Court Opinion

ID: 8888242
Source: CourtListenerOpinion
Date Created: 2022-11-26 22:29:16.776399+00
Date Added: 2024-06-11T17:07:03.078864
License: Public Domain

ON PETITIONS FOR REHEARING
Petitions of the Federal Power Commission and Texas Gas Transmission Corporation, an intervenor, for rehearing and suggestions for rehearing en banc, of this court’s action in vacating the order of the Commission with respect to Texas Gas’ pre-1970 and post-1969 wow-expansion property, focus on three main points:
1. Whether Congress’ enactment of the 1969 Tax Reform Act limited the extent of the Commission’s authority to permit regulated utilities such as Texas Gas to shift from accelerated depreciation with flow-through to similar depreciation with normalization with respect to their pre-1970 and post-1969 wow-expansion property.
2. The import of the explanation of Section 441(a) of the 1969 Tax Reform Act in regard to point 1, supra, provided by the Staff of the Joint Committee on Internal Revenue Taxation.
3. The court’s caveat, at the end of its opinion, with respect to the effect of Section 441(a) of the Act on the Commission’s discretion to permit regulated utilities such as Texas Gas to abandon flow-through.
We deny the petitions for rehearing, as we find the Commission’s and Texas Gas’ arguments unpersuasive. Since both manifest some confusion over the meaning of our opinion and what we deem the proper interpretation of the statute involved, we set forth these additional views on the specific points raised in an effort at clarification for the responsible regulatory agency and the industry involved.
I. The Extent of the Commission’s Authority under Section AA1 (a) of the 1969 Tax Reform Act re Non-Expansion Property
The Commission and Texas Gas return to the initial House version of Section *866441(a) of the 1969 Tax Reform Act to support their contention, that Section 441 (a), as finally enacted, did not curtail the Commission’s discretion, with respect to pre-1970 and post-1969 wow-expansion (existing or replacement) property, to permit regulated utilities such as Texas Gas to shift from accelerated depreciation with flow-through to similar depreciation with normalization. They point out (we do not disagree, see first full paragraph of text, page 862) that the House version would have permitted Texas Gas, with the Commission’s approval, to shift from flow-through to normalization with respect to its pre-1970 and post-1969 wow-expansion (as well as its post-1969 expansion) property.
It is at the Senate stage of the proceedings that our views diverge. Texas Gas and the Commission argue that the FPC’s discretion to permit a regulated utility such as Texas Gas to shift its depreciation treatment of wow-expansion property survived through both the Senate and Conference Committee versions of the legislation. Their interpretation is that subsequent versions reflect additional provisions (e. g., the 180-day period during which the company may elect to change its method of depreciation) rather than substitute provisions which eventually made up the final bill. We think our analysis (pp. 861-863) of the changes at different stages of the legislation makes clear why this contention is not valid, but for greater clarity we shall chart the transformations as the Tax Reform Act progressed through the legislative stages.

House Version Envisioned Three Possible Present Situations re both expansion and non-expansion Property Depreciation House Version Proposed These Permissible Changes, with No Time Limit re Changes Senate Version Envisioned Same Three Present Situations, but (1) Created Under III A Difference In Agency Approval Required; and (2) Limited Either Change to a 180-Day Election Period Conference Committee Version

