the new proceedings, which as we understand them will take into account many of the issues whose absence has concerned us here, has been one of the factors we have considered in deciding to affirm the Commission’s decisions.

¶181It remains for us to consider the stay ordered by this Court when this appeal began, which has to date prevented the Commission’s decision from going into effect. We have determined that, subject to the usual extensions provided by Rule 41, F.R.A.P., for petitions for rehearing and certiorari, the stay should be dissolved unless further ordered. This determination is made without prejudice, however, to the Commission’s power to stay its own order or to take any other appropriate action affecting this case.