State Corp. Commission of Kansas v. Federal Power Commission.northern Natural Gas Co. v. Federal Power Commission, 215 F.2d 176 (8th Cir. 1954)

Northern Natural Gas Company, petitioner herein, has moved the court to withhold from distribution a portion of the funds accumulated by it during the period of one year under the stay order issued by this court on December 18, 1952, "which, when coupled with revenues impounded under Commission bond pursuant to" Commission Opinion No. 233 "will be available to reimburse" Northern "for its cost of service (including a reasonable return) after the effective date of Opinion No. 233 (June 27, 1952) to December 27, 1953, as such cost of service may be determined and fixed by order of said Commission under the provisions of the Natural Gas Act [29 U.S.C.A. § 717 et seq.]". The petitioner has also made application to the court for leave to adduce further evidence before the Federal Power Commission of Northern's actual cost of service during the period when it collected rates under the Court's stay (November 27, 1952 to December 27, 1953) and for an order directing the Commission to take such evidence and to make findings of the actual cost of Northern's service based thereon, said findings together with said Commission's recommendations, if any, for the modification or setting aside of its original Opinion and Order No. 233 issued July 30, 1952, to be submitted to the court. (The motion and application are set forth in substance in the footnote.)¹ 

The Federal Power Commission and interveners have filed resistance to Northern's motion and application and after due notice given on the motion and application, a hearing was had before the court on briefs and oral arguments at Omaha on July 13th and 14th, 1954. The court being fully advised concludes and determines that the motion of Northern Natural Gas Company filed February 20, 1954 to Amend Stay Order and its Application filed March 19, 1954 for Leave to Adduce Additional Evidence be and the same are hereby denied.

Opinion.

The record shows that during the pendency of proceedings before the Federal Power Commission with respect to two rate increase proposals filed by Northern certain issues became clearly defined, were tried out and were decided and disposition made in respect to them by the Commission in its Opinions Nos. 228 and 228A and Orders issued June 11, 1952 and September 25, 1952. The Commission determined that certain defined elements of Northern's costs relied on by Northern in its proposed raise of rates did not support the raise. The Opinions and Orders were affirmed in all respects by this court with the exception of the 5½% rate of return, which issue was remanded by this court to the Commission for further findings. Northern Natural Gas Company v. Federal Power Commission, 8 Cir., 206 F.2d 690.

While the first and second rate increase proceedings were pending before the Commission, Northern filed a third rate increase proposal predicated in substantial measure upon the same contentions put in issue, contested, and decided by the Commission in Opinions Nos. 228 and 228A and Orders issued June 11, 1952 and September 25, 1952. By the third rate increase filing Northern proposed to increase its rates by approximately $10,600,000, based upon a 6½% rate of return, over and above Northern's first and second rate increase proposals. Following hearings on the third rate increase proposal, at which Northern presented evidence in justification of the proposed rate increase, the Commission's staff filed a motion to dismiss Northern's third rate increase proposal to the extent that the issues involved in it had just been decided by the Commission adversely to Northern's contentions. Accepting Northern's own evidence for purposes of the motion, including its claim for a 6½% rate of return, it appeared that the minimum amount of revenue involved in the issues to which the motion was addressed was $7,601,853. (The remand on rate of return in no way affects the funds accumulated under the stay, since such funds are associated with the third rate increase and are therefore all based on a 6½% rate of return.) Although Northern contested the motion, it did not show at the hearing that there was any new evidence or further condition affecting the $7,601,853 increase that had not already been submitted to and passed on by the Commission. The Commission, after oral argument, by Opinion No. 233 and order issued July 30, 1952, granted the motion to dismiss $7,601,853 of the third rate increase proposal. The opinion and order were interim proceedings and the case as docketed remains pending and undisposed of before the Commission.

Northern was directed by the Commission in Opinion No. 233 and order issued July 30, 1952, to file substitute rate schedules permitting the continued collection from June 27, 1952, subject to refund, of an increase in rates of approximately $3,000,000 — the amount which was not disposed of by the grant of the motion to dismiss. The required rate schedules reflecting the increase of approximately $3,000,000 were filed and were accepted by the Commission. While there have been no further proceedings before the Commission with respect to this rate increase proposal, Northern collected the increase subject to refund until December 27, 1953. At that time, pursuant to Commission order issued January 28, 1954, approving a settlement of Northern's fourth rate increase proposal, Northern began the collection of rates in excess of those filed pursuant to Opinion No. 233 and order issued July 30, 1952.

