Federal Power Commission v. Tennessee Gas Transmission Company City of Pittsburgh, Pennsylvania v. Tennessee Gas Transmission Company

• Decision Date: 03 December 1962
• Docket Number: Nos. 48,50,s. 48
• Citation: 9 L.Ed.2d 199,83 S.Ct. 211,371 U.S. 145
• Parties: FEDERAL POWER COMMISSION, Petitioner, v. TENNESSEE GAS TRANSMISSION COMPANY, The Manufacturers Light and Heat Company, The Ohio Fuel Gas Company and United Fuel Gas Company. CITY OF PITTSBURGH, PENNSYLVANIA, Petitioner, v. TENNESSEE GAS TRANSMISSION COMPANY et al
• Court: U.S. Supreme Court

371 U.S. 145

83 S.Ct. 211

9 L.Ed.2d 199

FEDERAL POWER COMMISSION, Petitioner,

v TENNESSEE GAS TRANSMISSION COMPANY, The Manufacturers

Light and Heat Company, The Ohio Fuel Gas Company and

United Fuel Gas Company.

CITY OF PITTSBURGH, PENNSYLVANIA, Petitioner,

v. TENNESSEE GAS TRANSMISSION COMPANY et al.

Nos. 48, 50.

Argued Oct. 17, 1962.

Decided Dec. 3, 1962.

Ralph S. Spritzer, Washington, D.C., for petitioner in No. 48.

Charles S. Rhyne, Washington, D.C., for petitioner in No. 50.

Harry S. Littman, Washington, D.C., for respondent Tennessee Gas Transmission Co.

Brooks E. Smith, New York City, for respondents Manufacturers Light & Heat Co., Ohio Fuel Gas Co., and United Fuel Gas Co.

Mr. Justice CLARK delivered the opinion of the Court.

This case involves the authority of the Federal Power Commission after hearing to order an interim rate reduction as well as a refund of amounts collected in excess thereof where a portion of a previously filed increased rate is found unjustified but the remainder of the proceeding is deferred. Respondent Tennessee Gas Transmission Company, a natural gas company, included within its filed increased rate schedule a 7% over-all return on its net investment. In considering this item¹ along with others involved in the filing, including the allocation of the over-all cost of service among its rate zones, the Commission concluded, after a full hearing, that 6 1/8% rather than the filed 7% would be a just and reasonable return. It accordingly required Tennessee Gas to file reduced rates, based on the lower return figure, retroactive to the end of a five-month suspension period, and ordered a refund of the excessive amounts collected since that date. 24 F.P.C. 204. The Court of Appeals, 293 F.2d 761 found that the 6 1/8% return was just and reasonable. It held, however, by a divided vote, that the Commission erred in ordering an immediate reduction and refund since it had not determined other issues in the proceeding, particularly that of the proper allocation of the over-all costs of the company's services among its six zones. The latter, the court reasoned, might be determinative of the ultimate question of whether the over-all filed rates in each zone were just and reasonable; therefore, the interim order might result in irretrievable loss to the company. The importance of the question in the administration of the Natural Gas Act led us to grant certiorari, 368 U.S. 974, 82 S.Ct. 479, 7 L.Ed.2d 437. We have concluded that the issuance of the order was an appropriate exercise of the power granted the Commission by the Act.

I.

Tennessee Gas does not have a system-wide rate applicable to all services regardless of where performed. It has since the early 1950's, with Commission approval, divided its extensive pipeline system into six rate zones with rate differentials. The appropriate allocation of its costs of service among these zones and types of customers was not then decided by the Commission nor agreed upon between the parties, but was left for future decision. It was in this posture that in 1959 Tennessee Gas, pursuant to § 4(d) of the Natural Gas Act, ² filed with the Com- mission proposed increased rates for its six rate zones. The rates were predicated upon a cost of service which included a claim to a 7% rate of return on net investment. At the inception of hearings on the reasonableness of the filed rates the Commission, under its § 4(e)³ authority, imposed a five-month suspension period on the proposed increase after which the rates became effective subject to refund of any portion not ultimately justified by Tennessee Gas in the Proceedings.

