Federal Power Commission v. United Gas Pipe Line Company

PETITIONER: Federal Power Commission
RESPONDENT: United Gas Pipe Line Company
LOCATION: Gila County Youth Detention Center

DOCKET NO.: 127
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 386 US 237 (1967)
ARGUED: Jan 11, 1967
DECIDED: Mar 13, 1967

Facts of the case

Question

Media for Federal Power Commission v. United Gas Pipe Line Company

Audio Transcription for Oral Argument - January 11, 1967 in Federal Power Commission v. United Gas Pipe Line Company

Earl Warren:

Number 127, Federal Power Commission, petitioner versus United Gas Pipeline Company et al, number 128 Memphis Light Gas and Water Division, petitioner versus United Gas Pipeline Company et al. number 79, -- no, those are the only two.

Mr. Wahrenbrock.

Howard E. Wahrenbrock:

Your Honor, may it please the Court.

These cases bring before the Court a decision setting aside a rate reduction by the Federal Power Commission.

The Commission reduced the rates of the United Gas Pipeline because so far as is here involved, United Gas Pipeline had estimated its rates upon the basis of the inclusion of an allowance for federal income taxes based upon the usual corporate statutory rate of 52% it applied -- would apply if United filed a separate return but as a matter of fact, United joins with its affiliates in filing a consolidated return.

And under the consolidated return, the total tax for the group is less than the total of the separate return taxes because some of the group particularly United's producing affiliate union regularly enjoys tax losses and those tax losses have to be absorbed by some of the taxable income of the rest of the members of the group and as a result of that absorption, the group tax is less.

These lawsuits result from the fact that union enjoys the special deductions that most oil and gas producers enjoy.

I refer to the provision for the expend thing of productive well intangible drilling costs and the provision for depletion at the statutory percentage of income.

Union is in fact highly profitable over at the five-year-period for which tax information is particularly irrelevant here; its net income have reached $14 million a year.

The Commission --

Potter Stewart:

There's another consolidated company in here too, its overseas or somebody?

Howard E. Wahrenbrock:

Yes, it participated only one -- in only one of these five years and had a $25,000.00 loss which is negligible for these purposes.

Potter Stewart:

It's the producing company which has got the live share of these --

Howard E. Wahrenbrock:

Yes.

The producing company's average tax loss over the five-year-period was $800,000.00 a year.

Did both of these -- either of these one jurisdiction companies have an income (Inaudible)?

Howard E. Wahrenbrock:

All of the companies had taxable income and in one year union itself had taxable income.

In one year, no other company other than United Gas Pipeline had taxable income.

They all had losses in one year.

Byron R. White:

Do you say the producing companies the one that in this case that is responsible for the losses?

Howard E. Wahrenbrock:

Yes.

On the average, it has an $800,000.00 a year of loss.

There are occasionally were losses by other companies.

Byron R. White:

What source of loss in the producing company, this what -- there were declaration expenses at all?

Howard E. Wahrenbrock:

The sources of the loss are these two provisions for deduction of intangible drilling cost and statutory depletion.

The rates were here tested by the Commission and new rates fixed upon the basis of the so-called cost of service method that the Commission has used since rates fixed by that method were first approved by this Court in the Hope case in the 1940's.

Under that method, the Commission determines the average unit cost of service on the basis of the business done in the test year including a fair return on the amount prudently invested in the business after income tax.

Byron R. White:

What business?

Howard E. Wahrenbrock:

In the regulated business, the business for which the rates are regulated.

Byron R. White:

So, you account separately for the -- in making rates for the regulated business and the unregulated?