Colorado Interstate Gas Co. v. Federal Power Com'n, No. 2550

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: BRATTON, HUXMAN, and MURRAH, Circuit
• Citation: 142 F.2d 943
• Parties: COLORADO INTERSTATE GAS CO. v. FEDERAL POWER COMMISSION et al. CANADIAN RIVER GAS CO. v. SAME. COLORADO-WYOMING GAS CO. v. SAME.
• Docket Number: No. 2550,2551,No. 2561.
• Decision Date: 09 August 1944

142 F.2d 943 (1944)

COLORADO INTERSTATE GAS CO.
v.
FEDERAL POWER COMMISSION et al. CANADIAN RIVER GAS CO. v. SAME. COLORADO-WYOMING GAS CO. v. SAME.

Nos. 2550, 2551, No. 2561.

Circuit Court of Appeals, Tenth Circuit.

May 16, 1944.

Rehearing Denied August 9, 1944.

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Elmer L. Brock and E. R. Campbell, both of Denver, Colo. (Wm. A. Dougherty and C. W. Cooper, both of New York City, on the brief), for petitioner Colorado Interstate Gas Co

John P. Akolt, of Denver, Colo., and Charles H. Keffer, of Amarillo, Tex. (P. C. Spencer, of New York City, on the brief), for petitioner Canadian River Gas Co.

Donald C. McCreery, of Denver, Colo. (Lee, Shaw & McCreery and Wm. A. Bryans, III, all of Denver, Colo., on the brief), for petitioner Colorado-Wyoming Gas Co.

Edward H. Lange, of Washington, D. C. (Charles V. Shannon, L. W. McKernan, and Milford Springer, all of Washington, D. C., on the brief), for respondent Federal Power Commission.

Thomas H. Gibson, of Denver, Colo. (Malcolm Lindsey, of Denver, Colo., on the brief), for respondent City and County of Denver, Colo.

Before BRATTON, HUXMAN, and MURRAH, Circuit Judges.

BRATTON, Circuit Judge.

These cases bring here for review orders of the Federal Power Commission requiring Canadian River Gas Company, Colorado Interstate Gas Company, and Colorado-Wyoming Gas Company to make reductions in their respective rates for natural gas transported in interstate commerce and sold for resale for ultimate public consumption. Reference will be made to the companies as Canadian, Colorado, and Wyoming, respectively.

The City and County of Denver filed with the Commission a complaint charging that the rates of Canadian, Colorado, and Public Service Company were unjust and unreasonable; similarly, the Public Service Commission of the State of Wyoming filed with the Commission a complaint charging that the rates of Wyoming were unjust and unreasonable; and the Commission instituted on its own motion an investigation into the reasonableness of the rates of Canadian, Colorado, and Wyoming. Canadian and Colorado filed with the Commission their joint application for a stay of the order directing that the investigation be instituted; the Commission denied the application; the companies sought review; and it was denied on the ground that the order was merely preliminary and procedural and therefore not open to review. Canadian River Gas Co. v. Federal Power Commission, 10 Cir., 110 F.2d 350; Id., 10 Cir., 113 F.2d 1010, certiorari denied 311 U.S. 693, 61 S.Ct. 76, 85 L.Ed. 449. By order of the Commission, the three proceedings were consolidated for purposes of hearing. At the conclusion of extended hearings, the Commission found that the revenues and costs of the companies for 1939 were fairly representative of the relationship which would exist between such items in the immediate future, and that use of the figures for that year resolved most of the doubts as to future operating conditions in favor of the companies. Using the figures for 1939, the Commission determined that the rates and charges of Canadian for gas sold to Colorado and Clayton Gas Company were unjust and unreasonable to the extent of $561,000 annually; that the rates and charges of Colorado were unjust and unreasonable in the amount of $2,065,000 annually; and that the rates of Wyoming were unjust and unreasonable in the sum of $119,000. The Commission ordered the companies to reduce their rates and charges by not less than such amounts, respectively, and directed that schedules of rates be filed effecting the reductions. The companies applied for a rehearing; the Commission denied the applications; and the companies severally sought review.

