Source: https://supreme.justia.com/cases/federal/us/324/635/
Timestamp: 2019-04-26 04:21:49+00:00

Document:
1. Under § 19(b) of the Natural Gas Act, providing for review of orders of the Commission by the circuit courts of appeals, an objection that the natural gas company is not located and does not have its principal place of business in the circuit in which the proceeding was brought goes not to the jurisdiction but only to the venue, and is too late when raised for the first time after judgment. P. 324 U. S. 638.
did not exceed the limits of its discretion when it allocated to the regulated business all excess earnings of the entire business over 6 1/2 percent. P. 324 U. S. 646.
3. It was not error for the Commission to construct a natural gas company's rate base on the actual legitimate cost of the company's property, or to include in the rate base the company's producing properties and gathering facilities. Canadian River Gas Co. v. Federal Power Comm'n, ante p. 324 U. S. 581. P. 324 U. S. 648.
4. Having failed to object in its application for rehearing before the Commission to the inclusion of its producing properties and gathering facilities in the rate base, petitioner is precluded by § 19(b) of the Act from attacking the order of the Commission on the ground that they are included. P. 324 U. S. 649.
5. Since the issue in a rate case under the Natural Gas Act is whether the rate fixed is "just and reasonable," the question on review is not the method of valuation, but the end result obtained. P. 324 U. S. 649.
6. Upon the undisputed facts of this case, the Court cannot say that the rate of return allowed by the Commission is not commensurate with the risks, that confidence in the company's financial integrity has been impaired, or that the company's ability to attract capital, to maintain its credit, and to operate successfully and efficiently has been impeded. Federal Power Comm'n v. Hope Natural Gas Co., 320 U. S. 591. P. 324 U. S. 650.
Certiorari, 323 U.S. 808, to review the affirmance of an order of the Federal Power Commission under the Natural Gas Act.
"Any party to a proceeding under this chapter aggrieved by an order issued by the Commission in such proceeding may obtain a review of such order in the circuit court of appeals of the United States for any circuit wherein the natural gas company to which the order relates is located or has its principal place of business, or in the United States Court of Appeals for the District of Columbia. . . ."
The petition for review stated that petitioner had its principal place of business in Kansas City, Missouri. That was not denied by the Commission, and at no time prior to the entry of the judgment affirming the Commission's order was the jurisdiction of the Circuit Court of Appeals challenged. After the judgment of affirmance had been entered, however, the City of Cleveland filed a motion in the Circuit court of Appeals for leave to intervene and challenged the jurisdiction of that court on the ground that petitioner did not have its principal place of business in that circuit. The same objection is pressed here.
Appeals, rather than the Court of Appeals for the District of Columbia, is chosen, the parties may object that the particular circuit lacks the specified qualifications. Venue relates to the convenience of litigants. Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U. S. 165. The provisions of § 19(b) plainly are of that character. Review in the Court of Appeals for the District of Columbia, where the Commission must maintain its principal office and hold its general sessions (46 Stat. 797, 16 U.S.C. § 792), is convenient for the Commission. Review in any circuit where the natural gas company is located or has its principal place of business is designed to serve the convenience of the company. The general grant of authority in § 19(b) to all the courts of appeal suggest that the question of which one should exercise the power in a particular case is a question of venue. None of the respondents objected at any time to the venue of the court below. The right to have a case heard in the court of proper venue may be lost unless seasonably asserted. Industrial Addition Assn. v. Commissioner, supra. It may be waived by any party, including the government. Peoria & P.U. R. Co. v. United States, 263 U. S. 528, 263 U. S. 535-536; Industrial Addition Assn. v. Commissioner, supra. The objection of the City of Cleveland which came after judgment had been rendered came too late. Cf. United States v. California Co-op Canneries, 279 U. S. 553, 279 U. S. 556. Hence, we need not decide whether the suit was brought in the proper circuit.
"Upon the record before us, we consider it unnecessary to make an allocation of the respondents' business as between sales for resale and direct sales. The direct sales are made to nineteen industrial customers on an interruptible basis and at prices fixed in competition with other fuels."
"According to respondents' own evidence, no capacity has ever been constructed or provided in their gas plant for these direct industrial customers. It is equally clear that deliveries are made to them only when there is available excess off-peak capacity not required by the other wholesale customers. As evidence of this fact, in 1941, the volume of gas sold to the direct industrial customers amounted to 13.2 percent of the total system sales, whereas, on the system peak day of the 1941-1942 winter, the direct industrial sales constituted only 2.69 percent of the total deliveries, due to interruptions and curtailments brought about by the necessity for meeting the wholesale customer requirements."