In the meantime, the dismissal of the $7,601,853 was affirmed by this Court in Northern Natural Gas Company v. Federal Power Commission, supra. As this Court said in that case, 206 F.2d 716:

"* * * It is evident from the record therefore, that if the Commission had allowed the $7,601,853 items to remain pending in Northern's third rate increase schedule the Opinions 228 and 228A and Orders disposing of the same items would have been practically nullified. Northern's proposal was to continue indefinitely to charge its customers on the basis of its disallowed increase of $7,601,853, regardless of adverse decision upon it by the Commission. Its position for aught that appears would justify it continuing the same course, notwithstanding judicial affirmance of the Commission. We do not think the statute can be construed to permit such a course of procedure by Northern."

Northern's claim now is that the $3,000,000 which it has collected, subject to refund, from June 27, 1952 to December 27, 1953, is insufficient to cover the increased costs (including fair return) which it has actually experienced in rendering services to its customers. It contends that the deficiency should be made up by awarding to it a portion of the funds accumulated under the stay order, not exceeding $2,900,000; the Commission to decide ultimately what portion of the $2,900,000 is required to reimburse Northern for all of its actual cost of service which Northern alleges has occurred during the period.

Whether Northern's allegations are true regarding the insufficiency of the $3,000,000 increase to cover the actual cost of service for the one year period now in question has not been positively ascertained. It is stated that the company accountants place the amount of actual insufficiency at $2,900,000, and that accountants from the Commission's staff have been at work on the books of the company to make the determination for several months and have apparently brought their task to or near completion. There is no positive denial of Northern's claim that the revenue received by it for the period in question was insufficient to cover the cost of services including a reasonable return.

The court now holds that the Stay Order of this court does not contemplate or provide that any part of the funds to be accumulated by Northern while said order remained effective should inure to Northern in the event of an affirmance of the Commission's decision and order. Although the intention of the Stay Order, as stated therein, was that "no vested rights shall exist in favor of any one to the excess revenues in case of an affirmance of the Federal Power Commission's order except such as may ultimately and equitably be fixed by the Court", Northern was firmly bound by the condition of the Stay Order that it would "refund to the utility distributing companies any portion of the revenues collected by virtue of this stay and found by this court upon judicial review to be not justified,". The judicial review that was meant was our review of the decision and order of the Commission, and upon our affirmance of said decision and order the condition became absolute. The Motion and Application of Northern are in conflict with the terms and intention of the Stay Order.

The court is of the opinion that the action sought by Northern is not in accord with the court's responsibility under the Stay Order. As stated by the Supreme Court in Interstate Natural Gas Company v. Federal Power Commission, 336 U.S. 577, 584, 69 S. Ct. 775, 779, 93 L. Ed. 895,

"the task of the federal court in distributing the fund accumulated by virtue of its stay order is to undo the wrong which its process caused. The basic problem, therefore, is not to fix rates but to determine who suffered a loss as a result of the court's action in granting the stay. * * *"

As the stay in this case permitted Northern to override the Commission's order and to collect from its customers the fund which it could not otherwise have collected, it devolves upon the court on affirmance of the Commission to order Northern to surrender the fund up to those other persons entitled to receive it. As this court said in Panhandle Eastern Pipe Line Co. v. Federal Power Commission, 8 Cir., 179 F.2d 896, 902, "A utility challenging such an order, when it applies to the reviewing court for a stay of the effective date and asks that rates found to be excessive be kept in effect, takes a calculated risk." It must be held when it loses, to the conditions imposed when the stay was granted.

It also appears to the court that to accord to Northern the relief it now seeks would to a large extent nullify the decision of this court which affirmed the Commission's Opinion No. 233 and Order issued July 30, 1952. The Commission disallowed the identified items of costs aggregating $7,601,853 of the increase in rates applied for by Northern and this court affirmed. If Northern were now permitted to retain a part of the fund it is obvious that to that extent this court's decision would be nullified.

It is contended against Northern that if it developed in actual operation that the rates collected by it during the period in question were insufficient and confiscatory, that result was not brought about by any error of the Commission or the court in the disallowance of the items making up the $7,601,853. It is said the fault was Northern's own in failing to make timely filing for proper rate increase and that the request which Northern now presents is in conflict with the limitations of Sections 4(e) and 5(a) of the Act. We sustain the contention.

