*1 ordered, is so $21,000, viz. shrouded doubt that further findings necessary. by the Commission are affirm
Accordingly, judgment below insofar as directing the order of the petitioner sustained $98,000. its rates As to the balance of reduce aside judgment below, rate we reverse the set reduction, Commission, remand the cause the order of the conformity opinion. with this proceedings further (b). See 19§
It so ordered. Roberts, Mr. Justice, Justice Mr. Justice Chief of the opinion are Frankfurter Reed, and Mr. Justice to the Commission case be remanded that the should cost be- operating allocation of invеstment separate well regulable nonregulable properties, tween in the findings opinion. directed as for the clarification in Colorado the deliveries to wholesalers They agree that interstate commerce. et al. LINE CO. PIPE v. PANHANDLE EASTERN et al. COMMISSION POWER FEDERAL 2, 1945. April January 29, 1946. Argued No. 296. Decided *2 Lloyd Messrs. Ira Letts and John 8. L. Yost, with whom Messrs. D. II. Culton and Samuel Riggs H. were on the brief, petitioners. for
Messrs. Chester T. Lane and Charles Shannon, V. with whom Solicitor General Fahy, Assistant Attorney General Shea, Paul Sweeney, Messrs. A. Harry Littman, S. Stanley M. Morley, William Dowling, E. Lee, James H. Harold Goodman, Rushton, Herbert J. Attorney General, Williams, James W. Assistant Attorney General, Michi- gan, were on the brief, respondents. Douglas opinion delivered
Me. Justice Court. will call (whom Line Pipe
Panhandle Eastern
Co.
Eastern)
Panhandle
owns
which constitute
marketing
gas production,
transportation,
natural
Texas,
system.1
system
extends from
fields
Indiana
through Missouri, Illinois,
Oklahoma and Kansas
Michigan.2 The-City
and Ohio and into
of Detroit
filed
with
County Wayne, Michigan,
complaint
Panhandle
alleging
the Federal Power Commission
distributing company
on gas
Eastern’s rates
sold to a
Michigan
unjust
there
and unreasonable.
resale
were
an investi-
The Commission on
own motiоn instituted
*3
gation
1938,
821,15
Act
52 Stat.
under
Natural Gas
of
717,
of
U. S.
of all of the interstate wholesale rates
§C.
hearings the
Following
Eastern.3
extended
Panhandle
review,
order,
entered
interim
here under
an
ex-
finding petitioner’s interstate wholesale rates to be
reduce them on and
requiring petitioner
cessive and
reflect,
1, 1942,
applied
after November
as to
when
sales,
1941
a reduction
petitioner’s
transportation and
1941 con-
15,094,384 per
than
annum below the
less
See
gross operating
$17,789,573.
solidated
revenues of
by
affirmed
(N. S.) 203,
P. U. R.
223. That order was
45
1
Michigan
petitioners,
Natural Gas Co.
Gas
The other
Illinois
Corp.,
wholly
of Panhandle
were
owned subsidiaries
Transmission
They
their
to Panhandle Eastern
Eastern.
sold all of
instituted
were then dissolved.
proceedings were
Ac
after these
throughout
companies
three
cordingly, we will refer
to the
“petitioner.”
2
aggregate
system
in
found that
lines
this
The Commission
longest natural-gas
world, serving
pipe line
constitute “the
700,000
cities, towns,
communities with more than
more than 200
Kansas, Missouri, Illinois, Indiana, Michi
Texas,
customers in
retail
S.)
gan,
(N.
203, 208.
and Ohio.” 45 P.
R.U.
3
investigation
Illinois Natural Gas Co. and
The
also included
1, supra.
Michigan
Corp.