I. Straight-line None allowed (Same) (Same)
II. Normalization To straight-line, or continue normalization, without agency approval (could not change to flow-through) (Same) (Same) Same as Senate, but
III. Flow-through Continue flow-through, unless change to Continue flow-through, unless change to modified to make the 180-day election (item (d) in Conf. Rep.) ap-
Straight-line, with agency approval; or A. Straight-line, without agency approval; or ply to new (post-1969) property only, and available only to
Normalization, with agency approval B. Normalization, but only with agency approval, extent productive capacity increased.
Either change to be elected within 180 days.
For legislative history supporting this analysis, see: H. R. Rep. No. 413 [To Accompany H.R. 13270], 91st Cong., 1st Sess. 131-134 (1969); S. Rep. No. 552 [To Accompany H.R. 13270], 91st Cong., 1st Sess. 171-176 (1969); Conf. Rep. No. 782, 91st Cong., 1st Sess. 312-313 (1969), U.S.Code Cong. & Admin.News, p. 1645.
*867Thus, between the initial House and Senate versions of Section 441(a), two differences emerge with respect to Situation III and to shifting from flow-through: First, under the Senate version, in contrast to the House, FPC approval is not required to shift from the flow-through to the straight-line method; and, second, the Senate limited (the Commission and Texas Gas can point to no language to the contrary) all changes re both expansion and wow-expansion property to a 180-day election period. In view of these differences, the Conference Committee was free to modify the House and Senate versions in an attempt to resolve them.1Neither Texas Gas nor the Commission dispute the power of the conferees to make the second change, to curtail the 180-day election provision so as to apply only to post-1969 expansion property.
As to the first change, there was clearly a disagreement between the Senate and the House over the right of a regulated utility to shift from accelerated depreciation with flow-through to straight-line depreciation, with or without agency approval. This disagreement entitled the conferees (1) to choose the Senate version, limiting all shifting from the flow-through method to a 180-day period, and (2) to make it applicable to post-1969 expansion property only. Clearly, such an option is a “germane modification of subjects in disagreement”— here the permissible extent of abandonment of accelerated depreciation with flow-through.
The variety and extent of differences between the two versions was aeknowl-edged by the Staff of the Joint Committee on Internal Revenue Taxation,2 a source much relied upon here by the Commission and Texas Gas: “The Tax Reform Act of 1969, because of its comprehensive scope and because of the many changes which were made in this legislation, both by the Senate and subsequently by the conferees, is an illustration where the differences [between the versions of each House] were especially significant.” 3
In permitting a taxpayer such as Texas Gas to shift from accelerated depreciation with flow-through to straight-line depreciation with or without the appropriate agency’s approval, the Senate was no doubt interested in increasing governmental revenues (since under flow-through the tax reduction is passed on to the utility’s customers). The House, however, by limiting changes from flow-through either to straight-line or normalization only with agency approval, was reflecting the concern that emphasis on a shift to straight-line depreciation, as expressed by the Senate version, would place taxpayers such as Texas Gas at a competitive disadvantage, both as to the sale of their products or services and as to their attractiveness to equity investors.4
Thus, the conferees’ resolution of this disagreement in favor of the latter concern by limiting the extent to which regulated utilities may abandon flow-through reflects Congress’ overall intent “in general to ‘freeze’ the current situation regarding methods of depreciation in the case of those companies in what are, by and large, the more healthy utility in*868dustries.” 5 And, as both the House and Senate Reports indicate, “About half the regulatory agencies require utilities that use accelerated depreciation for tax purposes to ‘flow through’ the resulting reduction in Federal income taxes currently to the utilities’ customers. . . . Some agencies insist that utilities subject to their jurisdiction use accelerated depreciation for tax purposes; even if those utilities use straight line depreciation for tax purposes, such agencies treat them for ratemaking purposes as though they had reduced their Federal income tax expense by using accelerated depreciation.” 6
This overall congressional objective to forestall prospective revenue losses, without handicapping the utility industry, was a prime consideration at all stages of the legislation. In focusing on the specific language of the House version of the bill, Texas Gas and the Commission give no notice to this overall objective, the weight it had at all stages, and how the final conferees’ changes reflect this, although we stressed this in our opinion (pp. 862-864).
II. Import of the General Explanation by the Staff of the Joint Committee on Internal Revenue Taxation.
Reliance by the Commission and Texas Gas on one specifically cited portion of the General Explanation of the Tax Reform Act of 1969, H.R. 13270, 91st Congress, Public Law 91-172, prepared by the Staff of the Joint Committee on Internal Revenue Taxation (3 December 1970), for support for the proposition that Section 441(a) of the Act as finally enacted did not diminish the Commission’s authority to permit a taxpayer such as Texas Gas from abandoning flow-through with respect to its pre-1970 and post-1969 wow-expansion property is mistaken. We are cited to page 151 of the General Explanation, to wit:
More specifically, in the case of existing property the following rules apply:
* * * * * *
