Alabama Power Co. v. McNinch

• Decision Date: 27 September 1937
• Docket Number: No. 6691.,6691.
• Citation: Alabama Power Co. v. McNinch, 94 F.2d 601, 68 App.D.C. 132 (D.C. Cir. 1937)
• Parties: ALABAMA POWER CO. v. McNINCH et al., Federal Power Commission.
• Court: U.S. Court of Appeals — District of Columbia Circuit

68 App. DC 132, 94 F.2d 601 (1937)

ALABAMA POWER CO. v. McNINCH et al., Federal Power Commission.

No. 6691.

United States Court of Appeals for the District of Columbia.

Decided September 27, 1937.

Modification of Decree and Mandate Denied January 6, 1938.

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H. C. Kilpatrick, of Washington, D. C., and Walter Bouldin, of Birmingham, Ala., for appellant.

Oswald Ryan and Dozier A. DeVane, both of Washington, D. C., for appellees.

Before ROBB, VAN ORSDEL, GRONER, and STEPHENS, Associate Justices.

STEPHENS, Associate Justice.

This is an appeal from a final decree of the Supreme Court of the District of Columbia dismissing the bill of complaint of the appellant Alabama Power Company (hereafter referred to as Power Company) after a trial on the merits. The bill sought to enjoin the enforcement of an order of the Federal Power Commission (hereafter referred to as Commission) requiring the Power Company to establish accounts showing the actual legitimate original cost of a hydro-electric project owned by the Power Company to be the sum determined by the Commission as such cost, and requiring the Power Company to establish and maintain subsidiary accounts and records to substantiate all entries making up such total cost.

The record in the case discloses the following facts: The Power Company is an Alabama corporation engaged in business in that State as an electric public utility. One of its generating plants is Mitchell Dam, a hydro-electric project on the Coosa River, a navigable stream. The dam and power house were built under a license issued by the Commission on June 27, 1921. Physical construction of the project was begun on August 1, 1921, and completed on August 15, 1923. After completion of the project, the Power Company, as required by the Federal Power Act, filed a verified, detailed, initial cost statement. This showed a claimed initial cost of $10,646,056.76. Representatives of the Commission, after an audit, recommended disallowance of certain items. The Power Company protested, and a hearing on the disputed items was had before the Commission. Thereafter, in a written opinion, the Commission disallowed the following items, and ordered the Power Company to set up accounts showing the actual legitimate original cost as determined by the Commission:

  1. Taxes paid on project lands prior to
                      July 1, 1918 ............................ $      227.45
                  2. Dixie Construction Company fee ...........    183,540.15
                  3. Interest on funds expended prior to
                       1918 on the project2
                  4. Electric energy used during construction
                       ........................................     42,128.04
                  5. Fixed capital not classified by prescribed
                       accounts ...............................  3,500,000.00
                

The Power Company filed an application for a rehearing by the Commission and a petition for modification of the Commission's ruling. The application for rehearing was denied; certain modifications of the Commission's order, not here material, were made. Before the time fixed for compliance with the order of the Commission this suit was begun. After the hearing upon the merits the lower court made findings of fact, and conclusions of law, and upon them dismissed the bill. There was undisputed evidence that to establish accounts as ordered would cost approximately $5,000, and that the only substantial difference between such accounts and those now maintained by the Power Company would be in the amounts involved in this suit.

The Federal Power Act creates a power commission and empowers it to fix the cost of a project, as follows:

"The Commission is hereby authorized and empowered — (b) To determine the actual legitimate original cost of and the net investment in a licensed project, and to aid the Commission in such determinations, each licensee shall, upon oath, within a reasonable period of time to be fixed by the Commission, after the construction of the original project, . . file with the Commission in such detail as the Commission may require, a statement in duplicate showing the actual legitimate original cost of construction of such project, . . and of the price paid for water rights, right-of-way, lands, or interest in lands. . . . The statement of actual legitimate original cost of said project, and revisions thereof as determined by the Commission, shall be filed with the Secretary of the Treasury." 41 Stat. 1065, § 4, as amended by 41 Stat. 1353, 49 Stat. 839, § 202, 16 U.S.C.A. § 797, Supp.1936

"Net investment" and "cost" are defined in the Act as follows:

