Court Opinion

ID: 9451733
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:22:36.761342+00
Date Added: 2024-06-11T17:32:51.817124
License: Public Domain

LEVENTHAL, Circuit Judge
(dissenting).
The skillful argument of the Commission’s counsel focused on its having reached a fair and common sense result. Little enthusiasm can be mustered for the substantive conception of petitioners, that their supplier East Ohio Gas was entitled to a “windfall” reduction of $700,000 per annum in the amounts payable to its affiliates even in the absence of a change in cost, a reduction gained *527through strict application of the wording of the cost of service tariff to an unanticipated situation. Yet I feel that petitioners do have a sound objection to the procedural course followed by the Commission. This objection remains even though petitioners do not now contest the general propriety of the Commission’s approval, under § 7(c) of the Natural Gas Act, of the acquisition by intervenor Hope (now Consolidated Gas Supply Corporation) of the natural gas facilities of its affiliate, New York Natural.1
The proper procedure probably would not have yielded a different final result in the case at bar — but it might. In some future case the difference in procedure may loom larger. In any event, protection of consumers typically lies in diligent attention to procedural requirements, particularly those involving the burden of proof and presentation resting on utilities which seek a change in revenues.
1. The issue under discussion was injected at the hearing when Hope amended its application for approval of the merger to seek approval, at the same time, of what is referred to as a change in accounting procedure.2
Applicant’s problem was that although it intended to maintain all existing dollars and cents tariffs of the merging companies, it did not wish to maintain New York Natural’s tariff for sales to East Ohio as written. That tariff was based on New York Natural’s “cost of service,” a formula that included as one element “cost of gas.” Whereas the cost of gas contemplated by the tariff was the cost of gas to New York Natural, buying from Hope at the Pennsylvania line, retention of the “cost of gas” provision as applied to the merged company would mean a substantially lower dollar level, reflecting Hope’s purchases in fields throughout the nation prior to interstate transmission to the northeast.
Applicant understandably wished to be certain that it would not be assuming substantial non-recurring dollar expenses, in addition to non-monetary merger pains, only to face an immediate decline of $700,000 annually in its receipts. It devised a program whereby it. would price the Hope gas moving into the New York Natural storage pool at the average prices paid by Hope in Louisiana. It happened that these prices as cost of gas yielded about the same amount of charges to East Ohio as the prices Hope charged on sales to New York Natural at the Pennsylvania border. ■
However ingenious applicant’s proposal may have been as a short-cut calculation, it cannot fairly be characterized as a mere accounting change. There was no serious effort by any one to justify this as permissible under sound accounting principles. The Commission’s Uniform System of Accounts provides that gas stored underground “shall be priced at the average cost of the gas constituting the common supply of the system,” and that gas may be presumed to come from purchases from specific sources only when this presumption, consistently observed from year to .year, is “in harmony with the over-all system operation of gas supply and utilization.” (Balance Sheet Accounts, Account 117, Note B-l.)
*528Applicant’s proposal would accord with accounting principles if Hope’s share of New York Natural’s storage gas was entirely from Louisiana production, but the Examiner found there was no evidence of this.
Applicant’s proposal might also be defended as some accounting short-hand if it could be shown that the prices paid in Louisiana were substantially equal to Hope’s average field prices. But there is no evidence that this is the fact. Said the Examiner: “What is lacking is some analysis to show that the Hope gas— which actually comes from many sources —is truly and fairly priced by assigning to it the price which Hope pays to its Louisiana sources.”
Indeed, unless I completely misunderstand the mathematics of the matter, Hope’s field prices in Louisiana must be substantially higher than Hope’s average field prices. Otherwise they could hardly yield the same charges as those now obtained from New York Natural at the Pennsylvania border after a long transmission.
2. Assuming this is not a mere accounting change but a change in rate formula, the matter is one that requires application of the procedure specified in § 4 of the Natural Gas Act in case of rate changes. Quoting from the Examiner’s Decision:
Without further examining the merits of formula (B), it is hard to deny the Cities’ real point that the proposal amounts to a change in rate and it must be filed and dealt with as such if their procedural rights are to be preserved. To test the point, it is necessary only to refer to the present New York tariff for its storage sales (item C by reference). * * * The critical element, “cost of gas,” is defined * * * as the number of Mcf delivered from storage “multiplied by the weighted average cost per Mcf of Seller’s inventory in both Storage Properties. * * * ”
What formula (B) proposes is to interpret the words “weighted average costs per Mcf of Seller’s inventory in both storage properties” not for what they plainly say — the average cost of the actual storage inventory — but instead, for Hope’s part of that inventory, to substitute the cost of the company’s purchases in Louisiana and to presume, whether rationally or arbitrarily, that this cost will be about the same as the true average cost of the true storage inventory (meaning, of course, the Hope share of it). It is not at all understood how this revision of the plain words of the tariff can be described as mere bookkeeping. * * * [When] there is a change in the interpretation and application of a tariff, there is inevitably a change in rate in the legal sense, unless such words have quite lost their meaning. * * *
It is just for this reason that Section 4 of the Natural Gas Act, setting out the procedure for rate changes, their filing, public notice, complaint, hearing and decision, refers also to “practices, and regulations affecting such rates and charges,” which are not to be changed without a new filing, public notice, possible suspension and hearing, and all subject to the Commission’s order thereon.
