Legal Document

386 U.S. 237 87 Supreme Court Reporter 1003 18 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 FEDERAL POWER COMMISSION, Petitioner,v.UNITED GAS PIPE LINE COMPANY et al. MEMPHIS LIGHT, AND WATER DIVISION, Petitioner, versus UNITED Nos. 127 and 128. Argued Jan. 11, 1967. Decided March 13, Howard E. Wahrenbrock Reuben Goldberg, Washington, D.C., for petitioners. Thomas Fletcher, Houston, Tex., William W. Brackett, Chicago Ill., respondents. Mr. Justice WHITE delivered the opinion of Court. 1 The question here is whether Federal Power Commission, in course determining just reasonable rates Gas Pipe Line Company (United) under § 4(e) Natural Act, 52 Statutes-at-Large 822, 15 Code KF62 717c(e), made a proper allowance federal income taxes calculating company's cost service. claimed that service its should be at full 52% rate, or $12,751,454, test year. Commission disagreed because was member an affiliated group which during five-year period 1957—1961 had elected to file consolidated returns tax purposes,1 fact Commission's view required reduced Had not been filed each company instead separate returns, total would have several million dollars more than paid on basis. This so basis losses serve reduce two members group, Union Overseas, net over period, thereby reducing by $2,092,038 those years. 2 To determine what considered United's rate base, it allocated actual among accordance with formula developed Cities Service Co., 30 F.P.C. 158, order set aside after issuance instant case, 337 Reporter, 2nd 97. As allocated, annual share 50.04% taxable income. Using this allowed $9,940,892 $12,751,454 United. 31 1180, 1191. 3 Appeals, relying decision Appeals Tenth Circuit FPC, 97, held 'the allocation as contrary requirements Congress imposed', 357 230, 231, hence vacated order. We reverse remand further proceedings. I. 4 In case filing return composed both regulated unregulated companies. Some companies income, others even larger losses, and, therefore, showed loss representative years used forecast future element other hand, same period. On unconsolidated individual considerably actually gas whose purposes being determined entitled own Its position no power all apply any rates. thus figured without regard basis, seemingly if all. 5 For however, only real related incurred connection group. view, unacceptable hypothetical figure—to fix jurisdictional 'on converting payment into prudent operating expense.' F.P.C., 162. It refused accept argument 'Gas ratepayers make stockholders whole nonregulated enterprises though means beyond system paid.' Ibid. function, said, rates, insure affiliates their out from enterprises. Thus task 'to proportion reasonably attributable vis-a-vis affiliates.' 6 determination, devised effect applied first gains companies.2 If remained savings deemed rate. But exceeded below they facts resulted $5,866,847 rather $7,055,981 Company. 7 addition exactly company, either reduction carry-forwards carrybacks. therefore appropriate exceed 'jurisdictional limits require effective separation activities determination ingredients base * mean(ing) profits between businesses includible company.' 101. Hence court, Colorado Interstate 324 581, 65 829, 89 L.Ed. 1206, Panhandle Eastern 635, 821, 1241, II. 8 our did powers granted Congress. One statutory duties will sufficient permit recover costs investment. Cost major focus inquiry. Normally included taxes, including taxes. allowance, general proposition, obviously within jurisdiction Commission. Ratemaking is, subject rule expense segregated. there suggestion these cases arriving violated rule. Nor allowance. return. Instead joined group's paying lower due separate-return portion single liability belonged Other pay part tax, but neither others. A Respondents insist making violate statute unless every conceivable circumstance, one, amount equal never inherent return, nor has liability. untenable we reject it. Rates fixed give pipeline fair are also incurred. such circumstances, could properly disallow hold based unreal reasonable. 