Cincinnati Gas & Electric Co. v. FEDERAL POWER COM'N

• Decision Date: 03 June 1957
• Docket Number: No. 13515.,13515.
• Parties: The CINCINNATI GAS & ELECTRIC COMPANY, and The Union Light, Heat and Power Company, Petitioners, v. FEDERAL POWER COMMISSION, Respondent, United Fuel Gas Company and Central Kentucky Natural Gas Company, Intervenors, Commonwealth Natural Gas Corporation, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

101 US App. DC 1, 246 F.2d 688 (1957)

The CINCINNATI GAS & ELECTRIC COMPANY, and The Union Light, Heat and Power Company, Petitioners, v. FEDERAL POWER COMMISSION, Respondent, United Fuel Gas Company and Central Kentucky Natural Gas Company, Intervenors, Commonwealth Natural Gas Corporation, Intervenor.

No. 13515.

United States Court of Appeals District of Columbia Circuit.

Argued April 8, 1957.

Decided June 3, 1957.

Petition for Rehearing Denied July 3, 1957.

Mr. Walter E. Beckjord, Cincinnati, Ohio, with whom Mr. Valentine B. Deale, Washington, D. C., was on the brief, for petitioners.

Mr. Howard E. Wahrenbrock, Asst. General Counsel, Federal Power Commission, with whom Messrs. Willard W. Gatchell, General Counsel, Federal Power Commission, W. Russell Gorman, Asst. General Counsel, Federal Power Commission, and David S. Lichtenstein, Attorney, Federal Power Commission, were on the brief, for respondent.

Mr. Richard A. Rosan, New York City, with whom Mr. John P. Randolph was on the brief, for intervenors, United Fuel Gas Co. and Central Kentucky Natural Gas Co.

Mr. Stanley M. Morley, Washington, D. C., and Mr. James O. Watts, Jr., Lynchburg, Va., were on the brief for intervenor, Commonwealth Natural Gas Corp.

Before WILBUR K. MILLER, DANAHER and BASTIAN, Circuit Judges.

WILBUR K. MILLER, Circuit Judge.

Cincinnati Gas & Electric Company and its subsidiary, Union Light, Heat and Power Company,¹ are retail distributors of natural gas purchased at wholesale from Central Kentucky Natural Gas Company. They petition for review and modification of an order of the Federal Power Commission which permitted Central Kentucky and its affiliated supplier, United Fuel Gas Company, to change their demand-commodity rate form by providing for a contract demand over a long term. Under the new form, the billing demand is not to exceed, nor be less than 90 per cent of, a quantity of gas to be agreed upon by the seller and buyer as an estimate of the buyer's maximum-day requirement during the term of the contract between them — usually 20 years.² In the rate form previously in effect, the demand charge was based in general on actual maximum-day demand during the twelvemonth ending with the month of billing or on the average daily demand during the peak month of that period.

The order in question was entered in consolidated proceedings which originated when Central Kentucky and United Fuel filed with the Commission new tariffs providing for substantial increases in both demand and commodity charges, and for the long-term contract demand to which we have referred. At the request of Cincinnati-Union and another, the Commission ordered a hearing limited to the contract demand element of the proposed rate form, and reserved for future hearing and consideration all other issues concerning the new tariffs, including of course the proposed increases in the demand and commodity charges.

After a thorough hearing, in which Cincinnati-Union opposed the entire contract demand provision, the examiner filed a comprehensive opinion, and made detailed findings of fact upon the basis of which he approved the proposed contract demand form. The Commission conducted an en banc hearing on exceptions to the examiner's initial decision, following which it approved his action and filed an opinion setting forth at some length its reasons for doing so. We summarize those reasons by selecting language from the opinion without indicating occasional omissions of material in the interest of brevity:

"The primary fact influencing our determination is the magnitude of growth of the space-heating load in the area served by the distribution customers of United Fuel and Central Kentucky. The record shows that not only has this space-heating load mushroomed in the past few years but also that the growth is continuing. The record shows that the design capacity of United Fuel and Central Kentucky is fully utilized only once in approximately every eight years. This capacity is installed on the basis of estimated peak demands of their customers which in turn base their peak estimates upon cold weather conditions occurring, on an average, once in eight years. These annual weather variations result in a `feast or famine\' recovery by United Fuel and Central Kentucky of costs collected through demand charges. The CD contract demand rate form will tend to stabilize recovery of these costs.