Gas Transmission
note
See
Appeals
the Circuit Court of
Eighth
Circuit, one
dissenting
part.
judge
“Any party to- a proceeding under chapter аg- this grieved by order by an issued the Commission in such obtain proceeding may a review of such order the cir- appeals cuit court of of the United States for circuit natural-gas wherein the company to which the order re- lates located or has its principal place business, inor the United Court of Appeals States for the District of . . .” Columbia petition for review that petitioner stated had its
principal place City, Kansas Missouri. That was not denied the Commission and at no time judgment prior affirming the Com- entry mission’s order was the of the Circuit Court challеnged. judgment Appeals After affirmance *4 entered, had however, City been the of Cleveland filed in Appeals motion the Circuit Court of for leave inter- to challenged jurisdiction vene and the of that court on the ground petitioner did not have principal place objection in of business that circuit. The same pressed is here. objection
If court, the is to the of the it does come too late. Industrial Addition Assn. v. Commis- sioner, 323 U. But goes venue, S. 310. we think it to not to jurisdiction. We (b) § read all invest intermediate federal with courts the power to review orders of the Commission, provided, however, that if a Circuit of Court Appeals of for the District rather than the Court Appeals, the object that chosen, parties may Columbia, of is Venue specified qualifications. circuit lacks the particular Neirbo v. litigants. Co. convenience of relates to the Bethlehem, 19§of Corp., provisions 165. The 308 U. S. in the Court that character. are of Review (b) plainly where Com for the District of Columbia Appeals of jts gen and hold its office principal mission must maintain convenient (46 792) C. 797,16 § eral sessions Stat. U. S. where the any circuit for thе Commission. Review principal place has its gas company is located or natural designed the convenience of business is to serve in 19 authority (b) to general grant § The of company. appeal suggests question all courts particular case is a power one should exercise objected at respondents of venue. None of the question right time venue of the court below. The may proper case heard the court of venue be have a Industrial Addition seasonably unless asserted. lost Commissioner, supra. may by any It waived Assn. v. gоvernment. Peoria & P. U. R. Co. including party, States, Industrial Addi 528, 535-536; 263 U. v. United S. objection Commissioner, supra. tion Assn. v. had judgment which came after been
City Cleveland, too late. Cf. United States v. rendered, came California need not decide Canneries, Hence, 556. 553, 279 U. S. brought proper in the circuit. was suit whether Unregulated Busi- Regulated Segregation of as Eastern makes industrial nesses. Panhandle for resale. The distributing companies as sales well separation segregation no made Nor did classes of business. these two used un- regulated and costs between make an allocation in Colorado it did of the business regulated phases Commission, Cana- Federal Power Co. Interstate Gas v. Commission, and Col- Federal Power v. River Gas Co. dian Commission, Power Federal Gas Co. v. orado-Wyoming *5 ante, 581, pp. 626. The reasons which the Commission ad- any for its failure to vanced make allocation are crucial so disposition quote case that from the opinion:
“Upon the record before we consider it us, unnecessary make respondents’ an allocation of the business as be- tween sales resale and direct sales. The direct sales are made to nineteen industrial customers on an inter- ruptible prices competition basis at fixed with other fuels.
“According respondents’ evidence, own capacity no ever provided has been constructed or in their gas plant equally these direct industrial customers. It is clear that deliveries are made to them only when there is avail- off-peak not capacity required by able excess the other fact, wholesale customers. As evidence of this in 1941 the volume of to the direct sold industrial customers amounted to 13.2 cent of the system total sales, peak system day whereas on the of the 1941-1942 winter the direct industrial sales constituted only 2.69 per cent deliveries, interruptions of the total due to and curtail- brought ments necessity about for meeting the requirements. customer wholesale “Testimony respondents’ witnesses discloses only $128,848 the entire investment in plant than (less cent) of one is used exclusively one-sixth the serv- Moreover, industrials. the respondents ice treat their entire themselves business as unit and make segregation of on their profits no costs books between Indeed, the two Panhandle classes of sales. Eastern’s on president quite clearly testified cross-examination that ‘theoretical,’ attempt to allocate would be ‘unrealistic,’ practical’ and ‘not unified character of because of the business. only made
“Deliveries to the direct industrials are when plant serving requirements used in fully *6 business, interrupted the are curtailed or wholesale required the capacity when is the wholesale customers. It apparent that the incidental direct industrial business reality by-product is in of the business, wholesale com- рarable respondents’ gasoline extraction business. parties expenses All are the agreed that and revenues in gasoline connection with the sale of extracted from the gas natural should be treated an integral part of the operations. entire respondents’ Thus, it is manifest from the evidence that the direct industrial sales are in- purely or principal cidental to the main enterprise, viz.: the respondents.” wholesale business of the 45 P. U. R. (N. S.) p. 218.
