Source: http://www.chanrobles.com/usa/us_supremecourt/324/635/case.php
Timestamp: 2017-03-30 06:38:22
Document Index: 685655113

Matched Legal Cases: ['§ 717', '§ 19', '§ 19', '§ 792', '§ 19', '§ 5', '§ 5', '§ 5', '§ 1', '§ 19', '§ 5']

PANHANDLE EASTERN PIPE LINE CO. V. FPC, 324 U. S. 635 (1945) - US SUPREME COURT DECISIONS ON-LINE
www.chanrobles.com UNITED STATES SUPREME COURT DECISIONS ON-LINE US Supreme Court Decisions On-Line> Volume 324 > PANHANDLE EASTERN PIPE LINE CO. V. FPC, 324 U. S. 635 (1945)
Subscribe to Cases that cite 324 U. S. 635 U.S. Supreme CourtPanhandle Eastern Pipe Line Co. v. FPC, 324 U.S. 635 (1945)Panhandle Eastern Pipe Line Co. v. Federal Power CommissionNo. 296Argued January 29, 1945Decided April 2, 1945324 U.S. 635CERTIORARI TO THE CIRCUIT COURT OF APPEALS
2. In the exceptional circumstances of this case, the Federal Power Commission, in determining reductions in interstate wholesale rates of a natural gas company whose business consisted of direct industrial sales (unregulated) as well as interstate wholesales (regulated), chanroblesvirtualawlibraryPage 324 U. S. 636
Certiorari, 323 U.S. 808, to review the affirmance of an order of the Federal Power Commission under the Natural Gas Act. chanroblesvirtualawlibraryPage 324 U. S. 637
Panhandle Eastern Pipe Line Co. (whom we will call Panhandle Eastern) owns properties which constitute a natural gas production, transportation, and marketing system. [Footnote 1] The system extends from gas fields in Texas, Oklahoma, and Kansas through Missouri, Illinois, Indiana, and Ohio, and into Michigan. [Footnote 2] The City of Detroit and the County of Wayne, Michigan, filed a complaint with the Federal Power Commission alleging that Panhandle Eastern's rates on gas sold to a distributing company in Michigan for resale there were unjust and unreasonable. The Commission, on its own motion, instituted an investigation under the Natural Gas Act of 1938, 52 Stat. 821, 15 U.S.C. § 717, of all of the interstate wholesale rates of Panhandle Eastern. [Footnote 3] Following extended hearings, the Commission entered an interim order, here under review, finding petitioner's interstate wholesale rates to be excessive and requiring petitioner to reduce them on and after November 1, 1942, as to reflect, when applied to petitioner's 1941 transportation and sales, a reduction of not less than $5,094,384 per annum below the 1941 consolidated gross operating revenues of $17,789,573. See 45 P.U.R.(N.S.) 203, 223. That order was affirmed by chanroblesvirtualawlibraryPage 324 U. S. 638
If the objection is to the jurisdiction of the court, it does not come too late. Industrial Addition Assn. v. Commissioner, 323 U. S. 310. But we think it goes to venue, not to jurisdiction. We read § 19(b) to invest all intermediate federal courts with the power to review orders of the Commission, provided, however, that if a Circuit Court of chanroblesvirtualawlibraryPage 324 U. S. 639
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.
