Tennessee Gas Transmission Co. v. Federal Power Com'n, 18547 and 18597.

Citation293 F.2d 761
Decision Date05 October 1961
Docket NumberNo. 18547 and 18597.,18547 and 18597.
PartiesTENNESSEE GAS TRANSMISSION COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. MANUFACTURERS LIGHT AND HEAT COMPANY, Ohio Fuel Gas Company, and United Fuel Gas Company, Petitioners, v. FEDERAL POWER COMMISSION, Respondent.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Harry S. Littman, Dale A. Wright, Harold Talisman, Jack Werner, Washington, D. C., Wm. R. Brown, William C. Braden, Jr., Baker, Botts, Andrews & Shepherd, Houston, Tex., for Tennessee Gas Transmission Co.

Peter H. Schiff, Atty., Howard E. Wahrenbrock, Sol., John C. Mason, Gen. Counsel, Luke R. Lamb, Asst. Gen. Counsel, Washington, D. C., for Federal Power Comm.

Brooks E. Smith, James G. O'Neill, New York City and William C. Spence, Houston, Tex., for Manufacturers Light and Heat Co., Ohio Fuel Gas Co. and United Fuel Gas Co.

William Anderson, John P. Egan, Jr., Pittsburgh, Pa., of counsel for Manufacturers Light and Heat Co.

W. F. Laird, Ralph N. Mahaffey, Columbus, Ohio, of counsel, for Ohio Fuel Gas Co.

R. K. Talbott, Herbert W. Bryan, Charleston, W. Va., of counsel, for United Fuel Gas Co.

Robert E. Jamison, New Castle, Pa., for Intervenors Anchor Hocking Glass Corp., and others.

Herzel H. E. Plaine, Wash., D. C., David Stahl, City Sol., Pittsburgh, Pa., amicus curiae.

Before TUTTLE, Chief Judge, CAMERON and WISDOM, Circuit Judges.

TUTTLE, Chief Judge.

These two petitions for review of orders of the Federal Power Commission attack, from somewhat different points, interim orders finding a 6 1/8% rate of return just and reasonable, and putting said rate of return into effect before resolving other issues touching on the allocation of costs between different zones of operation of Tennessee Gas Transmission Company. Generally the name "Tennessee" will be used interchangeably with petitioner, and the name "Columbia Companies" will be reserved to discuss the petition of Manufacturers Light and Heat Company, The Ohio Fuel Gas Company and United Fuel Gas Company.

The history of the proceedings leading up to the orders complained of is taken almost completely from the statement in petitioner's brief. In using such statement we have, however, eliminated some expressions of opinion and explanatory statements:

Tennessee owns and operates a natural gas pipeline system extending in a north-easterly direction from its sources of supply in Texas and Louisiana through the States of Texas, Louisiana, Arkansas, Mississippi, Alabama, Tennessee, Kentucky, West Virginia, Ohio, Pennsylvania, New Jersey, New York, Massachusetts, New Hampshire, Rhode Island and Connecticut. The rates charged by Tennessee for the transportation of natural gas and sales for resale of natural gas in interstate commerce are subject to the jurisdiction of the Commission under the Natural Gas Act (15 U.S.C.A. §§ 717-717w).

On October 5, 1959, Tennessee filed with the Commission, pursuant to Section 4(d) of the Natural Gas Act, schedules of rate changes designed to recover the increased cost of providing natural gas service. These schedules set forth the respective rates proposed by Tennessee for each type of service in each rate zone on the Tennessee system. The Tennessee system is divided into six rate zones, with rates differing among the zones to give effect to distance, as well as other factors.

By order issued November 4, 1959, the Commission ordered a hearing to determine the "lawfulness" of the rates which had been filed. Following a five-month period of suspension, the rates became effective April 5, 1960, subject to an undertaking by Tennessee, required by Commission order, to "refund at such times and in such manner as may be required by final order of the Commission, the portion of the increased rates found by the Commission in this proceeding not justified, together with interest thereon at the rate of 7 percent per annum."