Southwestern Development Company, through its wholly owned subsidiary, Amarillo Oil Company, owned gas leaseholds in more than 315,000 acres of land

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in the Texas Panhandle Field; Cities Service Company, through its wholly owned subsidiary, Public Service Company, at Denver, Colorado, and its wholly owned subsidiary, Pueblo Gas and Fuel Company, at Pueblo, Colorado, controlled the resale market for gas in the two cities, but did not have an adequate supply of natural gas or pipeline facilities for the transportation of natural gas to such cities. After extended negotiations, Southwestern, Cities Service, and Standard Oil Company of New Jersey, entered into an agreement denominated "Memorandum of Stipulations", and dated April 5, 1927. The primary objectives of the contracting parties, as expressed in the agreement, were the acquisition of natural gas properties in the gas field, the construction of a pipeline from the field to the City of Denver via Pueblo and Colorado Springs, the sale and delivery of natural gas at the city gate of Denver and other cities for distribution in such cities, and the supplying of natural gas to Colorado Fuel and Iron Corporation at Pueblo. Under the terms of the contract, Southwestern was to cause to be transferred to a new wholly owned subsidiary the leaseholds and gas producing properties, and to develop such properties into a source of supply of natural gas; Standard was to cause a corporation to be formed which would construct and maintain a natural gas pipeline and appurtenant facilities for the transmission and sale of gas; and Cities Service, through its subsidiaries, was to obtain franchises and rate ordinances in Denver and Pueblo, respectively, for the sale of natural gas, and convert the artificial gas distribution plants then in use in such cities into natural gas distribution plants. The newly formed subsidiary of Southwestern was to sell at cost gas to the pipeline company; and, with provisions for revision which need not be detailed, the pipeline company was to sell and make delivery at the city gate at the rate of forty cents per thousand cubic feet. The producing company and the pipeline company, and the pipeline company and the distributing companies, were to enter into contracts carrying out the commitments made in the Memorandum of Stipulations; and such contracts were to be for a term of twenty years from and after the execution of the first thereof, and as long thereafter as natural gas might be profitably sold by the pipeline company. The contract further provided that in case an acceptable rate ordinance should not be secured in the City of Denver, on or before July 1, 1927, the parties thereto, or any of them, might terminate participation therein, and each thereupon be free to act as though such stipulations and any agreements thereunder had never been made

Franchises and rate ordinances were obtained in Denver and Pueblo; Canadian was incorporated as the subsidiary of Southwestern; and Standard caused Colorado to come into existence. Canadian and Colorado, Colorado and Public Service Company, and Colorado and Pueblo Gas and Fuel Company, respectively, entered into contracts as provided in the Memorandum of Stipulations; and by contractual arrangements, Colorado obligated itself to sell natural gas to the City of Colorado Springs for distribution by the city in its municipally owned distribution system and for sale to industrial and commercial consumers. Southwestern caused Amarillo Oil Company to convey the leases to Canadian. Canadian paid Amarillo Oil Company the sum of $5,000,000 for the leases and the then producing wells. South-western and Standard had agreed upon that amount, and it was paid with funds furnished by Standard. Canadian was financed through the issuance of bonds in the amount of $11,000,000, all of which were purchased by Colorado with funds furnished by Standard. Colorado issued 1,250,000 shares of common stock without par value, of which forty-two and one-half per cent was issued to Southwestern, forty-two and one-half per cent to Standard, and fifteen per cent to Cities Service; and it issued preferred stock valued at $2,000,000, one-half to Standard and one-half to Southwestern. Standard paid Colorado $1,000,000 in cash for the common stock issued to it and a like sum for its preferred stock. No cash consideration was paid for the stock issued to Southwestern or Cities Service. Colorado issued bonds in the amount of $19,200,000. These were sold to Standard for cash at par, and the proceeds, along with the cash which Standard paid for the stock issued by Colorado, aggregating $21,200,000, was used to finance the project. Canadian developed the leaseholds, and constructed a main transmission pipeline from the field to Clayton Junction in New Mexico, a distance of approximately 86 miles; and Colorado constructed a main transmission line from Clayton Junction to the city gate

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at Denver, a distance approximating 254 miles, three compressors, and various laterals extending from the main line to customers of the company, including a lateral to the plant of Colorado Fuel and Iron Corporation. On December 31, 1939, Canadian had in operation a total of 94 gas wells; and its gathering system consists of about 144 miles of pipe, and has two terminals. One terminal is located at the Bivins Station where the gas there gathered is compressed and then transmitted through the transmission line to Clayton Junction where virtually all of it is sold to Colorado but a small amount is sold to Clayton Gas Company. The other terminal is located at Fritch Station where the gas there gathered is compressed and then transported through the facilities of Texoma Natural Gas Company to Gray Junction, in Oklahoma, where it is sold to Colorado. Colorado sells that gas to Natural Gas Pipeline Company, and it moves to its destination, known as the Chicago market

The facilities of Wyoming consist of a main transmission pipe line extending from a point near Littleton, Colorado, to the city gate at Cheyenne, Wyoming, compressor...