Petition — Public Service Commission v. Washington Gas Light Co.
Supreme Court brief1983
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8 y ba 1 6 5 S Oftice-Supreme Court, U.S.
FILED
No. apR Ll 1983
ALEXANDER L. STEVAS,
CLERK
IN THE
Supreme Court of the United States
OCTOBER TERM, 1982
PUBI.IC SERVICE COMMISSION
OF THE DISTRICT OF COLUMBIA,
Petitioner,
Vs
WASHINGTON GAS LIGHT COMPANY,
Respondent.
PETITION FOR A WRIT OF CERTIORARI
TO THE DISTRICT OF COLUMBIA
COURT OF APPEALS
Lloyd N. Moore, Jr.
Counsel of Record
for Petitioner
Public Service Commission
of the District of Columbia
451 Indiana Avenue, N.W.
Washington, D.C. 20001
Tel. (202) 727-3050
Of Counsel:
Michael E. Geltner
Michael d. Newsoin
THE CASILLAS PRESS. INC — 1717 K Street NW — Washington, D.C. — 223-1220
QUESTION PRESENTED
Whether the Federal Energy Regulatory Commission
exceeded its jurisdiction under the Natural Gas Act when
it decided to approve the annual budgets of Gas Research
Institute, a research, development and demonstration
organization engaged in research into synthetic gas and
other subjects beyond FERC’s regulatory jurisdiction, and
to authorize the cost of Gas Research Institute’s activities
to be added to the wholesale cost of natural gas, requiring
State and local regulatory Commissions to pass that cost
on to consumers.
*Parties to the proceeding in the District of Columbia Court of Ap-
peals, in addition to the Public Service Commission of the District of
Columbia and Washington Gas Light Company, included the Office
of People’s Counsel of the District of Columbia. Gas Research In-
stitute filed a brief as amicus curiae.
eas
TABLE OF CONTENTS
Page
CRS HO PRESENTED unc cc ccccccccccccncncccccsevens i
TABLE OF AUTHORITIES ............. ccc cece cece ee eens iv
PUPP MEY ccc crccccccescccteccccenvevceesescees ]
PEPE ROUIOE civic ccncuncnscccecceccesccccccncseccuense 2
PNET CIEE VEE cccccccccccccccccesccesccesscaccees 3
STATEMENT OF THE CASE .............6 00 cee ce eens 3
REASONS FOR GRANTING
PP TT rr Tee er err rrr rr rere eye 7
IE sa ccdcvdcretccesacecscececenscareseseasnees 13
APPENDIX
Opinion of District of Columbia
Court of Appeals, Entered October 29, 1982 ............5. la
Order of District of Columbia Court
of Appeals Denying Petition for Re-
hearing, Entered January 21, 1983 0.0.0... ceca 26a
Excerpts from Proposed Opinion and Interii
Order of the Commission, Issued October 3,
SE Scie hn io 656544049 44544,04454054840440400044450 048 28a
Excerpts from Final Opinion and Order
of the Commission, Issued November 10,
DS aiaied 6.44.5529.904400544440421054404000 104 84R EES 33a
Excerpts from Order of the Commissicn
Denying Applications for Reconsideratiun,
Issued December 24, 1980 2.0.0.6 cee eee 34a
Natural Gas Act, §§ 2,4, 8, & 16 2.0... ccc cee eee 34a
iv
TABLE OF AUTHORITIES
Case: Page
Davis v. United States,
ee es Ss co ncendenutuasanieeesaaeeeedienes 12
Davis v. United States,
en SE co 2 os G4456 she obs BPE CeEAR AER ERS 12
F.P.C. v. Texaco, Inc.,
el errr PrerT yee) errr ere Tyee 6
Henry v. F.P.C.,
168 U.S. App. D.C. 173, 513 F.2d 395 (1975) ........... 7,10, 11
John Hancock Ins. Co. ». Bartels,
eh, << 6n0isb00a0 545 6440064085550 40884005 12
Maggio v. Zeitz,
SE va vucdned chive Sake Uber e ests eee teeKe 13
Narragansett Electric Co. v. Burke,
381 A.2d 1358 (R.1. 1977), cert. denied
og S&T ec ee Poe etree rer nt apa 8
Office of Consumers’ Counsel v. F.E.R.C.,
210 U.S. App. D.C. 315, 655 F.2d 1132 (1980) ....... 7,10, 11,12
Potomac Electric Power Co. v. Public Service
Commision, 402 A.2d 14 (D.C. App.) cert. denied,
Se RS sok cp rua s dee cba weea ek 8 Code baba aees 3
Public Utilities Commission of Colorado v. F.E.R.C.,
102 S.Ct. 2009, 456 U.S..___, 213 U.S. App. D.C. 1,
660 F.2d 821 (1981), cert. denied, (1982) ...... 4, 5,6, 7, 8,9, 11, 12
Public Utilities Commission of New York v. F.E.R.C.,
177 U.S. App. D.C. 245, 543 F.2d 392 (1976) .......... eee 7
Scott v. United States,
SD, an cry lakes habene sabe banteevecaaens> 12
IN THE
Supreme Court of the United States
OCTOBER TERM, 1982
No.