(3) If the taxpayer was taking accelerated depreciation and flowing through to its customers the benefits of the deferred taxes as of August 1, 1969, then the taxpayer would continue to do so (except for a special election procedure discussed below), unless the appropriate regulatory agency permits a change as to that property. That is, the Act does not require the taxpayer to flow through, but it also does not affect any power the regulatory agency might have to require the taxpayer to flow through. (Emphasis supplied.)
The first revealing aspect of this language is that all of it except the italicized portions (which were added by the Staff) was lifted, with only minor modifications, from the House and Senate Reports,7 both of which were commenting *869on the initial House version of Section 441(a). For the Commission and Texas Gas, then, to point to this language as determinative of Congress’ final intent in enacting Section 441(a) of the Act is unavailing. At best, this language is confusing and uncertain; it cannot carry-meaning ascribed to it by the Commission and Texas Gas, particularly in view of the following page 152, discussed infra,. Significantly, there is no mention of such continued Commission authority in this particular respect in the Conference Committee Report, an omission reflecting the conferees’ resolution of the differences between the two initial versions of Section 441(a).
Furthermore, as we have seen by the provisions discussed and displayed in the chart, supra, there never was at any time in any version of the House, Senate, or conferees, a power in the agency to compel or permit a company to change from any method of depreciation accounting to flow-through. To have included such a provision would have been directly contrary to the overall objective of this portion of the Act — “in general to ‘freeze’ the current situation regarding methods of depreciation.” (As discussed pp. 863-864). After the Tax Reform Act of 1969, the permissible shifts were contemplated to be away from flow-through, at the company’s option, with changed requirements as to agency approval and time (see chart, supra).
Finally, the comfort Texas Gas and the Commission derive from page 151 is taken away by page 152 of the General Explanation, not cited to us. There we find: *870Here we have set forth the rule — and the rationale therefor — of the final version of the statute. “Utilities on flow-through could elect” to change to either straight-line depreciation or accelerated depreciation with normalization within 180 days after enactment of the Act, but — “This election applies to new property, but only to the extent it increases the taxpayer’s capacity.”
*869The Act permits an election to be made within 180 days after the date of enactment of the Act — i.e., by June 28, 1970 — for a utility in one of the regulated industries covered by this provision to shift from the flow-through to the straight line method, with or without the permission of the appropriate regulatory agency, or to permit it with the permission of the regulatory agency to shift to the normalization method, that is, to come under general rules of the Act.
This election applies to new property, but only to the extent it increases the taxpayer’s capacity. . . .8
*870There is nothing about old, existing, non-expansion property which “increases the taxpayer’s capacity.” Only new, expansion property could do so. Hence, if we bear in mind the congressional intent generally “to freeze” the present depreciation situation, it appears logical that the permissible shift in accounting practices would be limited, and that an exception might logically be made for new expansion property increasing productive capacity, at taxpayer option, and with agency approval required if the shift is to normalization. If we take Texas Gas’ and the Commission’s evaluation of the words on page 151 — and ignore page 152 completely — then the exception is for all property and swallows up the whole, thus vitiating any congressional intent “to freeze” generally depreciation accounting practices for utilities. Texas Gas and the FPC continually urge that there are no words in this Tax Reform Act saying specifically that the Power Commission’s discretion is curtailed, an argument which, to our minds, simply misses the purpose of this portion of the Act. The objectives in regard to a general freeze, in regard to balancing prospective revenue loss against possible impairment of the utilities’ ability to raise capital and service customers at low rates, all would have been difficult to achieve without placing the resulting limitation on the Commission’s discretion. This the language of the Tax Reform Act necessarily did, and to hold otherwise would be to undo what was most carefully done.
III. The Court’s Caveat with Respect to the Effect of Section ill (a)
Finally, the Commission asserts that the court’s opinion is misleading in that “On the one hand, this Court finds that the Commission lost its discretion to allow Texas Gas to switch from flow-through. Yet this Court holds that the Commission has discretion to permit abandonment of flow-through in ‘extraordinary circumstances.’ ” (Commission brief, p. 13, n. 6.)
The Commission fails to read the court’s language with care. What we stated is that “There might be extraordinary circumstances in which Section 441(a), taken in conjunction with the mandate of the Natural Gas Act, should not be construed to prevent the FPC in its underlying responsibility to protecting consumer interests from finding that those interests would be furthered by permitting the abandonment of flow-through.” [pp. 864-865 (emphasis supplied).] Clearly, the court’s language indicates simply the possibility that such circumstances might exist; it does not state that they do. For the Commission to assume otherwise is to ignore the plain meaning of the court’s language. What the court intended here was merely to leave open the possibility that such circumstances might exist, rather than to assume categorically that they do not.
IV. Conclusion
For the reasons stated above, the petitions of the Commission and Texas Gas for rehearing are
Denied.

