Texas Gas Transmission Corp. v. FEDERAL POWER COM'N, 19901

• Decision Date: 13 April 1971
• Docket Number: 20523.,No. 19901,19901
• Citation: 441 F.2d 1392
• Parties: TEXAS GAS TRANSMISSION CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. TEXAS GAS TRANSMISSION CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. Memphis Light, Gas and Water Division, Memphis, Intervenor.
• Court: U.S. Court of Appeals — Sixth Circuit

441 F.2d 1392 (1971)

TEXAS GAS TRANSMISSION CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

TEXAS GAS TRANSMISSION CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

Memphis Light, Gas and Water Division, Memphis, Intervenor.

Nos. 19901, 20523.

United States Court of Appeals, Sixth Circuit.

April 13, 1971.

George J. Meiburger, Washington, D. C., for petitioner; Gallagher, Connor & Boland, Washington, D. C., on brief; Christopher T. Boland, Gallagher, Connor & Boland, Washington, D. C., Robert O. Hock, Gen. Counsel, Steve H. Finch, Asst. Gen. Counsel, Texas Gas Transmission Corp., Owensboro, Ky., of counsel.

Peter H. Schiff, Sol., F. P. C., Washington, D. C., for respondent; Gordon Gooch, Gen. Counsel, Abraham R. Spalter, Asst. Gen. Counsel, David P. Stover, Atty., F. P. C., Washington, D. C., on brief.

Reuben Goldberg, Leo J. Steffen, Jr., Washington, D. C., George E. Morrow, Memphis, Tenn., on brief for intervenor.

Before CELEBREZZE and McCREE, Circuit Judges, and CECIL, Senior Circuit Judge.

McCREE, Circuit Judge.

Texas Gas Transmission Corporation petitions for review of two orders of the Federal Power Commission requiring it to remit (or flow through) to its customers certain refunds which it is entitled to receive from its suppliers. The amount at issue in Case No. 19901 is approximately $3,400, and the amount in Case No. 20523, in which the Light, Gas and Water Division of the City of Memphis, a customer of Texas Gas, has filed a brief as intervenor, is in excess of $1,000,000. At the suggestion of the court, the parties agreed to a consolidation of the two appeals, and it was stipulated that the controlling issues of law are identical.

The Natural Gas Act provides, in pertinent part:

Where increased rates or charges are thus made effective temporarily, pending approval of the Commission, the Commission may, by order, require the natural-gas pipeline company to furnish a bond, to be approved by the Commission, to refund any amounts ordered by the Commission, to keep accurate accounts in detail of all amounts received by reason of such increase, specifying by whom and in whose behalf such amounts were paid, and, upon completion of the hearing and decision, to order such natural-gas company to refund, with interest, the portion of such increased rates or charges by its decision found not justified.

§ 4(e), 15 U.S.C. § 717c(e). For many years the Commission used this statutory authority merely to require gas producers to pass along refunds to their immediate customers, with no assurance that these economic benefits would be transmitted to the ultimate consumers of natural gas. In 1963, the Commission announced a change in this policy. Hence-forward, it said, suppliers owing refunds because of the disallowance of rate increases should retain those funds pending the Commission's determination of whether they should be passed along further (i. e., flowed through) to the supplier's jurisdictional customers (jurisdictional customers are those over which the FPC has jurisdiction). Hunt Oil Co., 30 F.P.C. 220, 222-23 (1963). The first major test of this policy was the Texas Eastern case, see 34 F.P.C. 1099 (1965), where the Commission's new policy was upheld in a case involving $10,000,000 in refunds. Texas Eastern Transmission Corp. v. FPC, 39 F.P. C. 630 (1968), aff'd, 414 F.2d 344 (5th Cir. 1969), cert. denied, 398 U.S. 928, 90 S.Ct. 1817, 26 L.Ed.2d 89 (1970).

The general policy approved was that suppliers entitled to refunds must flow them through to their customers, whether or not the supplier had filed a tracking increase (i. e., had raised its rates in response to the rise in its prices represented by the later-disallowed rate increase). The Commission's rationale was this: if a tracking increase had been obtained, then the refund would be a windfall to the supplier unless flowed through to the customer whose rates had been increased. If the supplier had sought no tracking increase, then, presumably, it had been obtaining a fair rate of return even with the increased cost. Accordingly, if such a supplier should be permitted to retain the refund, it would also result in a windfall. The Commission admitted that it was powerless to compel refunds to ultimate consumers, but promised to allow state regulatory authorities which have such powers to submit suggestions for procedures for withholding refunds from suppliers until they could assure that they would be flowed through to ultimate consumers. Hunt Oil Co., 30 F.P.C. 220, 223 (1963).

In the case before us, petitioner Texas Gas does not challenge the policy upheld by the Fifth Circuit in Texas Eastern, and we may accept that decision as settled law. It is Texas Gas' contention that the Texas Eastern rule does not govern its cases, because of a settlement agreement reached by the Commission and Texas Gas in the fall of 1966.

Settlement agreements are one of the means by which the Commission exercises its authority to regulate the power industry. Such agreements bind both parties — the Commission and the regulated entity — and thus allow both to avoid the delays and uncertainties of litigation. This particular settlement agreement was entered when Texas Gas filed a formal "stipulation as to rates" with the Commission on September 23, 1966, and the Commission issued an order on November 8, 1966, accepting that stipulation. The Commission, in its order, described the subject matter of the agreement as follows:

Texas Gas Transmission Company (Texas Gas) on September 23, 1966, filed Stipulation as to Rates and tendered for filing certain revised tariff sheets to its FPC Gas Tariff. Footnote omitted. This filing is a result of conferences with the Commission Staff concerning levels of its jurisdictional rates and flow-through of liberalized depreciation, in accordance with the principle established in Alabama-Tennessee Natural Gas Co., 31 FPC 208, aff\'d sub nom. Alabama-Tennessee Natural Gas Co. v. F.P.C., 359 F. 2d 318 (CA 5, 1966), cert. den. 385 U.S. 847, 87 S.Ct. 69, 17 L.Ed.2d 78 (October 10, 1966).

This filing reflects, primarily, a flow-through of the reduction in federal income taxes resulting from the utilization of the liberalized depreciation provisions of Section 167 of the Internal Revenue Code. It would make effective as of October 1, 1966, a decrease in Texas Gas\' jurisdictional rates for both sales and transportation of gas for others aggregating approximately $4,238,000, based on sales and transportation for the twelve months ended September 30, 1966.

The stipulation tendered by Texas Gas, and accepted by the Commission, provided for flow-through by Texas Gas to all its jurisdictional customers of "any refund * * * received by Texas Gas from any of its supplying companies relating to gas purchased during the period commencing January 1, 1963 and ending September 30, 1966 under contracts which were not covered by the refund provisions of Article VIII of Texas Gas' statement of proposed settlement in Docket No. RP61-15". The stipulation did not, however, apply to all refunds received by Texas Gas from its suppliers after October 1, 1966. Rather, it applied only to those refunds which resulted from "reduction in * * * its future rates to be charged or collected for natural gas sold to Texas Gas below the rates which were in effect on October 1, 1966".

Both Texas Gas and the Commission agree that the refunds in question here did not fall into either of the two categories specifically treated in the stipulation. They occurred as a result of reductions in suppliers' rates after October 1, 1966. And they did not reduce the...