"(13) `net investment' in a project means the actual legitimate original cost thereof as defined and interpreted in the `classification of investment in road and equipment of steam roads, issue of 1914, Interstate Commerce Commission', plus similar costs of additions thereto and betterments thereof, minus the sum of the following items properly allocated thereto, if and to the extent that such items have been accumulated during the period of the license from earnings in excess of a fair return on such investment: (a) Unappropriated surplus, (b) aggregate credit balances of current depreciation accounts, and (c) aggregate appropriations of surplus or income held in amortization, sinking fund, or similar reserves, or expended for additions or betterments or used for the purposes for which such reserves were created. The term `cost' shall include, insofar as applicable, the elements thereof prescribed in said classification, . . and said classification of investment of the Interstate Commerce Commission shall insofar as applicable be published and promulgated as a part of the rules and regulations of the Commission; . . ." 41 Stat. 1063, § 3, as amended by 49 Stat. 838, § 201, 16 U.S. C.A. § 796(13), Supp. 1936

Under Section 797 of Title 16, U.S.Code the Commission has power to issue preliminary permits for the purpose of enabling applicants for a license to secure necessary preliminary data and to comply with applicable state laws. Under Section 798 the preliminary permit is for the sole purpose of maintaining priority of application for a license, for such period not exceeding three years as in the discretion of the Commission may be necessary for making examinations, surveys, estimates, and the like.

Under Section 799 the duration of a license may not exceed fifty years, and each license is conditioned upon acceptance by the licensee of all the terms and conditions of the Federal Power Act.

Section 803 provides:

"All licenses issued under Sections 791 to 823 of this title shall be on the following conditions:

* * *

"Amortization reserves. (d) That after the first twenty years of operation, out of surplus earned thereafter, if any accumulated in excess of a specified reasonable rate of return upon the net investment of a licensee in any project . . . under license, the licensee shall establish and maintain amortization reserves, which reserves shall, in the discretion of the Commission, be held until the termination of the license or be applied from time to time in reduction of the net investment. Such specified rate of return and the proportion of such surplus earnings to be paid into and held in such reserves shall be set forth in the license.

"Annual charges payable by licensees (e) That the licensee shall pay to the United States reasonable annual charges in an amount to be fixed by the Commission for the purpose of reimbursing the United States for the costs of the administration of this chapter; . . . and for the expropriation to the Government of excessive profits until the respective States shall make provision for preventing excessive profits or for the expropriation thereof to themselves, or until the period of amortization as herein provided is reached, and in fixing such charges the Commission shall seek to avoid increasing the price to the consumers of power by such charges, and any such charges may be adjusted from time to time by the Commission as conditions may require: . . ." 41 Stat. 1068, § 10(d, e), as amended by 49 Stat. 842, § 206, 16 U.S.C.A. § 803(d, e), Supp.1936 and Section 807 provides:

"Upon not less than two years' notice in writing from the Commission the United States shall have the right upon or after the expiration of any license to take over and thereafter to maintain and operate any project . . . covered in whole or in part by the license, . . upon the condition that before taking possession it shall pay the net investment of the licensee in the project . . . taken, not to exceed the fair value of the property taken, plus such reasonable damages, if any, to property of the licensee valuable, serviceable, and dependent . . . but not taken, as may be caused by the severance therefrom of property taken, and shall assume all contracts entered into by the licensee with the approval of the Commission. The net investment of the licensee in the project . . . so taken and the amount of such severance damages, if any, shall be determined by the Commission after notice and opportunity for hearing. Such net investment shall not include or be affected by the value of any lands, rights-of-way, or other property of the United States licensed by the Commission under this Act, by the license or by good will, going value, or prospective revenues; nor shall the values allowed for water rights, rights-of-way, lands, or interest in lands be in excess of the actual reasonable cost thereof at the time of acquisition by the licensee: . . ." 41 Stat. 1071, § 14, as amended by 49 Stat. 844, § 207, 16 U.S.C.A. § 807, Supp.1936³

Under these provisions it is clear that the Commission has authority to determine the actual legitimate original cost of a project and to require the licensee to set up his books showing the cost as thus determined. Cf. Clarion River Power Co. v. Smith, 61 App.D.C. 186, 59 F.2d 861, 1932, certiorari denied 287 U.S. 639, 53 S.Ct. 88, 77 L.Ed. 553,...