PUBLIC SERVICE COMMISSION
OF THE DISTRICT OF COLUMBIA,
Petitioner,
Vv.
WASHINGTON GAS LIGHT COMPANY,
Respondent.
PETITION FOR A WRIT OF CERTIORARI
TO THE DISTRICT OF COLUMBIA
COURT OF APPEALS
OPINIONS BELOW
The opinion of the District of Columbia Court of Ap-
peals which this petition seeks to have the court review is
officially reported at 452 A.2d 375 (D.C. App. 1982). It is
reproduced in the appendix, starting at la.
The orders of the Public Service Commission of the
District of Columbia are reported at 39 PUR 4th 161
(D.C.P.S.C. 1980).' There is no official report. Pursuant
'The Commission first issued a proposed opinion and interim
order. Excerpts are at 28a. Commissioner Long filed a partial concur-
ring and dissenting opinion. The Commission then issued a final opi-
nion and order. Excerpts are at 33a. Finally, the Commission issued
an order denying applications for reconsideration. Excerpts are at
34a.
2
to authorization of the Clerk, ten copies of the orders of
the Public Service Commission of the District of Colum-
bia have been lodged with the Clerk’s Office. Excerpts,
containing all of those portions of the orders relevant to
this petition are reproduced in the appendix, starting at
28a.
JURISDICTION
The Judgment of the District of Columbia Court of Ap-
peals which this petition seeks to have the court review was
entered on October 29, 1982. Petitioner filed a timely peti-
tion for rehearing in the District of Columbia Court of
Appeals which that court denied without opinion on
January 21, 1983. This petition is filed within 90 days of
that date.
This court has jurisdiction to review the judgment of the
District of Columbia Court of Appeals by writ of cer-
tiorari pursuant to 28 U.S.C. § 1257(3).
STATUTES
Natural Gas Act §§ 2, 4, 8 and 16.?
STATEMENT OF THE CASE
On June 29, 1979, Respondent Washington Gas Light
Company (“Washington Gas”) filed a rate increase ap-
plication which led to proceedings before Petitioner Public
Service Commission of the District of Columbia (“the
Commission”). The proceedings were designated Formal
Case No. 722. One of the issues which the Commission
had to address in Formal Case No. 722 was whether it was
*See Appendix, pp. 34a-4la.
3
required to permit Washington Gas to treat Washington
Gas’ costs for its allocable share of the budget of Gas
Research Institute (“GRI”) as an operating expense.
GRI is a research, development and demonstration
organization whose members consist of wholesale and
retail gas companies, including Washington Gas and its
wholesale suppliers, Columbia Gas and Transco (“the
pipelines”). GRI engages in research into a variety of gas
related issues, much of it involving synthetic gas. The
Federal Energy Regulatory Commission (“FERC”) is
authorized to regulate the wholesale price of natural gas
under § 4 of the Natural Gas Act. Although FERC has no
Statutory authority to supervise or regulate research
organizations, FERC decided to assume jurisdiction to ap-
prove GRIs’ budgets and to authorize GRI to impose
charges upon its members. Under this scheme, FERC
authorized the member pipelines to include their GRI
assessments in the wholesale price of natural gas to
retailers, such as Washington Gas.
In Formal Case No. 722, the Commission decided to use
the calendar year ending December 31, 1979 as its test
year.» The Commission was then faced with deciding
whether it was obliged by FERC preemption to permit
Washington Gas to recover its GRI surcharges as
operating expenses* without independently reviewing the
reasonableness of those charges, as it must for all other
such expenses.
>Under District of Columbia law, the Commission engages in tradi-
tional test year ratemaking in which it examines the rate base, rate of
return and expenses on the basis of a particular year’s data and, if that
year’s data warrants it, authorizes a prospective change in public utili-
ty rates. See Potomac Electric Power Co. v. Public Service Commis-
sion, 402 A.2d 14 (D.C. App.), cert denied, 444 U.S. 926 (1979).
‘During the test year, the GRI surcharge from the pipelines to
Washington Gas was .047 center per therm.
