Battle Creek Gas Company v. Federal Power Commission

• Decision Date: 14 July 1960
• Docket Number: No. 15368.,15368.
• Parties: BATTLE CREEK GAS COMPANY, Petitioner, Illinois Power Company, Intervenor, v. FEDERAL POWER COMMISSION, Respondent, Trunkline Gas Company, Consumers Power Company and Michigan Gas Storage Company, and Michigan Gas Utilities Company, Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

281 F.2d 42 (1960)

BATTLE CREEK GAS COMPANY, Petitioner, Illinois Power Company, Intervenor, v. FEDERAL POWER COMMISSION, Respondent, Trunkline Gas Company, Consumers Power Company and Michigan Gas Storage Company, and Michigan Gas Utilities Company, Intervenors.

No. 15368.

United States Court of Appeals District of Columbia Circuit.

Argued April 25, 1960.

Decided July 14, 1960.

Petition for Rehearing Denied September 3, 1960.

Mr. Joseph W. McAuliffe, Battle Creek, Mich., of the bar of the Supreme Court of Michigan, pro hac vice, by special leave of court, with whom Mr. Thomas J. Lynch, Washington, D. C., was on the brief, for petitioner.

Mr. Lloyd E. Dietrich, Atty., Federal Power Commission, of the bar of the Supreme Court of Virginia, pro hac vice, by special leave of court, with whom Messrs. Willard W. Gatchell, Gen. Counsel, Federal Power Commission, and Robert L. Russell, Asst. Gen. Counsel, Federal Power Commission, were on the brief, for respondent. Messrs. Howard E. Wahrenbrock, Solicitor, Federal Power Commission, Peter H. Schiff and David J. Bardin, Attys., Federal Power Commission, also entered appearances for respondent.

Mr. William C. Chanler, New York City, of the bar of the Court of Appeals of New York, pro hac vice, by special leave of court, with whom Mr. Lawrence A. Baker, New York City, was on the brief, for intervenors Consumers Power Company and Michigan Gas Storage Company.

Mr. Harry S. Littman, Washington, D. C., with whom Mr. Dale A. Wright was on the brief, for intervenor Trunkline Gas Company.

Mr. Thomas F. Ryan, Jr., Washington, D. C., for intervenor Michigan Gas Utilities Company.

Mr. Robert S. Hunt, Chicago, Ill., for intervenor Illinois Power Company.

Before Mr. Justice REED, retired,^* and WASHINGTON^** and DANAHER, Circuit Judges.

Petition for Intervenor Illinois Power Co. for Rehearing Denied September 3, 1960.

Mr. Justice REED, sitting by designation.

Petitioner seeks review under § 19(b) of the Natural Gas Act¹ of orders of the Federal Power Commission granting to the Trunkline Gas Company certificates of public convenience and related orders under § 7(c) of the Act.²

Trunkline operates an interstate pipeline bringing natural gas from the Texas-Gulf of Mexico production areas up the Mississippi River Valley to Tuscola, Illinois, where it joins the Panhandle-Eastern Pipeline system. Trunkline is a wholly-owned subsidiary of Panhandle, and all but a small quantity of its gas is sold to Panhandle at Tuscola to be resold to consumers through the Panhandle system.

The certificates involved here authorize Trunkline to expand its gas purchases in the Gulf of Mexico, to expand its pipeline capacity by increased pumping and partial looping of the pipeline, and to construct new lines from Tuscola to the Michigan-Indiana border near White Pigeon, Michigan, where 135,000 mcf per day of the increased gas supply will be sold to one customer, Consumers Power Co. and its storage affiliate, Michigan Gas Storage Company. Up to this time Consumers had purchased all its gas from the Panhandle system through Michigan Gas Storage Company.

Petitioner, Battle Creek Gas Co., is a local gas distribution company which also has purchased its gas from Panhandle. Battle Creek intervened in the § 7(c) certificate proceedings before the Commission to request an allocation of 4,000 mcf of gas per day during the five winter months of each heating season. Battle Creek's application contemplated that this gas would be delivered to it through Panhandle's facilities by use of Michigan Storage's and storage fields.

Intervenor Illinois Power Company also puchases its natural gas supply from Panhandle. It was granted leave to intervene in the proceeding before the Commission and we have granted it leave pursuant to Rule 38(f) of this court, 28 U.S.C., to intervene here. Illinois Power's interest is limited to the method by which the cost of the expansion being considered in this proceeding will be allocated to the rate base of Trunkline's customers, particularly Panhandle.

