Michigan Wisconsin Pipe Line Co. v. FPC

• Decision Date: 17 February 1959
• Docket Number: No. 13451.,13451.
• Parties: MICHIGAN WISCONSIN PIPE LINE CO., Petitioner, v. FEDERAL POWER COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Sixth Circuit

263 F.2d 553 (1959)

MICHIGAN WISCONSIN PIPE LINE CO., Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

No. 13451.

United States Court of Appeals Sixth Circuit.

February 17, 1959.

Charles V. Shannon, Washington, D. C., Richard F. Generelly, May, Shannon & Morley, Washington, D. C., John Dern, Arthur R. Seder, Jr., Sidley, Austin, Burgess & Smith, Chicago, Ill., Wilber H. Mack, Detroit, Mich., on the brief, for petitioner.

Howard E. Wahrenbrock, Washington, D. C., Willard W. Gatchell, and Abraham R. Spalter, Washington, D. C., on the brief, for respondent.

Nathaniel H. Goldstick, and Robert Reese, Detroit, Mich., for City of Detroit, intervener-respondent.

Paul L. Adams, Samuel J. Torina, Robert A. Derengoski, Lansing, Mich., for Mich. Public Service Commission, intervener.

Before SIMONS and MILLER, Circuit Judges, and THORNTON, District Judge.

SHACKELFORD MILLER, Jr., Circuit Judge.

The petitioner, Michigan Wisconsin Pipe Line Co., proceeding under the provisions of Sec. 19(b) of the Natural Gas Act, seeks to review and set aside an order of the Federal Power Commission issued on October 15, 1957, by which the Commission disallowed in its entirety an increase in the rate which petitioner charged for natural gas during the period from April 1, 1955, to November 15, 1956, and required petitioner to refund the amount which it collected from its customers by reason of such increased rate. Sec. 717r(b), Title 15 U.S.C.A.

Petitioner owns and operates an interstate pipeline through which it transports natural gas from Hugoton Field in Texas, and sells such gas to utility customers for resale in numerous communities in Iowa, Missouri, Wisconsin and Michigan. As a part of its system, it operated four underground storage fields under lease from the Michigan Consolidated Gas Co. The rates which petitioner charges in selling gas in interstate commerce for resale are subject to regulation by the Commission under the Natural Gas Act. Sec. 717 through 717 w, Title 15 U.S.C.A.

On November 29, 1954, the Commission in proceedings designated as docket Nos. G-1678 and G-1996, entered an order by which it allowed petitioner a rate of 31.6 cents per Mcf. Mcf represents 1,000 cubic feet of natural gas. In making that determination, the Commission included in petitioner's cost of service the cost of gas purchased from Phillips Petroleum Co. After the allowance of this rate Phillips filed new rates with the Commission, effective February 1, 1955, which increased the cost of gas to petitioner by $1,522,721.00 per year. On January 25, 1955, the petitioner sought by the present proceeding to increase its rate from 31.6 cents to 32.98 cents per Mcf, which would yield additional revenues of some $1,526,207.00 per annum. In doing so, petitioner contended that the increase would not increase petitioner's earnings but would merely permit petitioner to recover from its customers the additional cost of gas which petitioner would have to pay Phillips commencing on February 1, 1955. By order of February 24, 1955, the Commission provided that a public hearing be held concerning the lawfulness of the proposed rate and suspended petitioner's rate filing until April 1, 1955. On petitioner's motion, filed March 30, 1955, pursuant to Sec. 4(e) of the Act, the proposed increased rate became effective, subject to petitioner's obligation to refund excess charges so collected, if the increased rate should be found invalid. Sec. 717c (e), Title 15 U.S.C.A.

On May 15, 1956, while hearings on the rate filing were in progress, petitioner filed a new rate of 35.75 cents per Mcf, primarily to reflect the increased cost of purchasing and marketing an additional supply of gas obtained from a new supplier, American Louisiana Pipe Line Co. This increase was also suspended by the Commission but subsequently became effective, subject to refund, on November 15, 1956. It is not involved in this proceeding. The 32.98 Mcf rate which is involved in the present proceeding was accordingly in effect for approximately only nineteen months, from April 1, 1955, to November 15, 1956. This period is referred to as the "impoundment period" and the rate of 32.98 cents as a "locked in" rate.

Hearings in the present proceeding were concluded on October 4, 1956. On March 20, 1957, the presiding Examiner rendered his finding that the increase in rates and charges for the period of April 1, 1955, to November 15, 1956, was unjust and unreasonable. He ruled that it should be disallowed and ordered a refund of the excess charges. Following exceptions and oral argument with respect thereto, the Commission on October 15, 1957, modified the Examiner's findings in certain particulars but affirmed his overall disallowance of petitioner's proposed increase from 31.6 cents to 32.98 cents per Mcf for the period involved. It is this ruling which petitioner seeks to review.

The permissible rate per Mcf of gas is determined by dividing the total annual cost of service, which includes the allowable return on investment, by the annual sales volume of the system. Accordingly, a utility's earnings are, to a large extent, determined by the volume of its sales. A low volume of sales during the period used as a test period would result in a high rate, while a high volume of sales in that period would result in a lower rate. In order for a just and reasonable rate to be determined, the volume of sales in a test period should be a normal volume, with particular factors leading to an abnormal result being eliminated. West Ohio Gas Co. v. Public Utilities Commission, 294 U.S. 79, 81-82, 55 S.Ct. 324, 79 L.Ed. 773; United Gas Public Service Co. v. State of Texas, 303 U.S. 123, 145, 58 S. Ct. 483, 82 L.Ed. 702.

Usually, where a rate filing is made, the Commission undertakes to establish a rate which it believes, by reason of records and estimates, constitutes a just and reasonable rate for the indefinite future. This process involves the use of the statistics of an actual period of twelve months with an estimate of expected sales and expenses for some months into the future. It is sought by this method to develop a statement of costs and revenues for a normal year from which a just and reasonable rate may be derived for future periods. In the present case, however, the rate to be allowed was not for the indefinite future. It applied only to the impoundment period. If the actual results of operation during such a limited and determinable period are known, it is possible to fix a rate for that period without resort to estimates and without concern for abnormal and non-recurring conditions. On the other hand, if the rate is to apply to the indefinite future, a test period is necessary as a basis for calculation with abnormal conditions eliminated by "normalizing adjustments."

In the present case the Examiner rejected the "actual results" approach because in his opinion he considered that the use of the figures for the year 1955 would be a better gauge of the business operations of the company than the use of the actual figures for the nineteen months period. The nineteen months impoundment period included two summers and only one winter, thus including only one strong revenue period (winter months) and two relatively strong cost periods (summer months). The Examiner, accordingly, used a twelve months test period, using the calendar year 1955 as this period. Although petitioner believes that the actual results method was the proper and better method to be used in this proceeding, it does not contend that the Commission erred in using the test period method, provided the test period method was properly applied to the facts of this case. This is the correct analysis of the question. The Commission is not...