Hearings commenced on February 2, 1960, and continued intermittently until recessed on May 25, 1960. During the course of the hearings, Commission Staff Counsel moved that the hearing be divided into two phases. He proposed that the first phase deal solely with the issue of rate of return, and the remaining issues be reserved for a later stage of the proceeding. Staff Counsel further proposed that upon completion of the first phase of the proceeding, the Examiner's decision be omitted; that the Commission issue a decision determining the fair rate of return for Tennessee; and that the Commission issue an interim order requiring Tennessee to reduce its rates and make refunds, in the event the Commission concluded that the fair rate of return is less than claimed by Tennessee.

When Staff Counsel made his motion, there was pending before the Commission, in another proceeding involving Tennessee (Docket No. G-11980), an issue as to the proper method of allocating Tennessee's cost of service among its six rate zones and various services. By order issued April 30, 1959, in Docket No. G-11980, the Commission ruled that determination of the allocation issue should be expedited and, to that end, severed that issue for separate and prior hearing and determination in that case. At the time Staff Counsel made his motion, the allocation issue had been thoroughly tried and briefed and was before the examiner for decision. Additionally, the Examiner in the instant proceeding had ruled that the determination of the allocation issue in Docket No. G-11980 would govern the method of allocating Tennessee's cost of service in this case.

Since it contended that determination of the allocation issue was required in order to translate the cost of service into rates for the various zones and services, Tennessee filed a memorandum opposing the Staff's motion for an interim order on the ground, inter alia, that such order would be illegal unless the Commission simultaneously determined the allocation issue. On July 19, 1960, Tennessee filed a motion with the Commission requesting it to determine the allocation issue simultaneously with the issue of rate of return. By order issued August 5, 1960, the Commission denied Tennessee's motion.

On August 9, 1960, the Commission issued its order, herein sought to be reviewed, adopting the Staff's interim order procedure. As stated above, by such order the Commission disallowed Tennessee's claim for a 7 percent return, fixed a 6 1/8 percent rate of return, required Tennessee to file reduced rates retroactively to April 5, 1960, and required Tennessee to make refunds for the differences in rates collected since April 5, 1960. The Commission's order did not, however, make any determination as to the proper method of cost allocation which should be employed in allocating the reduced cost of service among the six rate zones on the Tennessee system. Nor did the Commission make a determination as to which of the various rates filed by Tennessee were unlawful, which rates should properly be reduced, or to whom refunds were lawfully due. Instead, the Commission left these questions open for later determination.

On August 29, 1960, Tennessee filed its application for rehearing which the Commission denied by its order issued September 27, 1960. On October 3, 1960, Tennessee filed its petition to review with this Court and simultaneously filed a motion for stay of the Commission's order. On October 28, 1960, this Court, with one Judge dissenting, denied the motion for stay.

Although Tennessee summarizes its extended specifications of error by placing them in five numbered paragraphs,1 we discuss them under two headings:

(1) The rate of 6 1/8 percent was based on findings "unsupported by substantial evidence and is unreasonably low."

(2) The Commission erred in putting a rate less than 7 percent into effect by an interim order prior to determining whether the cost allocations between the six zones were lawful.

Considering first the 6 1/8 percent rate, we find that the Commission had before it a full record disclosing sufficient economic factors to permit it to determine what was a just and reasonable return. Both Tennessee and the Commission recognize that the standard and principles to be observed in testing the correctness of the Commission's findings are to be found in the two cases: Bluefield Waterworks & Improvement Co. v. Public Service Commission of State of W. Virginia, 262 U.S. 679, 692, 43 S.Ct. 675, 67 L.Ed. 1176, and Federal Power Commission v. Hope Natural Gas Company, 320 U.S. 591, 64 S.Ct. 281, 288, 88 L.Ed. 333.

The petitioner greatly stresses the following language from the Hope case:

"* * * the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital. * * *"

Although the Commission does not counter by emphasizing any particular language of the opinion, we cannot overlook the following:

"* * * It is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end. The fact that the method employed to reach that result may contain infirmities is not then important. Moreover, the Commission\'s order does not become suspect by reason of the fact that it is challenged. It is the product of expert judgment which carries a presumption of validity. And he who would upset the rate order under the Act carries the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences. Cf. Railroad Commission of Louisiana v. Cumberland Tel. & T. Co., 212 U.S. 414 29 S.Ct. 357, 53 L.Ed. 577; Lindheimer v. Illinois Bell Tel. Co., supra, 292 U.S. 151, at pages 164, 169 54 S.Ct. 658, at pages 663, 665, 78 L.Ed. 1182; Railroad
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