Petitioner contends that justify these reasons do not of the to make the failure Commission a fоrmal allocation property regulated either of or the the the costs between unregulated says It that the direct business. sales beyond are of the Commission even though comparatively It that the they are small. asserts interruptible that are on an basis fact merely relatively small amount emphasizes to operation attributable such cost of construction and right to statutory have It that no waiver says sales. inferred and can be regulation from free direct sales jurisdiction cannot Commission’s event the Commis- it contends And by waiver. enlarged is “in business industrial the direct finding that sion’s sup- business” is wholesale of the reality by-product in fact. in reason or ported separation amake must Commission agree that the
We fixes when business unregulated regulated and of the activi- whose company of a rates wholesale interstate losses, as the profits Otherwise both. embrace ties be as- would business unregulated be, may case Commission and the regulated signed transgress jurisdictional Congress would lines which recognizes Act.4 The this wrote into the Co., Service necessity. it stated Re Cities Cas As S.) 65, P. 89: (N. company’s U. R. “The facilities in рart to natural service which operations devoted jurisdiction. our This subject is not service consists directly large gas sales made industrial principally of making necessity arises, therefore, consumers. jurisdictional an costs as between the allocation of *7 non-jurisdictional question sales.” The is whether exceptional formal necessary allocation was under cir- case. cumstances of this question narrowly
We state the that because the dis- pute rejection by not a this case reflects Commis- disagreement of sion of the allоcation but principle over procedure here. propriety of followed allocate the Commission did was to to the What inter- earnings business all state wholesale from the en- tire in excess of a cent return. business Insofar 6% that allocated to interstate procedure as wholesale any earnings from the direct industrial cent, to justified excess of is said be by 6% use which the direct industrial business made of the main line and its If transmission facilities. that unfair, was the order set aside. If fair, must be it was no reversible error is shown.
A petitioner witness at for testified the hearing that under allocation petitioner’s the unregulated costs busi- (b) provides:
4 Sec.1 provisions chapter “The apply this transportation, shall to the gas of natural commerce, in interstate the sale in to interstate com- gas for public merce of natural resale for ultimate consumption domestic, commercial, industrial, any use, or other and to natural- gas companies engaged transportation in such sale, or but shall not apply any transportation to other gas sale of natural or or to the local natural distribution or to the facilities used for such dis- production gathering tribution or to the gas.” natural any the company the use of facilities of without ness has against charge be a He testified that there should charge. An- property. for the use of that unregulated business did company petitioner stated other witness un- regulated and make allocation between jointly used is, allocation of business —“that regulated charged be what would determining assets” —in say so may heresy “It stated, He unregulated sales. nonregulated all customers charge our try but we company bear.” It wаs conceded traffic will in the conduct of its business. no allocation attempts petitioner’s And one of a unit. operated business is as officers testified: return, between allocate
“Q. is, any attempt That that what unregulated business: is regulated business and you meant was unrealistic? to allo- going If you
“A. That is correct ... it on the basis you allocate theoretically cate it should to each part incident expenses and the the investment the business. theoretical?