—_— es
4
Washington Gas contended that FERC’s action in
regulating GRI and authorizing GRI’s expenses to be add-
ed as a surcharge to the wholesale cost of natural gas com-
pletely preempted state and local regulatory commissions
from independently inquiring for retail ratemaking pur-
poses into the reasonableness of Washington Gas’ GRI
payments. People’s Counsel, a statutory party to Commis-
sion proceedings, contended that the Commission retained
authority, despite FERC’s approval of the surcharge, to
determine whether Washington Gas’ GRI expense was
beneficial to District of Columbia ratepayers and, if the
Commission determined that it was not, to refuse to per-
mit Washington Gas to treat the surcharge as an operating
expense for ratemaking purposes.
On October 3, 1980, the Commission issued its Propos-
ed Opinion and Interim Order in Formal Case No. 722.
(Excerpted at 28a) Having heard evidence on GRI’s pro-
gram, the Commission concluded that the benefits to the
immediate consumer were “indirect at best” and will be
substantially less to residential consumers than to in-
dustrial and commercial customers and to gas utility com-
panies in general. (3la-32a) Although the Commission
found that Washington Gas’ stockholders stood to receive
a substantially greater benefit from GRI than _ its
customers, the Commission decided to allow Washington
Gas’ test year GRI charge as an operating expense because
the amount was small and because there was some promise
of benefit to consumers.‘
*The order noted that the Commission was aware that FERC’s Opi-
nion No. 64, which reviewed GRI, was under review on the preemp-
tion issue in Public Utilities Commission of Colorado v. FERC, 213
U.S. App. D.C. 1, 660 F.2d 821 (1981), cert denied, 456 U.S.__, 102
S.Ct. 2009 (1982), which was at that time still undecided.
5
Washington Gas filed exceptions to the Commission’s
proposed opinion. It noted that its GRI surcharge had
been raised by an increase in the per therm rate, effective
January 1, 1981, and sought to have the Commission
reflect that change in its authorized retail rates. In its Final
Opinion and Order, filed November 10, 1980, the Com-
mission denied Washington Gas’ exception. The Commis-
sion declined to approve the post-test year per term in-
crease, because, “although approved by FERC, [it] has
not been shown to be justified on a record before this
Commission.” (33a)
Washington Gas pressed the same issue by application
for reconsideration, and, in an order entered December
24, 1980, the Commission ruled that, since Public Utilities
Commission of Colorado v. FERC, supra, was still pen-
ding, the post-test year increase lacked the certainty
necessary to require rate order adjustment. (34a)
On appeal to the District of Columbia Court of Ap-
peals, Washington Gas raised the issue of Commission
authority to deny automatic pass through of its GRI per
therm surcharge, contending that the Commission was
wholly preempted by FERC’s assumption of jurisdiction
over GRI. People’s Counsel intervened in the appeal and
argued that, despite FERC approval, the Commission re-
tained authority to review GRI’s potential benefit to
ratepayers before approving expense treatment of the GRI
surcharge. The Commission’s position was that, until the
District of Columbia Circuit finally decided the Colorado
case, the GRI surcharge lacked the certainty to justify
post-test year rate adjustment. Its contention was that,
while it could not reexamine the appropriateness of a
FERC — approved wholesale rate surcharge, it was not
obliged to authorize the retail utility to pass through such
6
a surcharge if FERC’s approval of it was ultra vires, the
point in issue in the Colorado case.
While this case was pending before the District of Col-
umbia Court of Appeals, the District of Columbia Circuit
decided the Colorado case, affirming FERC’s authority to
regulate GRI. Public Utilities Commission of Colorado v.
FERC, 213 U.S. App. D.C. 1, 660 F.2d 821 (1981). The
Public Utilities Commission of Colorado bypassed sug-
gesting rehearing en banc and sought review here.® On
April 26, 1982, this court denied certiorari. 456 U.S.__.,
102 S.Ct. 2009.
The Commission then was granted leave to file a sup-
plemental memorandum in the District of Columbia Court
of Appeals. The Commission requested the court to sus-
tain its denial to Washington Gas of the post-test year ad-
justment on the alternative ground that, since FERC lack-
ed authority to regulate GRI, the Commission was obliged
to review Washington Gas’ payments for GRI expenses
before approving rate treatment. Noting that this court
had denied Colorado’s petition, the Commission contend-
ed that the District of Columbia Court of Appeals had
authority to independently examine the issue of FERC
jurisdiction and that it should do so, since such action
would create the conflict which this court might see as
necessary to grant review.’ The Commission then argued
*The Commission and several state regulatory commissions filed
briefs as amici curiae urging the court to accept the Colorado Case.