Hearings commenced on February 2, 1960, and Tennessee Gas presented its evidence on cost of service and rate of return. The Commission staff presented evidence on the latter alone and then proposed that the rate of return issue be treated separately from cost of service and allocation of rates among zones. At the time of this proposal to the Commission the zone allocation issue was also pending in another docket in a proceeding involving Tennessee Gas. By motion Tennessee Gas requested that the allocation issue be decided simultaneously with that involving the rate of return. On August 5, 1960, this motion was denied, and four days later the Commission issued the interim order under attack here. It found that a 7% return was excessive and that a 6 1/8% rate of return was just and reasonable. This finding was based on the Commission's determination that Tennessee Gas had failed to justify a rate of return greater than 6 1/8%. Accordingly, the Commission issued an interim order which disallowed the 7% return, required Tennessee Gas to file appropriate lower rates retroactively to the effective date of the increased rates and ordered refunds of the differences collected since that time. Tennessee Gas does not contest the Commission's determination that a 6 1/8% return on its net investment is just and reasonable. It does contend that to require the refunds prior to a determination of cost allocation among its zones of operation might result in its being unable to realize this return during the refund period. In this connection it points out that the rates as finally determined might, in some of its zones, be above the rates collected less the refund ordered. This would result in Tennessee Gas not being able to recoup a return of 6 1/8% since it would be unable to collect retroactively the higher rates found appropriate in those zones while it would be required to make full refunds in the remaining lower rate zones.

The Court of Appeals, in setting aside the Commission's order of immediate reduction and refund, found that it was unreasonable and an abuse of discretion to thus splinter the issues, especially since the cost allocation among zones issue was deemed 'ripe for decision,'⁴ and a ruling on it was an 'essential element in determining whether the filed rates are excessive.' The court also questioned whether a hearing confined to the issue of rate of return was such a 'full hearing' as § 4(e) demands prerequisite to a ratechange and refund order.

The Federal Power Commission and the City of Pittsburgh, which is acting in behalf of resident consumers of natural gas, are here in separate cases. Since they raise identical factual and legal issues, we consider the two cases together.⁵

II.

As all of the respondents admit, there is 'no question' as to the Commission's authority to issue interim rate orders. Indeed, such general authority is well established by cases in this Court, Federal Power Comm. v. Natural Gas Pipeline Co., 315 U.S. 575, 62 S.Ct. 736, 86 L.Ed. 1037 (1942); New England Divisions Case (Akron, C. & Y.R. Co. v. United States), 261 U.S. 184, 43 S.Ct. 270, 67 L.Ed. 605 (1923), as well as in the Courts of Appeals. Panhandle Eastern Pipe Line Co. v. Federal Power Comm., 236 F.2d 606 (C.A.3d Cir. 1956); State Corporation Comm. of Kansas v. Federal Power Comm., 206 F.2d 690 (C.A.8th Cir. 1953). It is true that none of these cases involved an undecided cost allocation issue applicable retroactively. However, in Natural Gas Pipeline Co. this Court took pains to point out the fact that 'establishment of a rate for a regulated industry often involves two steps of different character, one of which may appropriately precede the other.' 315 U.S., at p. 584, 62 S.Ct., at p. 742. Significantly, that case also involved the issue of a fair rate of return and 'the adjustment of a rate schedule * * * so as to eliminate discriminations and unfairness from its details.' Ibid. And the Court specifically found power to order a decrease in rates 'without establishing a specific schedule.' It declared that the proviso of § 5⁶ authorized the Commission to 'order a decrease where existing rates are unjust * * * unlawful, or are not the lowest reasonable rates'. Finally, the Court concluded that § 16⁷ placed discretion in the Commission to 'issue * * * such orders * * * as it may find necessary or appropriate to carry out the provisions of this chapter.' Here the Commission took similar action directing Tennessee Gas to file a new schedule which would reflect the prescribed 7/8% reduction in the rate of return and, in addition, to refund under § 4(e) the amounts collected in excess of the lower, substituted charges reflecting the lawful rate of return. The fact that the Natural Gas Pipeline Co. case was initiated under § 5 of the Act and the refund provisions of § 4(e) were not available was, in our opinion, of no consequence since the hazard of not making a profit remains on the company in each instance. ,'discriminations and unfairness' if later found present in Natural Gas Pipeline's schedule might have caused it losses just as the refunds might here. In addition, an analysis of the policy of the Act clearly indicates that a natural gas company initiating an increase in rates under § 4(d) assumes the hazards involved in that procedure. It bears the burden of establishing its rate schedule as being 'just and reasonable.' In addition, the company can never recoup the income lost when the five-month suspension power of the Commission is exercised under § 4 (e). The company is also required to refund any sums thereafter collected should it not sustain its burden of proving the reasonableness of an increased rate, and it may suffer further loss when the Commission upon a finding of excessiveness makes adjustments in the rate detail of the company's filing. In this latter respect a rate for one class or zone of customers may be found by the Commission to be too low, but the company cannot recoup its losses by making retroactive the higher rate subsequently allowed; on the...