Court Opinion

ID: 9450656
Source: CourtListenerOpinion
Date Created: 2023-08-04 16:54:13.139597+00
Date Added: 2024-06-11T17:32:24.469692
License: Public Domain

FAHY, Circuit Judge
(dissenting).
I would affirm the Commission in this case.
I
The court takes the position that the Commission’s view that the seller’s affiliations with its customers was a decisive factor in determining rate form is a new principle of which American Louisiana had no notice before the Commission’s decision, and that fairness would require that it be given an opportunity to address itself to the significance to be attached to the inter-affiliate character of the regulated sales. I find no unfairness, lack of opportunity, or indeed lack of address upon the subject. The hearings before both the Commission and the Trial Examiner show that a vital consideration with respect to the rate form issue was American Louisiana’s inter-affiliate operations.
The Presiding Examiner, prior to the decision of the Commission, refers to the opposition filed by Michigan Gas & Electric Company to American Louisiana’s proposed changeover to the contract-demand form of rate. He stated that such opposition “rested upon the small number of Am Lou’s customers and the close affiliation of its two principal customers (Mich Wis and Mich Con), factors not affecting Mich Gas and obviously ‘borrowed’ from the Commission’s early decision in the matter.” The Examiner answered this opposition, inter alia, as follows:
“Michigan Gas is not a customer of Am Lou and its inferences as to Am Lou’s possible undue preference of its two affiliates and its concomitant possible undue prejudice against its five non-affiliated distributor customers have been previously presented to and ruled upon by the Commission in several cases * *
The position eventually taken by the Commission was thus considered by the Examiner and decided favorably to American Louisiana. Michigan Gas & Electric thereupon filed exceptions to the Examiner’s decision, pointing out:
“American Louisiana sells practically all of its gas to its affiliates, Michigan Wisconsin and Michigan Consolidated. Up until now, the Commission has required that it use a cost of service form of rate in which its charges to its affiliates are based upon its actual costs classified in accordance with the Commission’s established procedure.14
“This is sound because it avoids the possibility of an inter-affiliate transaction being used as the means of siphoning off, or concealing, the profits of the affiliated customers. American Louisiana is truly a department of the affiliates. The American Natural Gas System cannot be hurt by a cost of service tariff because American Louisiana is assured its cost of service. Obviously, it is seeking a device to obtain something more. The Staff has taken no position on the question.
“The Examiner erroneously relied solely on the fact that a stipulated cost of service had been approved to justify his conclusion that the demand-commodity rate should be adopted. However, the Commission, in the same order in which the stipulated cost of service was approved, assigned for decision the question of rate form. Therefore, the Examiner erred in treating the Commission’s approval as decisive.
In American Louisiana’s argument of the case to the Commission, counsel who now presents the case to this court ex*534plicitly referred to the opposition of Michigan Gas & Electric. He stated it was disposed of in his brief before the Commission and had been properly rejected by the Examiner. This again demonstrates American Louisiana’s knowledge of the opposition, based on the inter-affiliate relationships, to the contract-demand form of rate. It was a matter to be considered and decided. Furthermore, after the decision of the Commission, rejecting American Louisiana’s position, American Louisiana sought rehearing and oral argument in an elaborate written application filed with the Commission. In this application there is not the slightest indication of a desire to introduce any further evidence, or the slightest dissatisfaction with the record as made. The application was devoted wholly to arguments based on the record.1 The effort was to persuade the Commission to a different conclusion. To use the application’s language,
“an opportunity should be provided to make a full and adequate presentation directly to the Commission of the reasons why American Louisiana should adhere to a conventional contract demand (CD-I) form of rate instead of being required to revert to a cost-formula (CS-1) rate and why the considerations adverted to in the Commission’s opinion and order do not justify the imposition of a cost-formula rate on American Louisiana and its customers.
“It did not appear necessary or appropriate to discuss this question at the oral argument before the Commission on February 26, 1968. American Louisiana was very properly under the impression, on the basis of the Commission’s prior orders, that it had satisfied all of the conditions requisite to the acceptance of a conventional contract demand form of rate. * * * ”
The application was a lengthy argument against the Commission’s decision, based on the record upon which the decision rested. It sought no amplification of the record. The denial of this application was a rejection of American Louisiana’s position, not a denial of opportunity to American Louisiana to present its position, except by further oral argument.
The court’s opinion does not dispute that American Louisiana was on notice throughout the proceedings that the rate form was an open issue. And American Louisiana knew it had to justify its proposed change in light of the objections to its inter-affiliate operations.
I add that no requst has been made under the applicable statutory provision2 to obtain a remand by this court to the Commission for the taking of additional evidence, and finally, American Louisiana’s brief in this court does not complain that it was denied the opportunity to enlarge the record; it complains of the conclusion reached by the Commission on the present record.3
I accordingly would not remand but would decide the validity of the Commission’s order on the present record.
II