‘Appellate review of FERC decisions can be sought in the District
of Columbia Circuit or the circuit in which the natural gas company
has its principal place of business. See F.P.C. v. Texaco, Inc., 377
U.S. 33 (1954); 15 U.S.C. § 717r(b). Since GRI is not a natural gas
company, the practical effect of the law is to limit review to the
District of Columbia Circuit.
7
to the court of appeals that, since a large part of GRI’s ac-
tivities involved research into synthetic gas* or subjects far
removed from natural gas and Congress had specifically
denied FERC authority to regulate synthetic fuels,’ FERC
exceeded its authority when it undertook to regulate GRI
and authorize rate treatment of its budget.
In an opinion filed October 29, 1982, the District of
Columbia Court of Appeals held that the Commission had
no authority to inquire into the reasonableness of the GRI
surcharge. (20a) The court declined the Commission’s re-
quest to hold that FERC had exceeded its jurisdiction,
because “[rjeview of the rulings of FERC is vested by
statute in the United States Court of Appeals, not this
court.”'" (21a) The Commission’s timely application for
rehearing was denied January 21, 1983. (26a)
REASONS FOR GRANTING THE WRIT
It is important that the integrity of basic regulatory
systems be maintained in the face of overreaching by
FERC, that the careful balance which Congress ordained
between federal and state regulation of interstate natural
gas sales be defended.
The court below, however, squarely held that the Com-
mission had no authority to disallow the GRI surcharge as
‘See Public Utilities Commission of Colorado v. FERC, supra, 660
F.2d at 825-826.
*See Office of Consumer's Counsel v. FERC, 210 U.S. App. D.C.
315, 655 F.2d 1132 (1980); Public Service Commission of New York v.
F.P.C., 177 U.S. App. D.C. 245, 543 F.2d 392 (1976); Henry v.
F.P.C., 168 U.S. App. D.C. 137, 513 F.2d 395 (1975).
‘Since the court of appeals concluded that its reversal of the Com-
mission on the GRI issue did not render the entire rate order
unreasonable, it did not remand on that point for modification of the
rate order. (24a-25a)
a reasonable operating expense and that the Commission
was unauthorized to consider whether the GRI surcharge
benefits District of Columbia ratepayers. As a conse-
quence, the court has stripped those ratepayers of any
meaningful protection — heretofore afforded by the D.C.
Commission — from having to bear the cost of programs
that may be of no benefit to them whatsoever.
GRI clearly is not a natural gas company within the
meaning of the Natural Gas Act, for GRI, a research and
development organization, is engaged neither in the trans-
portation of natural gas in interstate commerce nor the
sale of natural gas in interstate commerce for resale.''
Thus no basis exists under the Natural Gas Act for FERC
to regulate or approve GRI surcharges, much less to
obligate state commissions'? to pass those charges through
to consumers without regard to any benefit therefrom for
the local ratepayers.
The problem stems from the rule that, when FERC
authorizes a charge to be placed on wholesale rates,
regulators of retail sales of natural gas must permit the
charges authorized by FERC to be passed on to the retail
ratepayers as part of the cost of purchased gas. See, e.g.,
Narragansett Electric Co. v. Burke, 381 A.2d 1358 (R.1.
1977), cert. den., 435 U.S. 972 (1978). On the other hand,
where FERC does not regulate a charge on wholesale
rates, retail commissions, such as the D.C. Commission,
may determine the reasonableness of the charge before ad-
ding it to the retail rates. Thus, any increase of FERC
''See FERC opinion No. 11 quoted in Public Utilities Comm'n of
Colorado v. FERC, supra, 660 F.2d at 823.
'2While the D.C. Commission is not a “state” regulatory commis-
sion and was created by an Act of Congress, it functions like a state
commission in regulating retail natural gas sales.
9
regulatory jurisdiction decreases the regulatory jurisdic-
tion of state retail commissions; FERC’s usurpation of
authority regarding GRI charges reduces the authority of
State commissions. The decision below graphically il-
lustrates that proposition and shows the harm that accor-
dingly befalls retail ratepayers. Because of this harm, the
direct result of overreaching by FERC, a writ of certiorari
should issue to review the decision below.
It is important that courts and agencies maintain the in-
tegrity of basic regulatory systems mandated by Congress.
That integrity is destroyed when loose and casual scrutiny
by FERC of the potential benefit to ratepayers of GRI
charges is substituted for the close scrutiny of the D.C.
Commission.
It is also important that the integrity of basic regulatory
systems created by Congress not fall prey to actions that
run directly counter to the will of Congress.