Under Section 4(e) the Commission may order a refund with interest of rates or charges which it has decided not to be justified but its power to fix rates is prospective only and those it fixes are applicable only to the future. As was said in Hope Natural Gas Company v. Federal Power Commission, 4 Cir., 196 F.2d 803, 805,

"The Commission's power to fix rates under section 5(a) is prospective only, and rates so fixed are applicable only to the future. * * * The Commission is given no power to enter reparation orders with respect to rates. Its power over rates, which is prescribed by section 5(a) * * * is to determine after a hearing whether existing rates are unjust, unreasonable, discriminatory or preferential, and, if so, to prescribe the just and reasonable rate `to be thereafter observed and in force'. If it suspends a proposed new rate under section 4(e), and enters upon a hearing pursuant to that section, it can make only such orders with respect thereto `as would be proper in a proceeding initiated after it had become effective', i. e. a proceeding under section 5(a)."

As said by the Supreme Court in Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 618, 64 S. Ct. 281, 295, 88 L. Ed. 333, "It is conceded that under the Act the Commission has no power to make reparation orders. And its power to fix rates admittedly is limited to those `to be thereafter observed and in force.'"

Section 5(a) also limits the power of the Commission by this provision:

"That the Commission shall have no power to order any increase in any rate contained in the currently effective schedule of such natural gas company on file with the Commission, unless such increase is in accordance with a new schedule filed by such natural gas company".

We think the motion of Northern is in conflict with both the above limitations upon the powers of the Commission.

To support its Application for Leave to Adduce Evidence, Northern relies heavily upon Section 19(b) of the Natural Gas Act, 52 Stat. 821, 15 U.S. C.A. § 717r, which provides:

"* * * The finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive. If any party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence in the proceedings before the Commission, the court may order such additional evidence to be taken before the Commission and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The Commission may modify its findings as to the facts by reason of the additional evidence so taken, and it shall file with the court such modified or new findings, which if supported by substantial evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original order. The judgment and decree of the court, affirming, modifying, or setting aside, in whole or in part, any such order of the Commission, shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in sections 239 and 240 of the Judicial Code, as amended (U.S.C., title 28, secs. 346 and 347)."

It is Northern's position that the statute 19(b), empowers the court and the Commission to save Northern from loss by reason of the alleged insufficiency of the rates collected by it during the year that is in question here. Since the year has passed the effect of the rates that were collected can be demonstrated, whereas the action of the Commission and the company in establishing the rates was necessarily based on forecast and anticipation of what rates would produce in the future. In substance, the contention for Northern is that the quoted statute, 19(b) provides means to compare the realizations from established rates with the expectations on which the rates were based and to accord exact justice to rate payers on the one hand, and to utilities on the other, by appropriate apportioning of the fund which is on hand.

It cannot be denied that the wording of the statute read by itself appears to afford a measure of support to Northern's position but it is elaborately argued in the opposing briefs that the statute has no such intent or purpose. It is pointed out that in rate regulation such as is here involved, the Commission's legislative fixing of rates must necessarily relate to the future and the Commission lacks power to grant reparation where a rate has proved on application to be confiscatory. The court also is limited strictly to the exercise of judicial power and has no power to fix rates or to accord reparation on account of insufficiency of rates in the past. In the process of rate regulation, therefore, the utility must propose a change in the rates under which it is operating and the Commission allows or disallows the change. It is the allowance or disallowance that is subject to review by the court. There is no place in the proceeding for either the Commission or the court to accord reparation.

Accordingly, it is contended that it is the intent of Section 19(b) that the procedure provided in it for adducing additional evidence refers only to proceedings taken before review of the order of the Commission. It is also insisted that the newly discovered evidence that may be adduced under the section can only be evidence that was in existence and could be considered by the Commission in passing on the issues before it. Such intendment must be ascribed to the provisions of the section in the sequence in which they are found in it in order to reconcile them with the concluding provision that "The judgment and decree of the court * * * shall be final". If Section 19(b) were construed to permit the adducing of additional evidence on the merits of an order after review thereof by the Court of Appeals such construction would be in conflict with the provision which gives finality to the judgment of the court.

We conclude that to grant the leave to adduce evidence requested by Northern would amount in effect to the initiation of proceedings for recovery of reparation by Northern for past insufficiency of rates. That such is manifestly the purpose of the desired comparison between the expected and the actual realized proceeds of the rates that were established. That such recovery of reparation is not sanctioned by Section 19(b) and is contrary to well settled law. Interstate Natural Gas Company v. Federal Power Commission, supra; Federal Power Commission v. Hope Natural Gas Co., supra.

Motion and Application to Adduce Evidence denied.