State Corp. Com'n of Kan. v. Federal Power Com'n

Decision Date20 July 1953
Docket Number14733,14743.,No. 14704,14706,14704
Citation206 F.2d 690
PartiesSTATE CORP. COMMISSION OF KAN. v. FEDERAL POWER COMMISSION. NORTHERN NATURAL GAS CO. v. FEDERAL POWER COMMISSION.
CourtU.S. Court of Appeals — Eighth Circuit

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Jay Kyle, Topeka, Kan., and Louis R. Gates, Kansas City, Kan., for State Corporation Commission of State of Kansas.

F. Vinson Roach, Omaha, Neb., and Richard J. Connor, Washington, D. C. (Lawrence I. Shaw, Omaha, Neb., and Gallagher, Osherman, Connor & Butler, Washington, D. C., with them on the brief), for Northern Natural Gas Co.

Bradford Ross and Reuben Goldberg, Washington, D. C. (Bernard A. Foster, Jr., Washington, D. C., and Alvin A. Kurtz, Alexandria, Va., with them on the brief), for Federal Power Commission.

Carl W. Cummins, St. Paul, Minn., for Northern States Power Co.; Donald Evans, Des Moines, Iowa, for Iowa Power & Light Company; P. L. Farnand, Minneapolis, Minn., for Minneapolis Gas Co; some presenting oral argument for Interveners generally, and others limiting their argument to the Interveners they represent.

Raymond A. Smith, Council Bluffs, Iowa, for Council Bluffs Gas Co., and George C. Pardee, Omaha, Neb., for Metropolitan Utilities District of Omaha, waived oral argument.

Vernon Myers for Iowa Public Service Co.; Lloyd J. Marti, Lincoln, Neb., for Central Electric & Gas Co.; G. T. Mullin, Minneapolis, Minn., for Minneapolis Gas Co.; Franklin M. Stone, Waseca, Minn., for Western States Utilities Co.; Norman H. Nitzkowski, Mankato, Minn., for Minnesota Valley Natural Gas Co.; George B. Sjosclius, St. Paul, Minn., for State of Minnesota; Timothy P. Quinn, St. Paul, Minn., for City of St. Paul; John F. Bonner, Minneapolis, Minn., for City of Minneapolis; and Ned Willis, Perry, Iowa, for Perry Gas Co., with them on the brief, for interveners.

Before SANBORN, WOODROUGH and JOHNSEN, Circuit Judges.

WOODROUGH, Circuit Judge.

These cases are brought to this court upon petitions filed under Section 19(b) of the Natural Gas Act, 52 Stat. 821, 831; 15 U.S.C.A. §§ 717, 717r(b), to review opinions and orders of the Federal Power Commission concerning rates, charges and practices of Northern Natural Gas Company, "a natural gas company" within the meaning of the Act.1 Northern is the petitioner in all the cases except No. 14,704, where the Corporation Commission of the State of Kansas, a party to the proceedings before the Commission, is the petitioner. The Commission is respondent in all the cases, and utility customers of Northern have intervened.

Statement.

Northern, as of the close of 1950, was engaged in operations in seven midwestern states, owning and operating an integrated natural gas pipe line system, producing, purchasing, transporting and selling natural gas at wholesale to 27 non-subsidiary utility companies, which in turn served 136 cities and towns, and to its then wholly owned subsidiary (since absorbed by it), Peoples Natural Gas Company, which served 92 cities and towns. In addition, it was serving 16 large volume direct industrial customers in 19 locations, approximately 58 small volume drilling, pumping and irrigation customers, and approximately 1,600 domestic customers. The sales to the 27 utilities represented 80.52% of its total sales, sales to its subsidiary Peoples, 10.48%, and sales to other customers 9% of total sales. Northern's own production accounted for 18.68% of this supply, of which 5.50% was produced in the Panhandle Field in Texas, 13.12% in the Hugoton Field in Kansas, and .06% in the Otis Field in Kansas, the remainder of 81.32% being purchased from other producers in Texas, Oklahoma and Kansas.

The proceedings before the Commission involved in Nos. 14,704, 14,706, and 14,743, arose out of rate filings made by Northern pursuant to the provisions of Section 4(d) of the Act2 to increase its rates and charges by approximately $8,400,000 and to make other changes in rate schedules. The first of these rate filings was made on March 27, 1950, naming increases in rates and charges amounting to approximately $3,200,000. The second was made by Northern on October 27, 1950, and proposed further increase in its rates and charges of approximately $5,200,000. A third filing was made on January 11, 1951, which proposed changes in certain provisions of Northern's rate schedules but did not seek increase in the level of rates and is not involved in these review proceedings.