Much of research and development work proposed to be
undertaken by GRI involves something other than natural
gas as such. See Public Utilities Commission of Colorado
v. FERC, supra, 660 F.2d 821, 825 n.9. While it might be
desirable for FERC to administer — and raise money for
— a varied research program in the name of conservation
of dwindling gas supplies, the fact remains that Congress
has denied FERC such authority. The decision below con-
flicts with that decision of Congress.
Synthetic fuels provide the most obvious example of
how overreaching by FERC given legal sanction by the
decision below violates Congressional intent. Several of
GRI’s research areas concern synthetic fuels. Congress,
however, has legislated on this subject, creating, in-
ter alia, the Synthetic Fuels Corporation, 42 U.S.C.
10
§§ 8701 ef seq.'* Under the Act, the corporation may pro-
vide financial assistance of various types to research and
development projects in an amount of up to $88 billion.
See, e.g., 42 U.S.C. §§ 8772(c)(11), 8751. That munificent
sum of money does not, however, come from gas
ratepayers as such. Congress has determined that financial
support for synthetic fuels development should come from
sources other than ratepayers. Nothing in the Act refers to
FERC or to ratepayers. FERC approval of GRI charges
for synthetic fuels research conflicts with Congressional
intentions. '°
It is important that the decisional law in this area be
both internally consistent and supportive of basic
regulatory systems. The decision below, treats the Col-
orado decision as controlling. The latter decision is,
however, directly inconsistent with Henry v. F.P.C., 168
U.S. App. D.C. 137 513 F.2d 395 (1975) and Office of
Consumers’ Counsel v. FERC, 210 U.S. App. D.C. 315,
655 F.2d 1132 (1980).
In Henry, supra, three applications were filed before
FERC pursuant to § 7(c) of the Natural Gas Act'® for cer-
tificates of public convenience and necessity. The facilities
involved included plant for the manufacture and transpor-
tation of synthetic gas and plant for the mixing of syn-
thetic and natural gas. The court, affirming the FPC, held
that the FPC had no jurisdiction over plant devoted to the
'*This legislation is part of the Energy Security Act of 1980, P.L.
96-294.
'*The Energy Security Act of 1980 includes other titles concerning,
inter alia, biomass energy and alcohol feels, renewable energy in-
itiatives, solar energy and energy conservation, and geothermal reser-
voirs. In none of these areas does it appear that Congress meant for
FERC to saddle ratepayers with research costs.
'S15 U.S.C.A. § 717f(c).
11
production or transportation of synthetic gas prior to its
mixture with natural gas from wells.
In Office of Consumers’ Counsel, supra, a consortium
of natural gas companies sought a § 7(c) certificate for a
coal gasification plant and a pipeline to transport the syn-
thetic gas to a point where it would be commingled with
natural gas and sold. FERC granted the application. On
appeal the District of Columbia Circuit reversed, holding
on the basis of Henry that FERC had no regulatory
jurisdiction over any aspect of synthetic gas production or
development prior to its commingling with natural gas.
FERC had argued that its action merely authorized future
sales of commingled gas. The court rejected the argument,
finding that the proposal at issue was in fact a financing
device rather than a gas supply project, that the
hypothetical sale of commingled gas was remote in time,
place and even probability, and that FERC would regulate
the plant during the construction and preoperation period,
a time during which, of course, there would be no syn-
thetic gas from the plant to commingle with natural gas.
It is entirely clear, in light of Henry and Office of Con-
sumers’ Counsel, that FERC has no regulatory jurisdiction
of synthetic gas plant. And yet the court below implements
the Colorado decision, to the effect that FERC can never-
theless regulate and guarantee rate treatment of synthetic
fuel research development and demonstration and for
research into appliance, performance and technology,
even though few of the GRI’s research activities cited in
the FERC opinions independently fall under FERC
jurisdiction and even though none of them are any more
closely related to a jurisdictional event — the transporta-
tion or sale for resale of natural gas — than was the plant
at issue in Office of Consumers’ Counsel.
12
The court below held that review of FERC actions was
vested only in the United States Court of Appeals. If it is
correct, it underscores the need for this court to consider
the merits of this case; neither state supreme courts nor
other circuits would have authority to decide the issue of
FERC authority differently from the District of Columbia
Circuit. Consequently only that court and this one can set
matters right. Sinc. the District of Columbia Circuit has
not done so, only this court can. It is important that the
writ of certiorari should issue for this purpose.
