Memphis Light, Gas & Water Div. v. FEDERAL POWER COM'N

• Decision Date: 18 February 1972
• Docket Number: No. 24517,24518,24602 and 24632.,24517
• Citation: 462 F.2d 853
• Parties: MEMPHIS LIGHT, GAS AND WATER DIVISION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Texas Gas Transmission Corporation, Tennessee Valley Municipal Gas Assoc., etc., Intervenors. MEMPHIS LIGHT, GAS AND WATER DIVISION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Texas Gas Transmission Corporation, American Public Gas Association, Intervenors. TENNESSEE VALLEY MUNICIPAL GAS ASSOCIATION et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, Texas Gas Transmission Corporation, Intervenor. PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Texas Gas Transmission Corporation, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

462 F.2d 853 (1972)

MEMPHIS LIGHT, GAS AND WATER DIVISION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Texas Gas Transmission Corporation, Tennessee Valley Municipal Gas Assoc., etc., Intervenors.

MEMPHIS LIGHT, GAS AND WATER DIVISION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Texas Gas Transmission Corporation, American Public Gas Association, Intervenors.

TENNESSEE VALLEY MUNICIPAL GAS ASSOCIATION et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, Texas Gas Transmission Corporation, Intervenor.

PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Texas Gas Transmission Corporation, Intervenor.

Nos. 24517, 24518, 24602 and 24632.

United States Court of Appeals, District of Columbia Circuit.

Argued October 28, 1971.

Decided February 18, 1972.

Rehearings Denied May 11, 1972.

COPYRIGHT MATERIAL OMITTED

Mr. George E. Morrow, Memphis, Tenn., with whom Mr. Reuben Goldberg, Washington, D. C., was on the briefs, for petitioner in Nos. 24517 and 24518.

Mr. Morton L. Simons, Washington, D. C., for petitioner in No. 24632.

Mr. J. Richard Tiano, Asst. Sol. F. P. C., with whom Messrs. Gordon Gooch, Gen Counsel, and Abraham R. Spalter, Asst. Gen. Counsel, F. P. C., were on the brief, for respondent. Mr. Israel Convisser, Atty., F. P. C., also entered an appearance for respondent.

Mr. Christopher T. Boland, Washington, D. C., with whom Mr. Richard J. Connor, Washington, D. C., was on the brief, for intervenor Texas Gas Transmission Corp. Mr. George J. Meiburger, Washington, D. C., also entered an appearance for intervenor Texas Gas Transmission Corp. in Nos. 24517 and 24518.

Mr. Reuben Goldberg, Washington, D. C., entered an appearance for petitioner in No. 24602.

Mr. Charles F. Wheatley, Jr., Washington, D. C., was on the brief for intervenor American Public Gas Assn. in No. 24518.

Before FAHY, Senior Circuit Judge, and ROBINSON and WILKEY, Circuit Judges.

Rehearings Denied in Nos. 24517 and 24632 May 11, 1972.

WILKEY, Circuit Judge:

These two sets of cases, consolidated for review, involve a determination as to the impact of Section 441(a) of the Tax Reform Act of 1969,¹ relating to the methods of depreciation for regulated utilities, on two types of utility property: (1) post-1969 expansion property and (2) pre-1970 and post-1969 non-expansion property.² The impact of Section 441(a) on post-1969 expansion property—the subject of FPC Orders No. 404 and 404-A, issued, respectively, 15 May 1970 and 9 July 1970, and cases no. 24,518 and 24,602 here—will be considered first, followed by a determination of its effect on pre-1970 and post-1969 non-expansion property—the subject of FPC Opinions No. 578 and 578-A and accompanying orders, issued 3 June 1970 and 21 July 1970, respectively, and cases no. 24,517 and 24,632 here.

I.

A.

Congress specifically provided for the proper depreciation treatment of post-1969 utility expansion property in Section 441(a) of the Tax Reform Act of 1969 as follows:

(A) Election as to new property representing growth in capacity.—If the taxpayer makes an election under this subparagraph within 180 days after the date of the enactment of this subparagraph in the manner prescribed by the Secretary or his delegate, in the case of taxable years beginning after December 31, 1970, paragraph (2) (C) concerning liberalized depreciation with flow-through shall not apply with respect to any post-1969 public utility property, to the extent that such property constitutes property which increases the productive or operational capacity of the taxpayer with respect to the goods or services described in paragraph (3)(A) and does not represent the replacement of existing capacity.³

This provision indicates that Congress intended to, and did, prescribe specifically the appropriate tax depreciation treatment for post-1969 expansion property of utilities such as is involved in the cases here. It permits a regulated utility such as Texas Gas Transmission Corporation, an intervenor in these cases, to make an election, within 180 days after enactment of this provision, not to have liberalized depreciation with flow-through⁴ apply with respect to its post-1969 expansion property. That is, such a method would no longer be considered a "reasonable allowance" for tax depreciation purposes within the meaning of the Internal Revenue Code of 1954.⁵

The legislative history accompanying Section 441(a) of the 1969 Tax Reform Act supports this interpretation. The report of the Senate Finance Committee states in relevant part:

The Senate committee amendments, while in most respects the same as the House provisions, differ in one principal area. The amendments permit an election to be made within 180 days after the date of enactment of the bill for a utility covered by this provision to shift from the flow-through to the straight-line method, with or without the permission of the appropriate regulatory agency, or permit it with the permission of the regulatory agency to shift to the normalization method (that is, come under general rules of the bill).

