Trunkline Gas Company v. Federal Power Commission

247 F.2d 159, 1957 U.S. App. LEXIS 4856
CourtCourt of Appeals for the Fifth Circuit
DecidedJuly 23, 1957
Docket16228_1
StatusPublished
Cited by6 cases

This text of 247 F.2d 159 (Trunkline Gas Company v. Federal Power Commission) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Trunkline Gas Company v. Federal Power Commission, 247 F.2d 159, 1957 U.S. App. LEXIS 4856 (5th Cir. 1957).

Opinion

JOHN R. BROWN, Circuit Judge.

The question here is whether tlie Federal Power Commission, having *160 ordered a full hearing into a phase of a Natural Gas Company’s rate, can ignore the Examiner’s findings favorable to the Company and adverse to the Staff’s contention by retrospectively limiting the issues. We hold that any such action is an abuse of the administrative process and that the Commission may not do it.

Because Trunkline Gas Company (Trunkline) is owned by its largest customer, Panhandle Eastern Pipe Line Company (Panhandle), to whom it sells 98% of its gas, the tariff rate filed and approved by the Commission in 1951 is a unique cost-of-service formula in contrast to the traditional method of fixing the tariff charge to assure the specified rate of return on invested capital. Under such a tariff 1 Trunkline bills its customers monthly for an amount equal to its actual operating expenses for such month, including the cost of the gas being sold plus Yi2th of its annual income tax and Yi2th of the annual return (6%) on its net investment rate base. Thus a cost-of-service tariff produces a fluctuating rate from month to month and automatically limits the pipe line to the recovery of its actual costs, regardless of the volumes of gas it is able to sell. In other words, unlike a traditional operation, it has no means by which to offset unfavorable against favorable months or vice versa.

The pipe line’s profit under this formula comes entirely from the allowance of the 6% return under Par. 3.4, note 1, supra, on the net investment rate base for (a) its plant and (b) working capital requirements as specified.

We are concerned here solely with the determination of that working capital allowance and whether, and to what extent, Federal income tax (and other tax) accruals collected by Trunkline monthly from its customers as a part of the cost-of-service rate under Par. 3.3, note 1, supra, are to be taken into account. The tariff prescribed a “ * * * (b) Working capital allowance represented by the balance of necessary materials and supplies for operating purposes and one-eighth of cash operating expenses, exclusive of gas purchased for the preceding twelve-month period. * * *.”

Though limited to these two factors, Trunkline was permitted to earn a return of 6% on a working capital allow *161 anee 2 of $1,462,148. Trunkline was apparently satisfied with this basis even though no allowance was made in working capital for (1) prepayments of certain expenses, insurance premiums, utility deposits, etc., (2) lag between the date of payment for gas purchases and reimbursement for gas sold to its customers, (3) necessary minimum bank balance. Such acquiescence or satisfaction may well have been due to the fact that up to the institution of the action involved here, the Commission had not required any credit against this working capital representing the amounts of cash on hand from time to time from Federal income tax accruals collected monthly from customers. Since these (for a sample year 1954) totaled $3,209,726, such accruals, or any substantial percentage of them deemed available for current use, could or might wipe out all or most of the working capital allowance of $1,462,148.

When Trunkline, correctly anticipating that it carried with it overtones of a coercive order if compliance was not voluntary, refused to follow the suggestion in the Commission’s letter of May 6, 1955, the Commission on June 8, 1955, instituted this proceeding in Docket No. G-9034. That letter suggested that Section 3.4(b) of Rate Schedule P-1, note 1, supra, should be revised to provide that working capital allowance should be computed by reflecting therein a credit for the average of the income tax accruals in accordance with practice followed by the Commission and upheld by the Courts 3 in other cases.

This Order instituting investigation recited that in Docket G-2506 the Commission had suspended a proposed $12,-000,000 increase by Panhandle based upon asserted increases in Panhandle’s costs for substantial volumes of gas purchased from Trunkline, its affiliate. As this is computed on a cost-of-service formula which included a working capital allowance to Trunkline without credit for income tax accruals, in order to determine whether Panhandle’s rates are unjust, it is necessary to investigate Trunkline’s rates “insofar as they relate to working capital.”

But after these recitals, the Order stated that “the Commission finds: It is necessary * * * in the public interest * * * that an investigation be instituted by the Commission * * * concerning the rates, charges * * * collected by Trunkline * * * and any * * * regulation, practice * * * affecting such rates * * * insofar as they or any of them relate to working capital as provided in the formula set forth in subparagraph 3.4(b) of Rate Schedule P-1 * * *.”

This was twice repeated with specific emphasis in the order portion:

“The Commission orders : 4
“(A) An investigation * * * is instituted * * * :
“(i) To determine whether any rate * * * collected by Trunkline * * * or any rule, regulation, * * * affecting such rate * * * is unjust, unreasonable, unduly discriminatory or preferential insofar *162 as they or any of them relate to working capital as set forth in sub-paragraph 3.4(b) of Rate Schedule p_l * *
* * * * * *
“(B) Pursuant to * * * Sections 5 and 16 of the Natural Gas Act [15 U.S.C.A. §§ 717d, 717o] * * * a public hearing be held on June 28, 1955 * * * concerning the lawfulness of the rates, charges * * * rules, regulations, * * * contained in Trunkline’s tariff insofar as they or any of them relate to working capital as provided for in the formula set forth in subparagraph 3.4(b) of Rate Schedule P-1 * * * ”

Extensive hearings were held June 28, 1955, through July 25, 1955, resulting in the Examiner’s report and order of January 16, 1956. In that hearing, by its own exhibits, testimony from its own witnesses and cross examination of the Commission’s Staff experts, Trunkline proceeded, as the Order permitted, to make a full showing concerning the items in and affecting the working capital allowance of the Rate Schedule, note 1, supra. This took three forms: first, changes in the amounts for materials and supplies and the operating expense lag then allowed in the amount of $1,-462,148, note 2, supra; second, a new allowance for the items of gas purchases lag, prepayments and minimum bank balances; and, third, the offset for Federal income tax accruals should not exceed the maximum amount (33.34%) of such accruals constantly in the custody of the company and available at all times for its use.

A full opportunity was available to the Commission Staff to rebut this evidence by cross examination or independent proof.

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247 F.2d 159, 1957 U.S. App. LEXIS 4856, Counsel Stack Legal Research, https://law.counselstack.com/opinion/trunkline-gas-company-v-federal-power-commission-ca5-1957.