The decision of the court of appeals in Public Utilities
Commission of Colorado v. FERC, supra, is in conflict
with the same court’s earlier opinion in Office of Con-
sumer’s Counsel v. FERC, 210 U.S. App. D.C. 315, 655
F.2d 1132 (1980). While there has been some expression
that an intracircuit conflict is for the court of appeals itself
to resolve through its en banc procedure, '* the existence of
such a conflict must be weighted with other factors in
deciding whether to grant certiorari. For example, the
combination of an intracircuit conflict with an important
question does justify the issuance of a writ of certiorari.
See John Hancock Ins. Co. v. Bartels, 308 U.S. 180, 181
(1939). See also Scott v. United States, 436 U.S. 128
(1978), in which the combination of conflicting views
among the judges of the District of Columbia Circuit and
the importance of the question led this court to grant cer-
tiorari where it had earlier denied the writ to the same issue
presented on interlocutory review. In addition, where the
area of the law is a specialized one and the problems have
'In Davis v. United States, 405 U.S. 933 (1972), the court denied
certiorari when the solicitor general so argued. See Davis v. United °
States, 417 U.S. 333, 340 (1974). Davis, however, was a criminal case
in which the litigant could and did present the issue again in a col-
lateral proceeding. That is not the case here.
13
arisen and will continue to arise within one circuit,'” it is
most appropriate for this court to exercise its discretion to
intervene and resolve the conflict. See Maggio v. Zeitz,
333 U.S. 56, 59-60 (1948). The latter category applies par-
ticularly to this case and the court from which it comes.
See note 7, supra.
CONCLUSION
The court should issue a writ of certiorari to review the
issue of FERC regulatory authority.
Respectfully submitted,
/§/.
Lloyd N. Moore, Jr.
Counsel of Record
for Petitioner
Public Service Commission
of the District of Columbia
451 Indiana Avenue, N.W.
Washington, D.C. 20001
Tel: (202) 727-3050
Of Counsel:
Michael E. Geltner
Michael d. Newsom
'’In this instance, while the decision in Public Utilities Commission
of Colorado, supra, was written for the District of Columbia Circuit,
it was authorized by a visiting district judge.
APPENDICES
Opinion of District of Columbia
Court of Appeals, Entered October 29, 1982 .........
Order of District of Columbia Court
of Appeals Denying Petition for Re-
hearing, Entered January 21,1983 .................
Excerpts from Proposed Opinion and Interim
Order of the Commission, Issued October 3,
EERE ES Aig cee is AS <a face ae
Excerpts from Final Opinion and Order
of the Commission, Issued November 10,
FOE eek aah aw eee 6s VER SEES 505.0999 64056 OM ws
Excerpts from Order of the Commission
Denying Applications for Reconsideration,
SSG EUCOID EE 24, T9GO oi cc cc ecccccsccccenusves
Natural Gas Act, §§ 2,4, 8,&16 ..........cccecuees
DISTRICT OF COLUMBIA COURT OF APPEALS
No. 81-229
WASHINGTON GAS LIGHT COMPANY, PETITIONER,
V.
PUBLIC SERVICE COMMISSION OF THE
DISTRICT of COLUMBIA, RESPONDENT,
OFFICE OF PEOPLE’S COUNSEL OF THE
DISTRICT of COLUMBIA, INTERVENOR.
No. 81-232
OFFICE OF PEOPLE’S COUNSEL OF THE
DISTRICT of COLUMBIA, PETITIONER,
Vv.
PUBLIC SERVICE COMMISSION OF THE
DISTRICT of COLUMBIA, RESPONDENT,
WASHINGTON GAS LIGHT COMPANY, INTERVENOR.
Petitions for Review of an Order of the
Public Service Commission
(Argued September 24,1981 Decided October 29, 1982)
Telemac N. Chryssikos, with whom Lewis Carroll and
Monte R. Edwards were on the briefs, for petitioner in
No. 81-229 and intervenor in No. 81-232.
[2385]
2a
Lloyd N. Moore, Jr., Genera) Counsel, for respondent.
Elizabeth A. Noel, Deputy People’s Counsel, with whom
Brian J. H. Lederer, People’s Counsel, was on the briefs,
for intervenor in No. 81-229 and petitioner in No. 81-232.
James M. Broadstone, Christopher T. Boland, Peter C.
Lesch, and Steve Stojic filed an amicus curiae brief on
behalf of Gas Research Institute.
Before KELLY, HARRIS * and BELSON, Associate Judges.
BELSON, Associate Judge: Petitioner, Washington Gas
Light Company (WGL or Company) sought a rate in-
crease of $17.8 million. Cross petitioner, Office of Peo-
ple’s Counsel (OPC) generally opposed it. On November
10, 1980 the Public Service Commission of the District of
Columbia (PSC or Commission) awarded an increase of
$11.9 million. Both WGL and OPC were dissatisfied and
petitioned this court for redress. We conclude that the
PSC made two erroneous rulings unfavorable to WGL,
but that the errors were not consequential enough to war-
rant remand with instructions to grant relief. We also
conclude that the Commission failed to explain its reasons
for the adoption of a formula used to allocate certain ex-
penses among the three jurisdictions served by WGL, and
remand for the necessary explanation.