Hearings were commenced on the first rate increase filing in August 28, 1950, and were recessed on October 27, 1950, as the second rate increase filing was made on that day. The second filing was consolidated for hearing with the first and hearings were resumed on March 26, 1951, and concluded on July 20, 1951.

The test period adopted by the Commission was the 12-month period (used by petitioner and respondent Commission) of December 1, 1950 to November 30, 1951, which was the first year of operation of the company's system at 600 M c f capacity. The test period therefore reflects actual experience for only five months since the hearings were held and concluded during the test period.

Decision was rendered by the Presiding Examiner on January 18, 1952, and many exceptions were taken. After two days of oral argument before it, the Commission on June 11, 1952, issued its Opinion No. 228 and order prescribing rates to be charged by Northern which effected an increase applicable to Northern's customer companies of approximately $5,000,000 per annum over the rates in effect prior to the rate filing of March 27, 1950.

The Commission denied applications for rehearing except that it granted the application by Northern for rehearing in respect to an item of "working capital". Thereafter Northern filed its present petition for review of Opinion No. 228 and order in No. 14,706, and the Kansas Commission filed its petition for review thereof in No. 14,704.

On September 25, 1952, the Commission after hearing in respect to the "working capital" item, entered its Opinion No. 228-A and order, affirming its determination as to the item "working capital" set forth in Opinion No. 228 and order of June 11, 1952, and Northern filed its present petition for review of the order affecting "working capital" in case No. 14,743.

Subsequent to the conclusion of the hearings on July 20, 1951, and prior to the Commission's Opinion No. 228 and order issued June 11, 1952, Northern filed on December 26, 1951, certain new schedules increasing its rates to its customer companies in an amount of $10,600,000 over its filings on March 27, 1950 and October 27, 1950.

Hearings on said third increase proposal were had on March 17, 18, 20, 24 and 25, 1952, and were then recessed after Northern had presented its showing except as it requested permission to submit at a later date testimony as to rate of return.

On June 26, 1952, fifteen days after the Commission's Opinion No. 228 and order, issued on June 11, 1952, the Commission's Staff and some of Northern's customers, interveners in the proceedings, severally moved for dismissal of a portion of the third rate increase in the amount of $7,601,853 on the ground that Northern had included the same matters in its submission of the prior rate increases to the Commission and the Commission had disposed of them adversely to Northern by its Opinion No. 228 and order. Northern resisted the motions. After hearing, the Commission on July 30, 1952, issued its Opinion No. 233 and order, disallowing the items of the third rate increase filing which aggregated $7,601,853.

The Commission authorized the continuance under bond only of the remainder of the third proposed $10,000,000 increase of rates and charges pending further hearings as to that remainder. Northern's application for rehearing on Opinion No. 233 and order was denied and it has filed its petition for review of it in No. 14,733.

The Commission found in its Opinion 228 of June 11, 1952, that Northern's average gas plant in service, including the average undeveloped leaseholds, as of November 30, 1951, represented $162,093,934, including in the determination $347,799 allowed for interest during construction. From the amount of $162,093,934 the Commission deducted the average reserves for depreciation and depletion amounting to $33,025,473, and contributions in aid of construction in an amount of $127,867. It then added thereto an allowance of $1,004,437 for working capital to arrive at an average net investment rate base of $129,945,031. On that rate base the Commission allowed an annual rate of return of 5½% (or a return of $7,146,977), which it found to be fair and reasonable.

It determined Northern's total cost of service, including return, to be $38,041,317 and allocated the costs between the business over which the Commission has jurisdiction under the Act and the business over which it does not have jurisdiction.3 The Commission found that there was a deficiency in revenues associated with jurisdictional business in an amount of about $5,000,000 compared with the cost of service, including a return of 5½ percent on property related thereto. In making the analyses and in arriving at the finding the Commission considered but ascribed no weight to an order which was promulgated by the State Corporation Commission of Kansas on February 21, 1951, modified March 8, 1951, requiring that all takers of gas from the Kansas Hugoton Field shall attribute to all gas taken (except gas for operation of leases) for all purposes, the fair and reasonable minimum value of not less than eight (8) cents per M c f at the well head. Rates, charges and classifications determined to be "just and reasonable" were prescribed for Northern to be effective June 11, 1952.

The Commission found that under the rates prescribed Northern should earn the determined fair rate of return on its investment in property devoted to jurisdictional business. But...

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