The proceedings were conducted from their beginning as a rate increase case. A rate level increase was effected when the proposed contract-demand tariffs were filed.4 It may be true that in some *535cases a change in rate form, of itself, is not a rate increase. But in this ease the change-over from cost-of-service to the contract-demand rate form was insep-erable from the rate level increase requested. In such a situation Section 4(e) of the Natural Gas Act explicitly casts the burden of proof upon American Louisiana “to show that the increased rate or charge is just and reasonable.” 52 Stat. 822 (1938), 15 U.S.C. § 717c(e) (1958). This burden was not sustained.
The court suggests that the stipulation of July 12, 1961, somehow changed the character of the ease insofar as the burden of proof is concerned.5 Even assuming as the court does, see its footnote 6, that the question of increase or no increase is to be determined as of the time of hearing rather than at the time of original filing,6 nevertheless the answer cannot be “an increase is no longer requested” if at the time of the hearing the rates then sought, as contained in the stipulation, remain an increase over the rates which preceded the filing of the disputed tariffs. Nor is the question answered by saying that the stipulation was “designed to generate revenues that would equal the cost of service of the test year, 1960, normalized for known changes”; for 1960 is not the year in which the rates immediately prior to filing of a new tariff were in effect. The mistake of the court, it seems to me, is manifested by its comparison of the conditionally stipulated rate with the 1960 revenues under the cost-of-service rate rather than with such revenues of the year prior to the filing of the new tariffs. The stipulated rate could not be relevant unless it would have been no increase over the rate in effect before the disputed tariffs were filed.
American Louisiana seems to admit that the contract-demand form produces increased unit revenues over those produced by their previous cost-of-service rate. In their brief, petitioners state:
“The second assumption inherent in the Commission’s approach is that a pipeline company should be denied any opportunity to earn more than some fixed rate of return, as might be possible under specific rates if the company were able by operating more efficiently to reduce its unit cost of service. * * * [Original emphasis.]”
It is clear that in making the changeover, American Louisiana contemplated that the specific dollars and cents form of the contract-demand rate would allow greater revenues. Indeed it is unrealistic to take the position that the dissatisfaction of American Louisiana with a rate which permits it to obtain “its proper cost-of-service and return” is due to other than the fact that the contract-demand rate it seeks would permit it to obtain more.
III
Apart from the question whether the proposed changeover in rate form involved a rate increase as to which American Louisiana must sustain the burden of proof under Section 4, the *536Commission was in any event justified in concluding, contrary to the Examiner, that American Louisiana’s change to a conventional rate should be denied. Under Section 5(a) of the Natural Gas Act, 52 Stat. 823 (1938), 15 U.S.C. § 717d (1958), the Commission has the power to declare unlawful “any rate, charge or classification demanded, observed, charged or collected” and, under that section, to determine the just and reasonable rate and fix the same by order. See Mississippi River Fuel Corp. v. FPC, 102 U.S.App.D.C. 238, 243, 252 F.2d 619, 624 (1957). As to the interdependence of Sections 4 and 5 of the Natural Gas Act, see United Gas Pipe Line Co. v. Mobil Gas Co., 350 U.S. 332, 341-345, 76 S.Ct. 373, 100 L.Ed. 373 (1956).
The Commission found that American Louisiana’s contract-demand rate form as proposed was “unlawful under the Act and should be disallowed”; and it provided that American Louisiana’s “just and reasonable rates for the future are as prescribed” in the Commission’s order. The opinion gave adequate reasons for these conclusions, with adequate support in the record. It pointed out the special circumstances posed by American Louisiana, which sells practically all of its gas to affiliated companies. As was urged upon the Commission, the cost-of-service form of rate “minimizes inter-affiliate transactions which afford the possibility of manipulation and excessive earnings.” 7 ****And the Commission stated:
“the seller’s charges to its affiliates are computed on the basis of its actual costs for successive billing periods, plus the return allowed. Thereby the seller is permitted all costs to which it is entitled but no more, thus achieving the desideratum of utility, rate regulation.” (Emphasis supplied.)
It is uncontested that the form of rate prescribed by the Commission does permit American Louisiana to recover all costs to which it is entitled, plus a return which on this record cannot be said to be unjust or unreasonable.
We note that an earlier Commission order denied American Louisiana’s request to change from a cost-of-service rate “on the ground of insufficient operating experience to evaluate claimed costs, but without prejudice to its filing again to change.” On this basis American Louisiana contended that it had acquired sufficient operating experience and that its costs were reasonable as shown by the stipulation of July 12,1961. The Commission was nevertheless free to conclude, as it did, that neither this contention nor the evidence supported the changeover. As the Commission stated:
“American Louisiana is undeniably an affiliate of Michigan Wisconsin and Michigan Consolidated, which purchase in excess of 95 per cent of its gas.12 These circumstances justify applying to it requirements not invoked against companies otherwise situated * * * And on the present facts, we conclude that we can best attain the objective of rate regulation — the allowance of all proper costs and return but no more — by requiring the continued use of a cost-of-service form of 'rate. (Emphasis supplied.)
The dollars and cents contract-demand form of rate may have permitted larger *537profits to the seller through savings in costs, but the Commission was not required to approve it so long as the preexisting cost-of-service rate form was just and reasonable. This it was since it allowed “all proper costs and return but no more.”