9 true avoidance accomplished applying entity. responsible use returns. law permits election cases, themselves chose hence, purposes, mingle concerns, apparently deeming desirable attempt turn some immediate cash through count having against prior applied. Such private affiliates, member, practical intended consequence perhaps zero, one involved case. when out-of-pocket affiliate reduced, confrontation ratemaking principle expenses Nothing forbids recognize saving impact contrary, support duty limit expenses.3 10 think circumstances service, application nonjurisdictional Hence, becomes extent flowing shared company. Or, put words issue (its) 11 Viewing light, cannot say method allocate erroneous authority. Under formula, off other, possible Only 'unregulated' enjoyed result 12 includes state local authorities may federally concern. know nothing decisions statutes governing dictates priority state-regulated provides exceeds well argue regulation benefit saving. course, prefers concern allocates equitably source regulation.4 'When Congress, here, fails provide follow courts warranted rejecting employs plainly contravenes scheme regulation.' 589, 833, 1206. 'If said unjust unreasonable, judicial inquiry Act end. employed reach contain infirmities then important.' FPC Hope 320 591, 602, 64 281, 288, 88 333. 13 There frustration laws action. continue mechanism this, does seek control have. function performed all, allowing 14 'appropriate' extinguish unregulated. Those still turned cash. may, less did. so, correspondingly opportunity longer offset once way destroyed. They remain system, readily available profitable maximum law. Another matter deserves comment. erroneously failed take account Although might affect results achieved addressed itself, raised parties inclined. 16 reasons stated herein, judgment reversed remanded proceedings consistent opinion. 17 ordered. Judgment remanded. 19 MR. JUSTICE FORTAS took consideration cases. 20 HARLAN, whom DOUGLAS STEWART join, dissenting. 21 My analysis elusive leads me different conclusions reached agreement 22 presented problems resolving apparent conflict provisions Internal Revenue Code,1 corporations, instance jurisdiction, treated 'business entity' purposes,2 imposes observing fundamental (that) requires revenues.' holds resolve dilemma working liability' attributed purposes. By concerns' create necessity allocation. serious problem sees resolution 'when And attempts sidestep sharp resorting that, ratemaking, end justifies means.3 23 fully below, & N Dec. Immigration Nationality Decisions Court's issue, while possessing certain surface plausibility, mistakes operation place regulatory presure entities business wholly outside Act. upheld analysis. indefensibly undercuts policy laws, reaching 'just reasonable' Cf. El Paso Cir., 281 567. 24 'single approach ignores corporate incomes underlying revenues deductions. happened imposition activities, whole, sum liabilities setoff Certainly can contention anything absent group.4 arises record consider taken advantage setoffs belonging desired them activities.5 25 'tax losses' arose almost exclusively excess depletion allowances accounts Overseas. Overseas corporations were exclusive use. agreeing return6 agreed deliver year, whatever deductions utilize how seem when, do arise gains. good-faith allocations vital purpose shall tax. See Case New York Central R. N.Y.2d 150, 256 N.Y.S.2d 607, 204 North 643. Commissioner earnings precisely manner chosen here.7 clear assertion amounts assets up since compulsion asserts '(o)ne saving.' authority reason given assertion, my opinion, none found. disposition arising therefrom. 26 parallel example clearer violation action here. found itself quantity steel pipe useful negotiate sale discount, hardly 'as purposes' credited discount purchase sold Corporation forced market.8 asserted transfer United.9 27 far-reaching ruling gives evidence contemplated condoned. dissenting Commissioners pointed proceeding, supra, 175, form assumed activities. If, example, separately incorporated operations, shown forthcoming. Similarly, regulations operations corporation, merge show receive purposes.10 congressional eliminate kind dependence leave free best suited them. See, e.g., S.Rep. Number 960, 70th Cong., 1st Sess., Page 14. passing prevent exploitation natural consumer. developing opportunities, consumers. 