The ratemaking proceedings commenced on June 29,
1979, upon application by WGL for a permanent increase
in its rates and charges for retail gas service within the
District of Columbia. Evidentiary hearings began in
January, 1980, and concluded in April, 1980. On October
* Associate Judge HARRIS retired from this court effective
February 5, 1982, and did not participate in the disposition of
this appeal.
[2386]
eee ee a Se ia
3a
3, 1980, the Commission issued a Proposed Order, which
was followed by a Final Order on November 10, 1980,
approving a new rate schedule effective as of that date.
Applications for reconsideration filed by the parties were
denied on December 24, 1980, and these petitions for re-
view followed.
WGL appeals the Commission’s disallowance of in-
creased Gas Research Institute expenses approved by the
Federal Energy Regulatory Commission (FERC) and the
disallowance of market pressure and flotation cost adjust-
ments. OPC appeals the Commission’s decisions concern-
ing WGL’s cash working capital allowance and the
amount of the market re-entry adjustment to WGL’s rev-
enue requirement. Both parties appeal the Commission’s
adoption of the modified “Massachusetts Formula” to
allocate a share of administrative and general expenses
to District of Columbia operations.'
I. Scope oF REVIEW
The limited nature of our review of orders of the PSC
is defined by D.C. Code 1981, § 43-906 which provides:
[R]eview by the Court shall be limited to ques-
tions of law, including constitutional questions;
and the findings of fact by the Commission shall
be conclusive unless it shall appear that such
findings of the Commission are unreasonable,
arbitrary, or capricious.
In addition, both parties reassert their claims of error
made in an appeal from a previous rate order. Our decision
in Washington Gas Light Company v. Public Service Commis-
sion, D.C.App., ——-A.2d (No. 79-587, Sept. 10, 1982),
which issued during the pendency of this appeal is dispositive
as to those “carry over issues,” and we therefore do not ad-
dress them on this appeal.
[2387}
4a
We have discussed the scope of our review in several
opinions.’ There is no need to repeat here what we have
said before. However, one aspect of our review function
bears emphasis. In Federal Power Commission v. Hope
Natural Gas Co., 320 U.S. 591, 602 (1944), the United
States Supreme Court stated:
It is not theory but the impact of the rate order
which counts. If the total effect of the rate order
cannot be said to be unjust and unreasonable,
judicial inquiry under the Act is at an end. The
fact that the method employed to reach that re-
sult may contain infirmities is not then impor-
tant.
That language has often been quoted, and properly so,
to underscore the narrow review powers of the courts in
this area. Since our review power over the PSC is com-
parable to the authority vested in the federal courts to
review Federal Energy Regulatory Commission orders,
the language is applicable here. Washington Public In-
terest Organization v. Public Service Commission, D.C.
App., 393 A.2d 71, 75 (1978), cert. denied, 444 U.S. 926
(1979). Yet the language is somewhat broad, especially
in its emphasis on the end result. Obviously, it does not
mean that the courts are not to review at all the methods
by which the agency arrives at its result. The United
States Supreme Court has recognized the regulatory com-
mission’s duty to indicate “fully and carefully the methods
by which, and the purpose for which it has chosen to act.”
* See Metropolitan Washington Board of Trade v. Public
Service Commission, D.C.App., 482 A.2d 343, 350-52 (1981) ;
Also illustrative are Washington Gas Light Company v. Pub-
lic Service Commission, supra, slip op. at 5; People’s Counsel
v. Public Service Commission, D.C.App., 399 A.2d 48 (1979) ;
Washington Public Interest Organization v. Public Service
Commission, D.C.App., 393 A.2d 71, 75 (1978), cert. denied,
444 U.S. 926 (1979).
[2888}
rl el ell TO
Sa
Permian Basin Area Rate Cases, 390 U.S. 747, 792
(1968). Some elaboration is required, therefore, in order
to apply the language in Hope to a case like the one be-
fore us.
That elaboration has been forthcoming in cases such as
Washington Public Interest Organization, and Mississippi
River Fuel Corp. v. Federal Power Commission, 82 U.S.