“Q. But it is
“A. That is correct. practical? And not
“Q. trying say.” I am That what “A. is showing that evidence test presented Petitioner revenues, $16,289,045, total оr of its 91.57 cent year cent, wholesale and 8.43 from its received was from its direct industrial sales. received $1,500,527, was showing operating study expenses total It presented including federal income taxes and $7,900,000 (not about industrial $499,699 to the direct assigning return) in- $1,000,828 before apparent profit of Thus an sales. industrial sales. But direct taxes was shown .the come depreciation the annual any did allocate study ($2,238,589) line main transmission expense ad taxes $633,270 Of the valorem industrial sales. lines, only $1,738 on transmission applicable to the later- exclusively als used for direct industrial salеs were allo- cated to them. None of main transmission line oper- ating charged and maintenance costs was to the direct industrial sales. recognized
Petitioner the unfairness of attributing to the direct industrial sales all of the apparent profit of $1,000,828. One of petitioner’s witness testified:
“Q. any Is there engineering basis for a division, from an engineering standpoint? engineering
“A. Not as an matter. I do not know of matter, basis. As a business I think there are ways in which it could be fairly decided. I think requires judgment some based upon business experience to make a fair allocation of it but there is a little over a million dol- lars, some of which portion could, all fairness, be set charge against operations aside as a on the non-regulated against operations sales and a credit on the regulated sales.”
He went on to indicate thought what he a fair allocation would be: my opinion
“A. It is that that $1,000,828.98 should be fifty-fifty. divided
“Q. Why? just my judgment as “A. It is a businessman that that would be fair allocation of it. fifty-fifty regulated as between mean
“Q. You non- business? regulated think correct. I that would be a fair
“A. That is allo- cation. judgment
“Q. estimate, That is a business not a mathe- estimate? matical In right. way, That non-regulated
“A. this *9 business has contributed half a million year dollars a the reduction in cost regulated towards of the business I think something, do not if it does not contribute having the business.” justification for there is that to find the Commission requested Petitioner for its direct industrial sales capacity had built no in and that it was reasonable were “incremental” nature earnings nonregu- net from to allocate “50 cent of the sales, earnings regulated a credit to net from lated sales as for the use of such facilities compensation temporary in regulated used from time to time for sales but provided nonregulated direct, interruptible, for transporting regulated for Petitioner sales, required when not sales.” requested the Commission to make that it also asserts in the two segregation of the used classes in the however, was included request, business. No such rehearing. stage petitioner At that for petition (1) taking in merely that the Commission erred asserted from the direct industrial into consider- proceeds sales in determining profits the amount of its ation reasonably ordering reduction; (2) failing the rate earnings regulated between petitiоner’s allocate precludes sales. That an unregulated attack the Commission’s order for failure to make a courts on For segregation property. (b) provides Act § objection that “No order of the Commission shall objection considered court unless such shall urged applica- before the Commission have been there rehearing ground unless is reasonable tion failure to do.” No such excuse has been tendered. so say facts we cannot
On these transgressed jurisdictional requirements of the Act it failed to make a formal allоcation of costs or of when agreed All that an allocation on the basis of property. All impractical. agreed costs would be investment apparent profit from the direct division that some All be made. agreed had to industrial judgment, matter of not mathematics. was a division fair *10 646 by in petitioner,
In those concessions the manner view of business, its its failure to insist on a it conducted which rehearing, its property petition in segregation reflected keep segre- failure to accounts which its own an allocation of gation among or costs business, classes of we do think can now be the two forsaking in that the Commission erred asserted formula judgment informed using instead. imply do not mean to that We such concessions would departure warrant a of the Commission from the statutory regulation. scheme The issue is a much narrower one. The Commission did not fix undertake to industrial rates. Commission, duty, merely was its determined what earnings were properly unregulated allocable to the busi- disagrees ness. Petitioner with the result. The use of a formula an segregation allocation of costs or a prop- erty might might or not have