This election applies both as to new and existing property. . . . Since the company would no longer be permitted to use accelerated depreciation (unless the agency later permits it to normalize), the agency would not be able to impute the use of accelerated depreciation with flow-through.⁶

In conference, the election right was restricted to apply only to post-1969 expansion property. As the Conference Report indicates:

The conference substitute (sec. 441 of the substitute and sec. 167(l) of the code) follows the Senate amendment except that the special provision referred to in (e) above is stricken and the 180-day election (item (d), above) is modified to apply to new property and not to replacement property. Even in the case of new property, however, the right to change over from the flowthrough method is to be available only to the extent the new property increases the productive or operational capacity of the company.⁷

It is clear, then, that Congress intended to, and did in fact, provide regulated utilities such as Texas Gas with an option to abandon flow-through for rate-making purposes in regard to post-1969 expansion property and substitute in its place either (1) straight-line depreciation, with or without the permission of the relevant regulatory agency or (2) accelerated depreciation with normalization,⁸ with the permission of the appropriate regulatory agency. It is also clear that Congress intended thereby to preclude regulatory agencies from imputing flow-through to any regulated utility exercising this election with respect to its post-1969 expansion property.⁹

B.

The basic issue in this set of cases, therefore, is whether the FPC was correct in its Orders No. 404 and 404-A in interpreting the Tax Reform Act of 1969 as depriving it of the power to impute the use of liberalized depreciation with flow-through for rate-making purposes to a utility making the election under Section 441(a)¹⁰ to abandon flow-through with respect to its post-1969 expansion property. Clearly, it is the duty of the FPC, under its Congressional mandate, the Natural Gas Act,¹¹ to ensure the continued availability of natural gas in interstate commerce for eventual sale to consumers at the lowest practicable rate. As the Fifth Circuit had occasion to observe:

The central principle in the regulation of the natural gas industry around which all ratemaking revolves is

"the intention of Congress that natural gas shall be sold in interstate commerce for resale for ultimate public consumption . . . at the lowest possible reasonable rate consistent with the maintenance of adequate service on the public interest".

This is the language of Section 7(c) of the Natural Gas Act as originally enacted in 1938. The provision was deleted when the subsection was amended in 1942 but, as the Supreme Court has held, the amendment was not intended to change the congressional purpose of the Act; the "primary aim of this legislation was to protect consumers against exploitation at the hands of natural gas companies." Federal Power Commission v. Hope Natural Gas Company, 1944, 320 U.S. 591, 611, 64 S.Ct. 281, 291, 88 L.Ed. 333. . . . Again, as Justice Clark reiterated twenty-five years later: "The Act was so framed as to afford consumers a complete, permanent and effective bond of protection from excessive rates and charges". Atlantic Refining Company v. Public Service Commission, 1959, 360 U.S. 378, 388, 79 S.Ct. 1246, 1253, 3 L.Ed.2d 1312. . . .¹²

However, the FPC may not remain oblivious to the wishes of Congress as expressed in forms other than amendments to or deletions from the Natural Gas Act. By means of Section 441(a) of the 1969 Tax Reform Act, Congress has provided regulated utilities such as Texas Gas with an absolute right of election to abandon flow-through with respect to their post-1969 expansion property. Furthermore, we do not have the situation presented in Alabama-Tennessee Natural Gas Co. v. FPC, supra, where the court was able to find "no evidence that at the time Section 167 of the Internal Revenue Code was enacted Congress even focused on the problem in terms of reducing the dimensions of the Federal Power Commission's regulatory responsibility to protect consumers from excessive rates. . . ."¹³ Rather, investigation of the legislative history regarding Section 441(a) of the Tax Reform Act of 1969 reveals that Congress was well aware of the implications of permitting regulated utilities an election to abandon liberalized depreciation with flow-through with respect to their post-1969 expansion property.¹⁴ As such, the FPC was not remiss in the performance of its statutory duty in permitting Texas Gas to abandon flow-through in regard to its post-1969 expansion property, as expressly provided by the language of Section 441(a) of the 1969 Tax Reform Act.

C.

The FPC's Orders No. 404 and 404-A,...