Opinion ID: 252068
Heading Depth: 1
Heading Rank: 4

Heading: The Finding of 'Greater Need'

Text: 46 Recognizing that the demand for gas in both the American Natural and Panhandle market areas far exceeded the available supplies, the Commission made three comparisons in order to determine which system could utilize the gas to better advantage. We shall refer to them as the 'heating saturation' test, the 'capacity-demand ratio,' and 'the considerations of economic burden.' 47 1. Comparative space heating saturations: This test, upon which the Commission relied most heavily, purported to assess relative need by determining the percentage of existing residential and commercial consumers on each system who use gas for space heating purposes. This percentage is called the 'space heating saturation.' 38 Applying its formula to the facts in record, the Commission found that, in 1958, 54.67 percent of Michigan Consolidated's residential and commercial consumers utilized natural gas for space heating, while only 50.4 percent of comparable Panhandle consumers bought gas for that purpose. (The remaining customers presumably utilized gas only for cooking, hot water and similar purposes). The Commission concluded from this disparity that Panhandle had the greater need. 48 Petitioners' first objection to the heating saturation test is that the Commission adopted an erroneous basis of comparison. They contend that in computing Panhandle's average saturation, the Commission should not have included the very low saturation (16 percent) of one customer that is primarily interested in reselling to industrial, as distinguished from space heating, consumers, and that the Commission should not have excluded from the computation the high saturations of two other Panhandle customers on the ground that they had another source of supply. Since the purpose of the comparison was to determine relative needs among those who might obtain the gas, and since the Commission stated that it would not allocate any of the abandonment gas to the two customers with high saturations and an alternate supply, we think their saturations were properly eliminated. Conversely, the saturation of the customer with only a 16 percent saturation was properly included since it might have been allocated gas on the condition that it be resold to non-industrial users. 49 Petitioners' second allegation of erroneous comparison, however, is well taken. As they point out, the Commission originally announced that 'appropriate standard' for determining whether the public interest permitted abandonment required a comparison of the needs of 'the consuming public along the Panhandle system' with 'the needs of the consuming public in the areas served by Michigan Consolidated and Michigan Wisconsin.' 39 In implementing this standard, however, the Commission actually compared the Panhandle saturation with that of Michigan Consolidated alone. When this inconsistency was called to its attention, the Commission, in its opinion denying rehearing, stated: 50 'Also relevant, but not controlling, is the need for additional gas on the systems of Michigan Wisconsin's distributors, some of whom have comparatively low space heating saturations. While we have carefully considered the problem of these companies, the space heating saturation of Michigan Consolidated, which is being directly deprived of the Panhandle gas and advantages of separating the two systems have greater weight.' (21 F.P.C. 218, 221.) 51 We think that the Commission erred in excluding the Michigan Wisconsin distributors from the space heating saturation test. It is clear that 'If the requirements of the public interest are to be satisfied, the Commission must consider not only the public benefit    but also any public loss   .' Democrat Printing Co. v. Federal Communications Commission, 1952, 91 U.S.App.D.C. 72, 75, 202 F.2d 298, 301. As the Commission itself recognized in the first abandonment case: 52 'Panhandle says that it has no obligation to the public served by distributors supplied by the Michigan-Wisconsin pipeline other than Michigan Consolidated. But the considerations of the public convenience and necessity in testing the abandonment are not restricted to that portion of the public living in Detroit, and include, certainly, the impact on other areas as well.' (Panhandle Eastern Pipe Line Company, 11 F.P.C. 167, 169 (1952)) 53 Viewed realistically, abandonment has a substantial 'impact' upon consumers in the areas served by Michigan Wisconsin's utility customers. It is these distributors who are actually being deprived of gas as a result of abandonment, for under the Commission's orders Michigan Consolidated is a conduit through which the unallocated gas on the American Natural system flows to Panhandle's customers. This is so because Michigan Consolidated is ultimately not deprived of any gas. Its entire loss is to be replaced with the American Louisiana unallocated capacity. True, Michigan Consolidated might well have obtained some of the replacement gas, even if abandonment had been denied, but it is equally clear that significant quantities would still have been left for use by Michigan Wisconsin's existing, if not postential, customers. The interest of these customers in attaching new loads and meeting other future demands while 'not controlling' should have been farily reflected in the space heating saturation figures by which the Commission measured the impact of abandonment on the American Natural system. This is required for at least two reasons: (1) by using the unallocated gas to replace Michigan Consolidated's lost supply, the Commission has made Michigan Wisconsin's and Panhandle's use of this gas, as a matter of economic fact, mutually exclusive, Delta Airlines, Inc. v. C.A.B., 1955, 97 U.S.App.D.C. 46, 51, 228 F.2d 17, 22; and (2) if the unallocated American Natural gas is used to replace Michigan Consolidated's loss, the future needs of the Michigan Wisconsin consumers must be met by expensive expansion on the American Natural system. City of Pittsburgh v. Federal Power Comm., 1957, 99 U.S.App.D.C. 113, 237 F.2d 741. 54 Although the Commission concedes that the gas needs of these Michigan Wisconsin customers are 'relevant,' it failed to say how much an appropriate weighing of these Michigan Wisconsin saturations would reduce the Michigan Consolidated saturation of 54.67 percent. The record shows that the space heating saturations of Michigan Wisconsin's existing customers in Wisconsin ranged from a low of 27 percent to a high of 44 percent. The average was 35 percent. Thus, a sizable market for attaching new loads existed. Since Panhandle's saturation of 50.4 percent is only 4.27 percent less than Michigan Consolidated's, even some weight to the Michigan Wisconsin figures might well have indicated a contrary result. 