. Section 136 of the Legislative Reorganization Act of 1946, 2 U.S.C. § 190e(a), provides in pertinent part:
(a) In any case in which a disagreement to an amendment in the nature of a substitute has been referred to conferees, it shall be in order for the conferees to report a substitute on the same subject matter; but they may not include in the report matter not committed to them by either House. They may, however, include in their report in any such case matter which is a germane modification of subjects in disagreement (emphasis supplied).

. As stated in the Letter of Transmittal in their General Explanation of the Tax Reform Act of 1969, H.R. 13270, 91st Con- . gress, Public Law 91-172 (3 December 1970).

. At p. Ill (emphasis added).

. H.R.Rep.No.413 [To Accompany H.R. 13270], 91st Cong., 1st Sess. 132 (1969), U.S.Code Cong. & Admin.News, p. 1645.

. Id., at 133, U.S.Code Cong. & Admin. News, p. 1783 see also, to the same overall effect, S.Rep.No.552 [To Accompany H.R. 13270], 91st Cong., 1st Sess. 172 (1969), U.S.Code Cong. & Admin.News, p. 2204, which states: “Accordingly, the committee agrees with the House that it is appropriate to in general [sic] ‘freeze’ the current situation regarding methods of depreciation in the case of those companies in what are, by and large, the more flourishing utility industries.”

. H.R.Rep.No.413, at 131-132, U.S.Code Cong. & Admin.News, p. 1782; S.Rep. No.552, at 171-172, U.S.Code Cong. & Admin.News, p. 2204.

. The House Report describes the House Bill:
(3) If the taxpayer is taking accelerated depreciation and is flowing through to its customers the benefits of the deferred taxes, then the taxpayer must continue to do so, unless the appropriate regulatory agency permits a change as to that property.
H.R.Rep.No.413 [To Accompany H.R. 13270], 91st Cong., 1st Sess. 133 (1969), U.S.Code Cong. & Admin.News, p. 1783.
The Senate Report in turn describes the House Bill:
(3) If the taxpayer is taking accelerated depreciation and flowing through to its customers the benefits of the deferred taxes, then the taxpayer would continue to do so (except as provided
*869under the committee amendments which are discussed below), unless the appropriate regulatory agency permits a change as to that property.
S.Rep.No.552 [To Accompany H.R. 13270], 91st Cong., 1st Sess. 173 (1969), U.S.Code Cong. & Admin.News, p. 2205.

. Staff of the Joint Committee on Internal Revenue Taxation, General Explanation of the Tax Reform Act of 1969, H.R. 13270, 91st Congress, Public Law 91-172, 152 (3 December 1970). The language of the statute, as it is codified, reflects the fact that a utility’s election to shift from flow-through to a different method of depreciation is applicable only to new expansion property:
(1) Reasonable allowance in case of property of certain utilities.—
(1) Pre-1910 public utility property.
(2) Post-1969 public utility property. —In the case of any post-1969 public utility property, the term “reasonable allowance” as used in subsection (a) means an allowance computed under — •
(A) a subsection (1) method,
(B) a method otherwise allowable under this section if the taxpayer uses a normalization method of accounting, or
(C) the applicable 1968 method, if, with respect to its pre-1970 public utility property of the same (or similar) kind most recently placed in service, the taxpayer used a flow-through method of accounting for its July 1969 accounting period.
(4) Special rules as to flow-tlirough method.■—
(A) Election as to new property representing growth in eapacity. — If the taxpayer makes an election under this subparagraph within 180 days after the date of the enactment of this subpara-graph in the manner prescribed by the Secretary or his delegate, in the case of taxable years beginning after December 31, 1970, paragraph (2) (G) shall not apply with respect to any post-1969 public utility property, to the extent that such property constitutes property which increases the productive or operational capacity of the taxpayer *870with respect to the goods or services described in paragraph (3) (A) and does not represent the replacement of existing capacity.
Int.Rev.Code of 1954, § 167(0 as amended 1969.
While some may see differently, we suggest that the intent of Congress is not readily apparent on the plain face of this statute; hence our resort to its legislative history.