593—594, 835—836, 28 focuses activity. activity blink reality improper purchased affiliate. When intercorporate arrangements, utilized then, there, allocation.11 That, situation where capable absorbing losses. 29 well-reasoned 567, court fixing argued encourage exploration passed ratepayers. rejected concluded reflect ultimate explicit, fail policy. departs sound sustaining entire saving' 'regulated' desire profit retain horizontal equivalent vertical carry-forward carryback Code. allows unit' recoup Government sustained Jackson, 'it probable intention salvage loser *.' Western Pacific Railroad (Western Co.) 345 247, 277, 73 656, 671, 97 986 (dissenting opinion). Any allocating corporation reasonable.' consolidation advantages absorbed most unlikely achieve have.12 recognizes adverse benefits contends 'remain 'availability' meaningless 'instant cash' produced than, intends, corporations. satisfy intent behind revenue government collections increase resources unit.13 III. 32 summarize, think, first, absorb showing extend areas encompassed While basic protect ratepayers, carried protection far allow affiliates—a today's achieve. 33 Second, instances allocate, seems 'plainly (contravene) 833. 34 Third, agree United, record, calculated premise liability, subscribe intimations relied upon situation. 35 affirm Appeals.14 pursuant privilege 1501 1954, 1501. Corporation, owns distribution regulation, owned subsidiaries Corporation—Union Producing (Union), domestic oil producer interstate sales Production (Overseas) engaged foreign countries. '(T)he computing (1) groups, (2) aggregate (3) apportion time respective incomes; provided computed basis.' 164. noted, id., 162, draw little experience bodies dealing solutions consistent. appear drew experience, although exception accounted past Penn-York Corp., 33, 39 (1946); 583, 612, aff'd, 625 (1951); Atlantic Seaboard 486, 515, 43, grounds, 200 108 (4 1952); Fuel 251 (1953); 342, 347 Home 241, 246 (1954); 127, 134 (1960). see Olin Transmission 685 (1956). 604 605, 840—841, 1206; 648—649, 827—828, 1241; 573, cert. denied sub nom. State California 366 912, 81 1083, 236; Alabama-Tennessee 359 318, 331, denied, 385 847, 69, 78. That sharing nonfederally recognized internal assigned represented 48.8%. §§ 1501—1505. 'The permission merely entity distinguished legal enterprise.' seizes language 333, proposition must 'cannot unreasonable'. before entirely one. obligated delve details initial essential permitted sustain market. noted become questions 'fair value' value going enterprise depends anticipated.' Id., 601, 287. suggests powerless review particular rational criteria. policies. hesitated rationales giving deference discretion. Tennessee 293 761; Imp. 290 133; City Detroit U.S.App.D.C. 260, 230 810. despite phraseology, am mean imply criterion incomes. suggest empowered gross special allocable using percentage average (1957—1961) effects short-term fluctuation. During $3,893,980. nonjurisdictional, $9,024,170. Moreover, 56% $105,290,983 nonjurisdictional. years, 1960 1961, notes observation, brief, 26, reflected books. statement somewhat misleading directed 1552(a)(1) bears necessary relation Exhibit 14—1 reveals 51.749% direct relevance analyzing scrutiny proposed charge future. attempting deduction justified recognizing finding. consent Proposed Treas.Reg. 1.1502—33 recently promulgated makes permissible Fed.Reg. 16788—16789. influenced price benefit. act join compact proviso absence needs, perfectly justifiable. contingent compact, right compel deal it, surrendered anything. normal expected acquisition asset, pass point Part II Title Regulations 154.63(f) deals joint facilities formulation very similar difference lies substituted concept 'regulated corporation' regulated-unregulated division disregarded category solely economic terms. thought force, us decide authorized carrying business. Court, aware problem. petition certiorari, 10, n. 8, '(t)here indeed resulting group.' attempted justify Since, law, unnecessary. disposition. essentially 'fused mass' theory staff reasons. 160. least re-examine premises. SEC Chenery 318 80, 63 454, 626; Connecticut Light 534, 749, 758, 1150. event, understand already

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