40 55 We are not unmindful that one of the two reasons the Commission gave for excluding Michigan Wisconsin's saturations from its comparison formula is that Michigan Consolidated was being 'directly deprived of the gas.' But in the circumstances of this case we think that a distinction between 'direct' and indirect' deprivation is without a difference. Such a distinction might have been relevant if Michigan Consolidated's loss to Panhandle were not replaced and the effect of abandonment were to reduce the level of service to Michigan Consolidated's presently attached customers. Although abandonment without replacement would have deteriorated Michigan Wisconsin's competitive claim for new gas on the American Natural system to the extent that it aggravated Michigan Consolidated's need for new gas, no existing Michigan Wisconsin consumers would have been cut off. 56 But instead of considering the abandonment separately from the allocation of the free American Natural gas, the Commission chose to treat them together, and clearly indicated that it predicated the abandonment upon the availability of replacement gas. In this situation neither Michigan Consoldiated nor Michigan Wisconsin were required to deteach existing loads. Since each of them will feel the effect of the Commission's action only with respect to future demands for new service, Michigan Wisconsin's interest has not been shown to be less 'direct' than Michigan Consolidated's (or the Panhandle resale customers'). It follows that Michigan Wisconsin's interest in attaching new loads to meet the demands of prospective customers was entitled to some demonstrable weight. 41 57 Petitioners' final objection with respect to the saturation test is this: even if the comparson were otherwise valid, a comparison of 'unsifted averages' did not and could not show how much abandonment was necessary to equalize distribution. Consequently they contend that the Commission erred in ordering total abandonment based upon a systemwide comparison of average heating saturations rather than first determining which of Panhandle's customers would receive the abandonment gas and in what amounts. The point out that some of Panhandle's other customers have far higher saturations than Michigan Consolidated, and some lower, and that, under the Commission's stated objective of fairly distributing natural gas, the abandonment gas will presumably be allocated only to Panhandle customers having lower saturations then Michigan Consolidated. Petitioners urge that the volume of gas necessary for such allocations may require only partial rather than total abandonment, and therefore the Commission cannot validly order total abandonment until these allocations are actually made. They also contend the Commission compounded its error by excluding them from the proceedings which it ordered to determine a suitable plan for allocating the abandonment gas among Panhandle's other customers. 58 We do not say that the Commission may never rest total abandonment on a comparison of needs based on system-wide averages rather than individual communities. But we do think that it cannot do so without a satisfactory explanation of the circumstances which were though to require or justify it. The need for such an explanation is particularly pressing where, as here, a gas supply which would ordinarily have been available to certain communities is allocated to other communities in order to facilitate an abandonment and these deprived communities are not afforded an opportunity to show that such allocation does not constitute fair distribution. 59 2. The capacity-demand ratios: The Commission's second test of relative needs measured the ability of each system to meet the peak-day demands of its customers. The Commission found that American Natural was able to supply 96 percent of the gas consumed on its system on a peak day; Panhandle only 83.5 percent. 42 Petitioners contend that this comparison rests on two errors: (1) the capacity of Panhandle was derived from evidence in another proceeding to which Michigan Consolidated was not a party; 43 and (2) the demands of some of Panhandle's customers were based on evidence in the current proceeding not subjected to cross-examination since it was introduced by Panhandle for 'information only,' with an express disclaimer of reliance upon it 'for any purpose.' 44 They therefore claim they were denied due process in that they had no opportunity to contradict the evidence upon which the comparison was based. Ohio Bell Telephone Co. v. Public Utilities Comm., 1937, 301 U.S. 292, 300-301, 57 S.Ct. 724, 81 L.Ed. 1093. They also point out that the Commission invoked this comparison for the first time in its opinion denying rehearing, thereby depriving them of a constitutional right to present their objections. Morgan v. United States, 1938, 304 U.S. 1, 18, 58 S.Ct. 773, 999, 82 L.Ed. 1129. 60 Because the capacity-demand test was advanced after the Commission's original decision, it would appear that the Commission did not view it as a ground which would alone support the finding of greater need. Hence, even if this comparison were unassailable, a remand is required by our holding that the space heating comparison is fatally defective. In the proceedings on remand, the Commission will necessarily have an opportunity to consider petitioners' objections to the capacity-demand comparison. We therefore refrain from passing on petitioners' objections to allow intiial consideration by the Commission. 61 3. Considerations of economic burden: Some of the petitioners raise another objection to the Commission's finding that the public served by Panhandle can make more effective use of the gas than Michigan Consolidated. They point out that, due to Panhandle's depreciated rate base, its gas is cheaper, and that the American Natural replacement gas will cost consumers in the Detroit area over four million dollars more per year. But in its opinions, the Commission considered this increased cost to Detroit consumers against the even greater cost which Panhandle customers would incur by the use of expensive manufactured gas to meet their shortages. We cannot say its consideration was improper.