"The second element in the CD rate form, the length of the term of commitment, also plays a part in our decision. A one-year or other shortterm contract would defeat the purposes of the CD rate forms, since it would not minimize the effect of the year-to-year fluctuations in the demand. It would neither stabilize earnings nor encourage use of peak shaving by customers. We do not feel that a commitment over the life of the contract is unreasonable, particularly when it is remembered that our scrutiny in the rate-making process is a continual one.

"The demand revenues accruing through the contracted billing demand charge will not assure United Fuel and Central Kentucky of all fixed costs incurred for the benefit of the customer companies. Obviously, the demand charge which finally results from the second stage of these proceedings will not reflect all fixed costs of United Fuel and Central Kentucky. Of course the rate level, as well as the amount of the demand charge, awaits our further determination."

In addition to adopting the findings of the examiner with respect to the matters discussed in its opinion,³ the Commission made the following express finding:

"Continued billing by United Fuel and Central Kentucky under rate forms previously prescribed does not give sufficient firmness to the demand charges nor provide for long-term commitments by the customers both of which are essential for continued financial stability of United Fuel and Central Kentucky; nor does such billing encourage use of peak shaving by the customers. Therefore, further use of these rate forms would not be in the public interest."

As we have noted, the petitioners objected to the entire contract demand billing formula in the hearing before the examiner. But, as their objection was primarily to the long-term billing commitment feature, they tell us in their brief that before the Commission "they took exception to the long term billing commitment features and the extension of the commitment to the electric operations and in effect waived their objections to the Contract Demand rate form as to the short term." The petitioners say they favor a contract demand form "so long as the ratchet is effectively limited to a short term, such as twelve months, rather than twenty years."

Thus the petition for review is also limited in scope. Cincinnati-Union confine their attack to the long-term billing commitment feature of the contract demand. They say they are aggrieved by the Commission's order "insofar as it approved (a) the long term billing commitment feature of the contract demand rate form, and (b) the extension of that feature to the assets and revenues of your Petitioners' respective electric, as distinguished from gas, operations * * *." They pray therefore that we modify the Commission's order to provide for

"(i) The elimination of the long term billing commitment feature of the contract demand `rate form\' by limiting the ratchet on the billing demand to a 12 month period, rather than extending it over the life of the Service Agreement;

"(ii) The limitation of the extent of the long term billing commitments with Central Kentucky to the natural gas revenues, plant and assets of your Petitioners, and excluding therefrom the other, including electric revenues, plant and assets of your Petitioners."

Their statutory right to review of the order depends upon whether the petitioners actually are aggrieved by the portion of it they desire us to modify, which is the only portion of which they complain. Section 19(b) of the Natural Gas Act,⁴ under which the petition for review was filed, provides that any party to a proceeding under the Act aggrieved by an order issued by the Commission in such proceeding may obtain a review of such order in this court or in any other appropriate court of appeals by seasonably filing a petition praying that the order of the Commission be modified or set aside in whole or in part.

It is therefore essential first to examine the allegations and arguments of the petitioners as to how they are aggrieved by the long-term billing commitment phase, to ascertain whether they have the standing to seek review upon which our jurisdiction depends. The petitioners particularize as to aggrievement due to the long-term billing commitment by making three allegations of injury which we shall discuss in separate numbered sections of this opinion.

1. They assert that the order unlawfully requires them to pay Central Kentucky minimum demand revenues over a long term, even though their gas requirements "might substantially decrease due to loss of business to competitive fuels and technologies." Although this is envisaged only as a possibility, the petitioners inconsistently say that "inevitably" the long-term commitment "will hasten the day of insolvency" for them, and is therefore unlawful under Market Street R. Co. v. Railroad Comm. of State of California, 1945, 324 U.S. 548, 65 S.Ct. 770, 89 L.Ed. 1171, and Spiegel v. Public Utilities Comm., 1955, 96 U.S.App.D.C. 307, 226 F.2d 29. In the Market Street case, only constitutional issues were raised. The railway company contended the rate reduction order complained of deprived it of its property without due process of law, contrary to the Fourteenth Amendment.

The Supreme Court pointed out that the railway company was a "particularly ailing unit of a generally sick industry" 324 U.S. 548, 65 S.Ct. 774 whose property had been reduced in value by economic forces beyond the possibility of regulatory repair, and upheld the Commission in using as a...