bеen peti- more favorable to tioner. But once the use of such a formula is waived or is conceded to impractical or theoretical, there must be some discretion the Commission to make that determi- nation through the exercise of judgment. its informed say We cannot that the Commission abused its discretion by concluding on the special basis circumstances presented here that earnings of the entire ex- 6y2 cess of a cent return should be allocated to the interstate wholesale business. The small investment the direct industrial business, the incrеmental it, nature of the extent interruptions in service to the in- customers, dustrial the manner in which the management has treated it afford a basis for the refusal of the Commis- sion to credit it larger with a share of the earnings than per cent. 6%
The Commission, while it fix authority lacks rates for direct industrial sales, may take those rates into considera- tion when it fixes the rates for interstate wholesale sales subject jurisdiction. to its Eor (a) provides § whenever the Commission find any rate, “shall observed, charge, demanded, charged, or classification or any natural-gas company collected connection with any subject transportation gas, or sale of natural Commission, rule, regula- or that rate, charge, tion, or practice, affecting contract such *11 unreasonable, unjust, unduly is discrimina- classification tory, preferential, the Commission shall determine or just (Italics added.) It clear that and reasonable rate.” covering direct industrial sales come contracts within (a).5 of industrial in force § italicized clause 5 rates $1,500,527 with of produce expenses here revenues of earnings result in $499,699 which, according petitioner, apparent of income taxes. That is an $1,000,828 before than in- fairly more 200 cent. It is a obvious profit per of regulated being that the business is saddled with dication in which direct indus- costs fairness should be borne That relevant consideration extremely trial sales. is an when it deter- for the to take into account Commission what costs attributable to each business fairly mines rate for wholesale and what resultant business (a) give does not course the Com- should be. Sec. 5 disregard jurisdictional lines authority mission interstate Congress which has drawn between wholesalе profits direct sales to level the industrial so as sales rein- (a) the two But 5§ between classes business. exceptional that in the circumstances our conclusion forces limits did not exceed the case Commission this regulated when it allocated to the discretion 5 only Commission not schedules must be filed with the There classifi but “the subject to the of the Commission rates charges, affecting regulations such rates and cations, practices, and relate in together which manner affect with contracts all (c). By classifications, Rule charges, rates, services.” such § filing all requires the with it of contracts 54.30 100,000 Mcf involving in excess industrial sales year. Reg. Fed. 16101. 8See
all earnings excess of the entire business over 6% cent.
Producing and Gathering Facilities. The Commission constructed rate base legitimate on the actual cost of petitioner’s property service on December 31, 1941, which it $78,814,292. found to be It $12,696,987 deducted for accrued depletion depreciation, and amortization. It $920,000 added working capital. The result was a $67,137,305 rate base of on which the Commission allowed a return of 6y2 per cent which it found to be “fair and liberal.” It included the rate base petitioner’s producing pr operties6 and gathering facilities. Petitioner claims It was error. contends that it was incumbent on the Commission to determine the price field or actual field of natural value petitioner areas produces gas, petitioner’s to eliminate leaseholds and pro ducing gathering facilities from the rate base, to dis expenses allow of gathering production, and to allow *12 petitioner an expense as item the field price or actual field gas produced by value for all it and taken into the pipe system. line Evidence was offered to show what the mar ket or actual field price value of the gas was. The argu procedure ment is that followed by the Commission its extends over “the production or gathering gas” natural contrary to the mandate 1 (b) §of 7 Peti suggests moreover tioner if its leaseholds are to be- included in the rate base they should' not be included at petitioner cost but at what claims to be the market value.8 6 produces approximately Petitioner 50 gas cent of the which it
transports sells, being рurchased. remainder payments The gas purchased by were allowed the Commission as an operating expense. 7 supra. 4, See note alleged
8 The market $8,400,000 value is to be about as compared $955,000 with some which the Commission found to be the actual legitimate cost. River by
This
case is controlled
Canadian
phase
Commission,
need
supra.
Gas
Federal Power
Co. v.
We
that the value
what we said there.