"Testimony of respondents' witnesses discloses that only $128,848 of the entire investment in plant (less than one-sixth of one percent) is used exclusively in the service of the direct industrials. Moreover, the respondents themselves treat their entire business as a unit, and make no segregation of costs or profits on their books as between the two classes of sales. Indeed, Panhandle Eastern's president testified quite clearly on cross-examination that any attempt to allocate would be 'theoretical,' 'unrealistic,' and 'not practical' because of the unified character of the business."
the wholesale business, and are curtailed or interrupted when the capacity is required by the wholesale customers. It is apparent that the incidental direct industrial business is in reality a byproduct of the wholesale business, comparable to the respondents' gasoline extraction business. All parties are agreed that the expenses and revenues in connection with the sale of gasoline extracted from the natural gas should be treated as an integral part of the respondents' entire operations. Thus, it is manifest from the evidence that the direct industrial sales are purely incidental to the main or principal enterprise, viz.: the wholesale business of the respondents."
Petitioner contends that these reasons do not justify the failure of the Commission to make a formal allocation either of the property or the costs between the regulated and unregulated business. It says that the direct sales are beyond the jurisdiction of the Commission even though they are comparatively small. It asserts that the fact that the direct sales are on an interruptible basis merely emphasizes the relatively small amount of the cost of construction and operation attributable to such sales. It says that no waiver of the statutory right to have the direct sales free from regulation can be inferred, and that, in any event, the Commission's jurisdiction cannot be enlarged by waiver. And it contends that the Commission's finding that the direct industrial business is "in reality a byproduct of the wholesale business" is not supported in reason or in fact.
"The company's facilities and operations are devoted in part to natural gas service which is not subject to our jurisdiction. This service consists principally of gas sales made directly to large industrial consumers. The necessity arises, therefore, for making an allocation of costs as between the jurisdictional and nonjurisdictional sales."
The question is whether a formal allocation was necessary under the exceptional circumstances of this case.
We state the question that narrowly because the dispute in this case reflects not a rejection by the Commission of the principle of allocation, but a disagreement over the propriety of the procedure followed here.
What the Commission did was to allocate to the interstate wholesale business all of the earnings from the entire business in excess of a 6 1/2 percent return. Insofar as that procedure allocated to the interstate wholesale business any earnings from the direct industrial sales in excess of 6 1/2 percent, it is said to be justified by the use which the direct industrial business made of the main transmission line and its facilities. If that was unfair, the order must be set aside. If it was fair, no reversible error is shown.
"Q. That is, any attempt to allocate return as between regulated business and unregulated business: is that what you meant was unrealistic?"
"A. That is correct . . . If you are going to allocate it, theoretically you should allocate it on the basis of the investment and the expenses incident to each part of the business."
"Q. But it is theoretical?"
"A. That is what I am trying to say."
on transmission lines, only $1,738 applicable to the laterals used exclusively for direct industrial sales were allocated to them. None of the main transmission line operating and maintenance costs was charged to the direct industrial sales.
"Q. Is there any engineering basis for a division from an engineering standpoint?"
"A. Not as an engineering matter. I do not know of any basis. As a business matter, I think there are ways in which it could be fairly decided. I think it requires some judgment based upon business experience to make a fair allocation of it, but there is a little over a million dollars, some portion of which could, in all fairness, be set aside as a charge against operations on the nonregulated sales and a credit against operations on the regulated sales."
"A. It is my opinion that that $1,000,828.98 should be divided fifty-fifty."
"A. It is just my judgment as a businessman that would be a fair allocation of it."
"Q. You mean fifty-fifty as between regulated and nonregulated business?"
"A. That is correct. I think that would be a fair allocation."
"Q. That is a business judgment estimate, not a mathematical estimate?"
and if it does not contribute something, I do not think there is any justification for having the business."
"50 percent of the net earnings from nonregulated sales as a credit to net earnings from regulated sales, as compensation for the temporary use of such facilities provided for regulated sales but used from time to time in transporting the gas for direct, interruptible, nonregulated sales, when not required for regulated sales."
"No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure so to do."
No such excuse has been tendered.
On these facts, we cannot say that the Commission transgressed the jurisdictional requirements of the Act when it failed to make a formal allocation of costs or of property. All agreed that an allocation on the basis of investment or costs would be impractical. All agreed that some division of the apparent profit from the direct industrial business had to be made. All agreed that the fair division was a matter of judgment, not mathematics.
In view of those concessions by petitioner, the manner in which it conducted its business, its failure to insist on a segregation of property in its petition for rehearing, and its own failure to keep accounts which reflected a segregation of the properties or an allocation of costs among the two classes of business, we do not think it can now be asserted that the Commission erred in forsaking a formula and using its informed judgment instead.
We do not mean to imply that such concessions would warrant a departure of the Commission from the statutory scheme of regulation. The issue is a much narrower one. The Commission did not undertake to fix industrial rates. The Commission, as was its duty, merely determined what earnings were properly allocable to the unregulated business. Petitioner disagrees with the result. The use of a formula for an allocation of costs or a segregation of property might or might not have been more favorable to petitioner. But, once the use of such a formula is waived or is conceded to be impractical or theoretical, there must be some discretion in the Commission to make that determination through the exercise of its informed judgment. We cannot say that the Commission abused its discretion by concluding, on the basis of the special circumstances here presented, that earnings of the entire business in excess of a 6 1/2 percent return should be allocated to the interstate wholesale business. The small investment in the direct industrial business, the incremental nature of it, the extent of the interruptions in service to the direct industrial customers, the manner in which the management has treated, it afford a basis for the refusal of the Commission to credit it with a larger share of the earnings than 6 1/2 percent.