■ This is not to suggest that formula (B) is necessarily wrong or unjustified ■ — it is an obviously, indeed admittedly, pragmatic adjustment, open to change in the next rate ease, and perhaps the best that can be devised under the circumstances. But all of this does suggest that this new and different application of the words of the tariff is the very equivalent of a revision of its actual words; and in fairness, the procedure should be that which the law provides for a change in the rate or tariff. No reason appears why the substance of formula (A) and (B) should not presently be filed as a rate change, to be followed by the regular procedures set out in Section 4 of the Natural Gas Act. Accordingly, the condition hereto attached so provides.
The case came to the Commission on exceptions by petitioners (opposing the merger), and not on exceptions by the *529applicant.3 The Commission rejected the Examiner’s procedure, stating:
We do not agree with the examiner that applicant must file its storage accounting proposal as a rate change under Section 4. The change giving rise to the necessity for the revised accounting procedure is to be a change in circumstance, namely, the corporate merger, and no “change in rate” actually will be effected. Instead, the procedure will simply maintain the existing level of rates to the greatest possible degree. Moreover, the procedure will be employed only on an interim basis. Under these circumstances, the permissive language of Section 4 does not necessitate the examiner’s filing requirement.
Since this was a change in rate formula, and not a true accounting action, I think the Examiner was right and the Commission was wrong.
3. The Commission’s brief argues that a new rate cannot be considered to be an increase over an old rate unless it will generate greater revenues. In the first place, § 4 applies to any change in rate or charge, not merely an increase.. Furthermore, it seems to me that the change in rate is an “increase” when a rate formula is made more burdensome to the purchaser — and that is the case when a formula is revised so as to cancel its decrease provisions. Suppose a natural gas company with a customary cost of service tariff in effect in 1963 changed its tariff schedule at the end of 1963, in the face of the anticipated federal tax decrease, so that the federal tax payable portion of cost of service should henceforth be computed at the tax rates prevailing in 1963. Obviously such a company would be modifying its formula to the disadvantage of its purchasers even though it did not result in an increase in a specific gas charge. I can hardly conceive that the Commission would say that § 4 is inapplicable. Nor can I picture the Commission accepting that company’s argument that its change was not governed by the last sentence of § 4(e), which places the burden on a company seeking an increase in its charges. I think there is an “increase” that triggers the applicability of § 4(e) when a company proposes a change that means a greater burden in dollars and cents to the purchaser than the burden that would result from the formula if unrevised.
My hypothetical example is not purely hypothetical. For the fact is that applicant-intervenor Is contemplating a decline in its cost of service, and apparently a decline in the cost of service of both the Hope and the New York Natural sections of the new company. I read the record to suggest that this reduction may well make its appearance before the end of the three-year period specified in the Commission’s conditions.
4. The Commission cannot avoid the need for § 4 procedure by saying that its approval of the so-called accounting pro*530cedure was conditional and limited in time. If the Commission is right in theory it can extend the duration of this so-called accounting procedure without observing § 4 of the Act, and without a hearing of any kind.
Nor can the Commission avoid the issue by referring to § 4 as “permissive.” A separate application filed under § 4, with the supporting data required by the Commission’s regulations governing rate changes, would have focused on the change in formula. The Commission would not have been beguiled as it seems to have been here by the intriguing coincidence that no increase in dollar revenues would result. There would have been concentration on the rate aspects— which were generally excluded from the application under § 7 — which might have led the Commission to a solution whereby East Ohio would be denied a windfall yet accorded a share of reduction in the cost of service to the Pennsylvania line. I do not think it can be assumed that a § 4 proceeding would have been an empty formality.
The Commission was probably forecasting that for various reasons it believed it in the public interest to approve such increase in net revenues as might result from the order here involved. On the hearing already held it might reach such a conclusion tentatively — for purposes of permitting the merger to proceed and preparation of invoices subject to final order. But it could not make such a determination as a matter of final adjudication without a hearing in which it would have before it the data required by its regulations to accompany rate changes, and an awareness of the dollar amount of increased net revenues ascribable to its action. See City of Detroit, Mich. v. FPC, 97 U.S.App.D.C. 260, 230 F.2d 810 (1955), cert. denied sub nom. Panhandle Eastern Pipe Line Co. v. City of Detroit, 352 U.S. 829, 77 S.Ct. 34, 1 L.Ed.2d 48 (1956).
Finally, the possibility or even probability that the FPC would have permitted the change to go into effect without holding a § 4 hearing does not mean that it can make a determination approving the change on the merits in the absence of a hearing. This would seem to be the corollary of the Third Circuit’s holding in Mississippi River Fuel Corp. v. FPC, 3 Cir., 202 F.2d 899 (1953), that the Commission cannot reject rate change proposals without a hearing.
At the very least, there might be different consequences in the event of a future hearing under § 5 of the Act. Even the result reached in the instant case, if agreed to in the context of a § 4 temporary order, would place the burden on the company to justify the continuance of the so-called accounting change.
Contrariwise, under the procedure actually used by the Commission, the burden may come to rest on the Commission should it wish to terminate the accounting change.
Petitioners fairly argue that the question before us is whether the Commission erred in rejecting the Examiner’s requirement because it thereby shifted the burden of proof from the utility to the consumers. Although petitioner’s petition for rehearing before the FPC did not use the words “burden of proof,” it clearly made the point that § 4 procedure should be followed; this- obviously incorporates the last sentence of § 4(e) which puts the burden of proof on a ultility to justify any change in rate formula making it more burdensome to the purchaser.
I respectfully dissent.

