Federal Power Commission v. Tennessee Gas Transmission Company

PETITIONER: Federal Power Commission
RESPONDENT: Tennessee Gas Transmission Company
LOCATION: United States Court of Appeals for the Fifth Circuit

DOCKET NO.: 48
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 371 US 145 (1962)
ARGUED: Oct 17, 1962
DECIDED: Dec 03, 1962

ADVOCATES:
Brooks E. Smith - For the Respondent Manufacturers Light and Heat Company
Charles S. Rhyne - for the petitioner in case No. 50
Harry S. Littman - For the respondent Tennessee Gas Transmission Company
Ralph S. Spritzer - for the petitioner in case No. 48

Facts of the case

In 1959, Tennessee Gas Transmission Company filed a 7% proposed rate increase across all six of its zones with the Federal Power Commission. The rate increase was based on the expected cost of service and rate of return. The Commission imposed a five-month suspension period while hearings were conducted to determine whether the rate increase was reasonable. At the end of five months, the new rates would be applied, but they were subject to refund if the hearings found a reasonable rate lower than 7%. On August 9, 1960, the Commission found that only a 6 1/8% increase was reasonable and that Tennessee Gas must provide refunds. 

Tennessee Gas challenged the ruling by arguing that requiring a refund prior to a final determination of cost made the company unable to recoup its 6 1/8%. Because Tennessee Gas spreads its rates differently across the different zones, there are certain zones in which the refund would be greater than the value of the new rate. The United States Court of Appeals for the Fifth Circuit found in favor of Tennessee Gas.

Question

Can the Federal Power Commission order a rates reduction and refund without determining how such a reduction would affect costs in different service zones?

Media for Federal Power Commission v. Tennessee Gas Transmission Company

Audio Transcription for Oral Argument - October 17, 1962 in Federal Power Commission v. Tennessee Gas Transmission Company

Ralph S. Spritzer:

This case is here on certiorari to the Fifth Circuit involves an order of the Federal Power Commission entered in a Section 4 rate proceeding under the Natural Gas Act.

It raises the question and I shall state it very broadly at the outset in seek to refine it later, whether the Commission is authorized to dispose of a portion of a rate case in order to relieve consumers immediately of some of the burdens of excessive charges.

In advance of its disposition of the entire proceeding, the rate proponent here, the respondent, Tennessee Gas Transmission Company, is an interstate pipeline extending from Texas and Louisiana, its southern extremities to the New England states at the northern, doing business in some 16 states.

As an interstate company, as Your Honors know, it is obligated to file its tariffs with the Federal Power Commission.

Commission regulations further require that any filing for increased rates and this is an increase rate proceeding shall be accompanied by a full supporting statement as to the costs of service which are relied upon as justification for the company's proposed rates or charges.

It's to set forth for example the cost of its purchase to gas, the cost of labor, supplies, its estimate as to the taxes it will pay, estimated depreciation allowance and its claim for fair return on its net invested capital.

Now, upon the filing of the tariffs then the supporting statements, the Commission is empowered in its discretion to suspend the rates and to enter upon a hearing as to their lawfulness.

This suspension is limited to five months duration.

Thereafter, the company may make the increases effective even though the hearing has not yet been completed.

In that event, however, the company has an obligation under the statute to refund any portion of the increase ultimately found not justified, as well as to adjust its rates prospectively to whatever level may be prescribe by the Commission.

One further aspect of this statutory scheme, there is emphasis in our view.

If I may refer the Court to pages 48 and 49 of our brief where Section 4 (e) is set forth.

Earl Warren:

What page is that?

Ralph S. Spritzer:

I'm looking now at the middle of page 49, Your Honor.

The last four or five lines of the section provides at any hearing involving a rate or charge sought to be increased.

The burden of proof to show that the increased rate or charge is just unreasonable shall be upon the natural gas company and the Commission shall give to the hearing and decision of such questions preference over other questions pending before it and decide the same as steadily as possible.

Now, this last as not always so easily accomplished.

Tennessee actually filed the increases, which are involved in this proceeding in October of 1959.

When those increased rates were filed, they were already pending before the Commission two prior sets of increases; one, which had been filed the earlier in 1959, the other filed back in 1957.

Both of which were themselves that that stage in the toils of the administrative process.

I suppose you might visualize the situation in terms of a stairway consisting of three steps.

The floor from which these steps ascend might be said to represent the rates as they existed in 1957 when the Commission had last approved a set of Tennessee rates.

The first step upward represents the increases for which the company filed in 1957 that same year.

The second step, the increases for which the company filed in May of 1959.

The third step, and that refer -- and that's the proceeding that is before the Court immediately at this time.

The increases which is I indicated earlier were filed in October of 1959.

The difference incidentally in the yield produced by the rates at the floor level and the yield which will be produced at the level of step 3, computed in terms of relatively current gas sales amounts to that $75 million a year.

Earl Warren:

Mr. Spritzer, may I ask what happened to those first two steps?

Ralph S. Spritzer:

They are still in administrative proceedings, Your Honor, and I'm going to refer during the argument to the chronology of these various cases because they do bear some relationship.

We have asked that -- that they'll be distributed to the Court a chronology sheet which I think may make that easier to follow.