"shall find that any rate, charge, or classification demanded, observed, charged, or collected by any natural gas company in connection with any transportation or sale of natural gas, subject to the jurisdiction of the Commission, or that any rule, regulation, practice, or contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory, or preferential, the Commission shall determine the just and reasonable rate."
all excess earnings of the entire business over 6 1/2 percent.
"If there is an infirmity in the Commission's determination of the amount which should be included in the rate base as the cost or value of such facilities, we think the infirmity arises from the method used in making the valuation, and not from any lack of jurisdiction."
143 F.2d at 495. Petitioner, moreover, failed to object in its application for rehearing before the Commission to the inclusion of its producing properties and gathering facilities in the rate base. It is accordingly precluded by § 19(b) of the Act from attacking the order of the Commission on the ground that they are included.
2.88 percent. The cost of meeting the requirements of the preferred stock is $939,000 or 5.8 percent. That leaves $2,467,139 for $20,184,175 of common stock -- a return of 12 percent. The return would be 9 percent figured on the basis of common stock and surplus of $27,650,000. We are unable to say on these undisputed facts that the return is not commensurate with the risks, that confidence in petitioner's financial integrity has been impaired, or that petitioner's ability to attract capital, to maintain its credit, and to operate successfully and efficiently has been impeded. [Footnote 9] See Federal Power Commission v. Hope Natural Gas Co., supra, p. 320 U. S. 603.
The other petitioners, Illinois Natural Gas Co. and Michigan Gas Transmission Corp., were wholly owned subsidiaries of Panhandle Eastern. They sold all of their properties to Panhandle Eastern after these proceedings were instituted and were then dissolved. Accordingly, we will refer throughout to the three companies as "petitioner."
"the longest natural gas pipeline in the world, serving more than 200 cities, towns, and communities with more than 700,000 retail customers in Texas, Kansas, Missouri, Illinois, Indiana, Michigan, and Ohio."
The investigation also included Illinois Natural Gas Co. and Michigan Gas Transmission Corp. See note 1 supra.
"The provisions of this chapter shall apply to the transportation of natural gas in interstate commerce, to the sale in interstate commerce of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use, and to natural gas companies engaged in such transportation or sale, but shall not apply to any other transportation or sale of natural gas or to the local distribution of natural gas or to the facilities used for such distribution or to the production or gathering of natural gas."
"the classifications, practices, and regulations affecting such rates and charges, together with all contracts which in any manner affect or relate to such rates, charges, classifications, and services."
Sec. 4(c). By Rule 54.30, the Commission requires the filing with it of all contracts for direct industrial sales involving sales in excess of 100,000 Mcf per year. See 8 Fed.Reg. 16101.
Petitioner produces approximately 50 percent of the gas which it transports and sells, the remainder being purchased. The payments for gas purchased were allowed by the Commission as an operating expense.
The market value is alleged to be about $8,400,000, as compared with some $955,000 which the Commission found to be the actual legitimate cost.
"The evidence discloses that the respondents' business is exceptionally free from serious business hazards. The gas supply is assured for at least thirty to thirty-five more years. We have made ample provision in the annual depreciation allowance for the restoration of the capital investment in the property over the claimed life of the gas supply. The respondents' markets are rapidly expanding, and embrace the large metropolitan area of Detroit, which alone takes 40 percent of the entire output under a long-term contract. Panhandle Eastern's president testified that the demand for service is so great that, within the next year, the respondents will be called upon to sell every cubic foot of gas that can possibly be delivered through the lines, and that the capacity factor will increase from 70 percent to 90 percent."
"It is likewise apparent from respondents' own evidence that Panhandle Eastern has been able to raise considerable capital at low cost. Only recently, it successfully completed a financing program at remarkably low rates, which resulted in a substantial reduction in its annual cost of capital. In February, 1941, Panhandle Eastern sold $18,250,000 of first mortgage and first lien bonds and $5,000,000 of serial notes at an average annual interest cost of 2.74 percent. In February, 1942, it sold an additional $10,000,000 of first mortgage bonds at an interest cost of 3.13 percent and $15,000,000 of preferred stock at a cost at 5.86 percent. After the financing, Panhandle Eastern's annual cost of long-term debt was 2.88 percent and preferred stock was 5.87 percent, a combined annual cost of only 3.85 percent for these securities."
"Panhandle Eastern has earned an average of 10.64 percent on its net investment over the past five years, and Michigan Gas, an average of 8.5 percent during approximately the same period."
No reason appears for the failure of petitioners here to make objection on rehearing to the inclusion of the production and gathering facilities in the rate base.

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