. The Commission found that the evidence established that an annual saving in excess of $1.5 million may justifiably be expected from the merger, due to savings of both companies in payroll and savings in New York Natural’s office rental expense, after offset of certain costs of new offices and facilities. This, of course, outweighed a non-recurring expenditure of $941,887, incurred in connection with the merger.

. This change had theretofore been proposed by Hope in a letter to the Commission dated June 12, 1964, which had not been sent to the parties. The Commission staff had apparently requested that this be submitted to the Commission for separate approval. Although this change in the application came after the notice of hearing and after the pre-hearing conference, petitioners agreed to the consideration of this request as part of the application for approval of transfer of facilities.

. In reply to petitioners’ exceptions, Hope and the Commission staff supported the Examiner. Hope, however, commented as follows with respect to Paragraph (F) of the decision:
While we agree with the results reached by the Examiner and, without objection, would comply with the requirements of Paragraph (F), we respectfully submit that parts of his discussion concerning this accounting matter are unnecessary to its proper disposition. Many changes of accounting, some at the instance of companies involved and some at the instance of the Commission itself, affect charges made under cost-of-service type tariffs. These, however, to our knowledge, have never required filings incorporating the accounting changes in such tariffs.
I agree that the Commission may issue accounting instructions and interpretations without being required to follow § 4 of the Act merely because rates may be affected. Section 8 of the Act, 15 U.S.C. § 717g, gives the Commission authority to prescribe accounts “by rules and regulations.” The Commission’s interpretative authority relates at least in theory to interpretation of its duly adopted general regulation. However, the action taken in this case by the Commission was not truly an accounting action and cannot reasonably be defended as such or as an accounting interpretation.