After a hearing the examiner denied Trunkline's basic application, finding it part of an effort by Panhandle to selectively allocate natural gas capacity among its customers at a time of critically short supply in such a way as to force hardpressed customers to accept expensive gas supplies and facilities.³ Although he concluded that the applications should be denied, the examiner considered the other issues presented. He rejected Battle Creek's intervening application on the basis that it was not shown to be economically feasible.⁴ The examiner also decided that the "rolled in" cost allocation method would be the appropriate way to allocate the cost of the expansion among Trunkline's customers.⁵

On exceptions from his decision the Commission reversed the examiner and granted the applications. The Commission rejected the examiner's conclusion that Trunkline-Panhandle were usurping the power to allocate their product among the customers. As evidence of the Commission's continued power in this area, it was noted that parties desiring an allocation from Trunkline's expanded capacity were free to intervene in the § 7 (c) proceedings. Two Panhandle customers, Battle Creek and Michigan Gas Utilities Co., did intervene for this purpose and the Michigan Gas Utilities application had been granted. The Commission accepted the examiner's findings and conclusions relating to the Battle Creek application and the cost allocation method. It is from this decision of the Commission and the denial of its application for rehearing that Battle Creek petitions for review here.

Two issues are presented by the petition. First, Battle Creek contends that the Commission's order permitting the expansion of facilities to serve only one customer is a discriminatory allocation of the increased capacity. As a corollary to this contention, Battle Creek argues that the Commission failed to exercise its statutory responsibility to allocate the expanded capacity among the customers of the Panhandle-Trunkline system. Battle Creek's second point is that the decision of the Commission applying the rolled-in cost allocation method put an unfair burden on petitioner and other customers who would thus be required to bear the cost of the expanded facilities but would receive no benefit from them.

During the pendency of this case here several applications for further expansion of the Trunkline and Panhandle facilities have been filed with the Commission.⁶ The parties agree that these expanded facilities, if licensed by the Commission, will provide enough gas to meet all present requirements of the customers including Battle Creek. No hearings have been held as yet on these applications. Petitioner, because it is satisfied that the new applications eventually will be granted in some form, declined to press this aspect of the case on oral argument. Since petitioner is content with the relief alternatively available to it before the Commission, we deem it unnecessary at this stage of the proceedings to enter upon a consideration of the questions this issue would present. Rather, we dismiss this aspect of the appeal with the proviso that in the event the Federal Power Commission, in its disposition of the construction permits sought in Docket No. CP 60-22 and CP 60-60, does not afford petitioner what it has sought, petitioner may apply to this court to reopen this issue in the case.

We turn to the remaining issue, the accounting method to be used in reflecting the cost of the new facilities in the rates of the customers. Trunkline's application contemplated a price for the new gas to be sold to Consumers adequate to cover on an incremental basis the entire cost of the expansion project, including the new gas supplied, the new gathering lines, the partial looping of Trunkline's main transmission line,⁷ an additional compressor at Tuscola, and the additional pipeline up to the Michigan-Indiana border. By this method, Consumers and Consumers' customers would bear the entire cost of this expansion program. At the hearing, the Commission's staff opposed this incremental cost method and in its place submitted to the examiner four alternative methods. The examiner adopted the staff's method No. 1, providing that all the costs of the expansion program up to Tuscola be "rolled-in" with the other system-wide costs of Trunkline and be included in the cost basis considered in fixing the rates of all of Trunkline's customers. Under this method the costs of the pipeline from Tuscola to the Michigan-Indiana border would still be treated as incremental costs and charged directly and solely to Consumers. On review, the Commission adopted the examiner's decision.

There is agreement as to the basic principles of rate-making involved in this case. The parties do not raise any issues as to the arithmetical computation of the allocations by the Commission. Rather the dispute centers on the method by which the costs of this particular expansion program will be allocated for ratemaking purposes.

The role of reviewing courts in passing on the rate-making methods used by administrative agencies is necessarily narrow.⁸ These matters are properly for the Commission, and its determination is to be disturbed for only the most basic forms of abuse.

At the risk of oversimplification in this subtle and highly technical area, we think the essential problem can be shortly set out. There are two basic and potentially divergent methods of allocating new asset costs to be reflected in a utility's rate structure. The first recognizes that a gas pipeline of this sort is not just a collection of discrete pieces and parts, but an integrated system serving all of its customers. Applying this approach the cost of the various assets of the system are collected or "rolled in" to arrive at cost of the entire system which is then pro-rated among all of the customers by one of several rate-making mechanisms not...