Segregation of the Regulated and Unregulated Business. Panhandle Eastern makes direct industrial sales, as well as sales to distributing companies for resale. The Commission made no segregation or separation of the properties used in these two classes of business. Nor did it make an allocation of costs between the regulated and unregulated phases of the business, as it did in Colorado Interstate Gas Co. v. Federal Power Commission, Canadian River Gas Co. v. Federal Power Commission, and Colorado-Wyoming Gas Co. v. Federal Power Commission, chanroblesvirtualawlibraryPage 324 U. S. 640
ante, pp. 324 U. S. 581, 324 U. S. 626. The reasons which the Commission advanced for its failure to make any allocation are so crucial to the disposition of the case that we quote from the opinion:
"Deliveries to the direct industrials are made only when the plant is not fully used in serving the requirements of Page 324 U. S. 641
We agree that the Commission must make a separation of the regulated and unregulated business when if fixes the interstate wholesale rates of a company whose activities embrace both. Otherwise the profits or losses, as the case may be, of the unregulated business would be assigned to the regulated business, and the Commission chanroblesvirtualawlibraryPage 324 U. S. 642
would transgress the jurisdictional lines which Congress wrote into the Act. [Footnote 4] The Commission recognizes this necessity. As it stated in Re Cities Service Gas Co., 50 P.U.R.((N.S.)) 65, 89:
A witness for petitioner testified at the hearing that, under petitioner's allocation of costs, the unregulated business chanroblesvirtualawlibraryPage 324 U. S. 643
Petitioner presented evidence showing that, in the test year, 91.57 percent of its total revenues, or $16,289,045, was received from its wholesale sales and 8.43 percent, or $1,500,527, was received from its direct industrial sales. It presented a study showing total operating expenses of about $7,900,000 (not including federal income taxes and return) and assigning $499,699 to the direct industrial sales. Thus, an apparent profit of $1,000,828 before income taxes was shown for the direct industrial sales. But that study did not allocate any of the annual depreciation expense of the main transmission line ($2,238,589) to the direct industrial sales. Of the $633,270 ad valorem taxes chanroblesvirtualawlibraryPage 324 U. S. 644
"A. That is right. In that way, this nonregulated business has contributed half a million dollars a year towards the reduction in cost of the regulated business, Page 324 U. S. 645
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. chanroblesvirtualawlibraryPage 324 U. S. 646
The Commission, while it lacks authority to fix rates for direct industrial sales, may take those rates into consideration when it fixes the rates for interstate wholesale sales which are subject to its jurisdiction. For § 5(a) provides chanroblesvirtualawlibraryPage 324 U. S. 647
(Italics added). It is clear that contracts covering direct industrial sales come within that italicized clause of § 5(a). [Footnote 5] The industrial rates in force here produce revenues of $1,500,527 with expenses of $499,699, which, according to petitioner, result in earnings of $1,000,828 before income taxes. That is an apparent profit of more than 200 percent. It is a fairly obvious indication that the regulated business is being saddled with costs which, in fairness, should be borne by direct industrial sales. That is an extremely relevant consideration for the Commission to take into account when it determines what costs are fairly attributable to each business and what the resultant rate for the wholesale business should be. Sec. 5(a) does not, of course, give the Commission authority to disregard the jurisdictional lines which Congress has drawn between interstate wholesale sales and direct industrial sales so as to level the profits between the two classes of business. But § 5(a) reinforces our conclusion that, in the exceptional circumstances of this case, the Commission did not exceed the limits of its discretion when it allocated to the regulated business chanroblesvirtualawlibraryPage 324 U. S. 648
Producing and Gathering Facilities. The Commission constructed a rate base on the actual legitimate cost of petitioner's property in service on December 31, 1941, which it found to be $78,814,292. It deducted $12,596,987 for accrued depreciation, depletion, and amortization. It added $920,000 for working capital. The result was a rate base of $67,137,305 on which the Commission allowed a return of 6 1/2 percent, which it found to be "fair and liberal." It included in the rate base petitioner's producing properties [Footnote 6] and gathering facilities. Petitioner claims that was error. It contends that it was incumbent on the Commission to determine the field price or actual field value of natural gas in the areas in which petitioner produces gas, to eliminate petitioner's leaseholds and producing and gathering facilities from the rate base, to disallow expenses of gathering and production, and to allow petitioner, as an expense item, the field price or actual field value for all gas produced by it and taken into the pipeline system. Evidence was offered to show what the market price or actual field value of the gas was. The argument is that the procedure followed by the Commission extends its jurisdiction over "the production or gathering of natural gas" contrary to the mandate of § 1(b). [Footnote 7] Petitioner suggests, moreover, that, if its leaseholds are to be included in the rate base, they should not be included at cost, but at what petitioner claims to be the market value. [Footnote 8] chanroblesvirtualawlibraryPage 324 U. S. 649
143 F.2d 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.
Federal Power Commission v. Hope Natural Gas Co., 320 U. S. 591, holds that the Commission is not bound to use any single formula for the fixing of rates. It is not precluded from using actual legitimate cost, as it did here. The question on review is not the method of valuation which was used, but the end result obtained, since the issue is whether the rate fixed is "just and reasonable." § 5. In the present case, the 6 1/2 percent return allowed by the Commission will permit petitioner to earn $4,363,925 annually on the basis of the test year after meeting all operating expenses, which include depreciation, exploratory and development costs, and federal income taxes. The cost of servicing petitioner's long-term debt is $957,786, or chanroblesvirtualawlibraryPage 324 U. S. 650
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.
Petitioners did not raise objections in their application for rehearing to the Commission to the inclusion of their chanroblesvirtualawlibraryPage 324 U. S. 651