“14 American Louisiana, 16 FPC 779; American Louisiana, 18 FCP 795.”

. Thus, the statement in the court’s opinion, p. 529, that we are told American Louisiana did not introduce evidence of the subject of affiliation because there was no suggestion it would be disposi-tive I think is unjustified. Moreover, this issue was not required to be labeled as “dispositive.”

. Natural Gas Act, § 19(b), 52 Stat. 831 (1938), as amended, 15 U.S.C. § 717r (b) (1958).

. American Louisiana’s primary contentions are that the burden is upon the Commission to prove that the form of rate filed by American Louisiana was unjust and unreasonable and that the Commission’s decision does not contain findings essential to support its order.

. The requested changeover from the preexisting month to month cost-of-service rate form to American Louisiana’s proposed contract-demand tariff with fixed *535demand and commodity charges was answered by the Commission as follows: “Based on actual sales for the calendar year 1958, the proposed tariff would effect an increase of $916,497 in revenues.”

. The court fails to take into account the contingent nature of the stipulated cost-of-service figure based on 1960 as a test year. It was to be binding only if the contract-demand rate form were approved. More importantly, the fact that the conditionally stipulated interim tariffs would have been less in amount than the originally filed tariffs, of which approval had been sought, see footnote 5 of the court’s opinion, has no bearing on the question whether the change-over from cost-of-service rate form to contract-demand was a rate increase. It is not relevant that the conditionally stipulated rate might have been less than the filed tariffs.

. I accept this assumption only arguendo. For if the new tariff increased the rates, it seems to me American Louisiana must sustain the burden of demonstrating that any concession in the rates during the hearing wiped out the increase originally sought.

“12 The remainder is purchased by five non-affiliated distributing companies.”

. It is obvious that the usual incentive to reduce costs under the dollars and cents contract-demand rate form is complicated when inter-affiliate transactions are involved. The affiliated seller’s savings (hence increased revenues which escape adequate regulation) and the affiliated buyer’s savings inure to the American Natural Gas System as a whole. And since the cost of gas to municipal public utilities would be at a fixed rate the non-affiliated utilities and the ultimate consumer do not receive the benefits of these savings which would be passed on to them under the cost-of-service rate form as it is adjusted monthly.