It is clear
repeat
is affected
properties
gathering
facilities
producing
inevitably
That
true whether
whenever rates
fixed.
is
whether as
into the rate base or
put
the leaseholds are
commodity. That
urges
gas
valued as a
petitioner
is
Congress
a floor under
puts
result is not avoided unless
of natural
gathering
facilities
production properties
them. That
and fixes minimum return on
companies
Judge
Congress
aptly
has not done. As
Sanborn
stated
“If
Appeals:
Circuit Court of
there
opinion
infirmity
the Commission's determination of
is an
included
the rate base
amount which should be
facilities,
think the infirmity
of such
arises
cost or value
making
valuation,
method used in
and not
from the
Federal Power v. Gas holds that the Commission is not bound 591, 320 U. S. single fixing formula for of rates. It is not use legitimate using from actual cost as it did here. precluded on review is not the method of valuation question but end result obtained since the was used issue “just fixed is and reasonable.” the rаte 5.§ whether *13 cent return allowed per case the the present In the 6% $4,363,925 to earn an- permit petitioner will Commission meeting test after all year nually op- on the basis include depreciation, exploratory erating expenses costs, and federal income taxes. The development long-term $957,786 debt is servicing petitioner’s of cost 650 requirements The cost of of meeting cent. per
2.88 $939,000' per stock is or 5.8 cent. That the preferred $20,184,175 $2,467,139 for of common stock —a leaves 12 cent. The return would be 9 per per return cent common figured surрlus on the basis stock to say We are unable on these $27,650,000. undisputed with the return is commensurate risks, facts that integrity financial petitioner’s that confidence has been ability or that to impaired, petitioner’s attract capital, to credit, operate successfully maintain and effi- has Federal Power ciently impeded.9 been See Commis- Co., Hope supra, sion Natural Gas p. v. 603.
Affirmed. Stone, Mr. Justice concurring. Chief Roberts, Reed, Mr. Justice Justice Justice Mr. Mr. I following only. Frankfurter for the reasons concur objections did not application Petitionеrs raise their rehearing of their to the inclusion 9 phase The Commissionstated on this of the ease: respondents’ excep- evidence discloses business is “The that tionally supply free from serious business gas hazards. The is assured thirty thirty-five years. ample least have at more made We provision depreciation in the annual allowance for the restoration of capital property investment over claimed fife respondents’ gas supply. rapidly expanding markets are and em- large metropolitan Detroit, brace the areа which alone takes output long-term cent the entire under contract. Panhandle president great Eastern’s testified that the demand for service is so year respondents upon within the next will called be to sell possibly through every cubic foot of delivered lines, can capacity factor will increase from and that cent to 90 per cent. apparent respondents’ is likewise from
“It own evidence that Pan- capital Eastern has been able to raise considerable handle at low cost. recently completed Only financing program successfully at remark- ably rates which a substantial low resulted in reduction its annual *14 gathering rate By facilities base. producing objection Gas Act to the order (b) Natural “No 19§ be considered the court unless of the Commission shall urged have been before Commis- objection shall such rehearing unless there rea- for application sion reason appears to do.” No ground failure so sonable objection make on here to petitioners the failure of gathering production the inclusion of the rehearing to the rate base. facilities in $18,250,000 February, 1941, Eastern sold capital. In Panhandle
cost of serial notes $5,000,000 of mortgage lien bonds and and first of first February, 1942, per cent. In average interest cost of 2.74 annual at an mortgage at an interest $10,000,000 bonds of first additional it sold an cost of preferred stock at a $15,000,000 per cent cost of 3.13 cost financing, Eastern’s annual Panhandle After the per 5.86 cent. per cent, preferred was 5.87 per stock long-term 2.88 cent and debt was for these securities. only per cent annual cost of 3.85 combined on average 10.64 cent Eastern has an “Panhandle earned average Michigan an years, Gas past five over the net investment period.” 45 P. U. during approximately the same It. of 8.5 cent (N. S.) p. 215.