App.D.C. 208, 163 F.2d 433 (1947). In the former,
Judge Ferren wrote for this court:
While it is true that a regulatory commission
cannot be faulted for its methodology if the
“total effect of the rate order cannot be said to
be unjust and unreasonable,” Federal Power
Comm'n v. Hope Natural Gas Co., supra, 320
U.S. at 602, 64 S.Ct. at 288, it is also true that
the methodology must be disclosed for the bear-
ing it may have on that overall judgment. Ab-
sent precise explanation of methodology as ap-
plied to the facts of the case, there is no way for
a court to tell whether the Commission, how-
ever expert, has been arbitrary or unreason-
able. [Washington Public Interest Organization
v. Public Service Commission, supra at 76-77.)
Earlier in Mississippi River Fuel Corp., supra, Judge
Prettyman had written:
... The discretion which must be exercised is
that of the Commission. Congress has confided
that function to it. At the same time, Congress
has forbidden arbitrary actions and has imposed
upon the courts a duty of review in that respect.
Arbitrary action, if it means anything, means
action not based on facts or reason. The discre-
tion and judgment confided in the Commission
must be exercised upon facts and for reason.
[2889]
6a
The duty to review imposed upon the courts re-
quires that the facts be found and the reasons
stated. Otherwise, the courts cannot determine
whether a given action is or is not arbitrary.
The Congressional provisions extend to com-
plicated, difficult matters as well as to simple
questions. The courts cannot evade their re-
sponsibility merely because the subject matter
is obscure. And neither can they be required to
probe the minds of the agency for unfound facts
or unexpressed reasons. The coordination of the
two functions of administrative discretion and
judicial review requires that the facts upon
which the discretion is exercised, and the rea-
sons, be clearly and completely stated. When
the matter is complicated, the necessity is
greater. (Id. at 214, 163 F.2d at 439 (footnotes
omitted) .]
Where the PSC has accompanied its ruling with the
required full and careful explanation, that ruling is en-
titled to great deference. In Metropolitan Washington
Board of Trade v. Public Service Commission, D.C.App.,
432 A.2d 348, 352 (1981), Judge Gallagher stated for
this court:
Once the Commission has satisfied this initial
burden and has issued a decision, however, the
burden of petitioner on appeal to demonstrate
reversible error is considerable. More than a
difference of opinion with the Commission must
be asserted, for “(t]he court’s responsibility is
not to supplant the Commission’s balance of
{the relevant public) interests with one more
nearly to its liking, but instead to assure itself
that the Commission has given reasoned con-
(2890)
7a
sideration to each of the pertinent factors.” Id.
Petitioner therefore must establish “clearly and
convincingly a fatal flaw in the action taken
..+” [Quoting Goodman v. Public Service Com-
mission, D.C.App., 309 A.2d 97 at 101 (1973).]
In reviewing the actions of the PSC which are the sub-
jects of the challenges before us, we bear in mind both
the deference to be paid the agency’s authority and ex-
pert judgment and our responsibility to see to it that we
have before us the full and careful explanation of the
basis for agency action necessary to permit us to carry
out the review function demanded by statute and prece-
dent.
We will first address contentions which relate to rate
base, and then proceed to issues relating to rate of re-
turn, revenues, and expenses.
II. CASH WORKING CAPITAL ALLOWANCE
OPC asserts that the Commission erred in that the
cash working capital allowance it awarded WGL was
excessive. Cash working capital allowance is defined as
“an amount which the company (investors) must supply
from its own funds for the purpose of enabling it to
meet current obligations as they arise due to the time
lag between payment of expenses and collection of reve-
nues.” People’s Counsel v. Public Service Commission,
D.C.App., 399 A.2d 43, 46 (1979) (citation omitted)
(emphasis in original). Since investors are entitled to
a return on these advances, a cash working capital allow-
ance is included in the rate base.
WGL requested a cash working capital allowance of
$6,084,750. OPC recommended an allowance of negative
$537,000. The Commission denied WGL’s request for
[2391]
Ra
inclusion of compensating bank balances in the allowance,
but otherwise approved WGL’s request and awarded the
company a cash working capital allowance of $5,453,000,
Although the company requested a higher amount, it does
not appeal this portion of the Commission's order. OPC
appeals the amount of the cash working capital allowance
on five grounds.
As we noted earlier, the scope of our review is narrow.
Id, at 45. Initially, the utility has the burden of proving
its need for cash working capital. /d. at 47. Once the
utility has borne this burden, however, and the Commis-
sion has determined the amount needed, we may not set
aside the amount authorized by the Commission absent an
abuse of discretion. Jd. With these precepts in mind, we
proceed to an analysis of the particular objections by the
OPC to the amount of cash working capital allowance
authorized by the Commission.
A. Incremental Income Taxes
OPC contends that the cash working capita! allowance
shou:d have been reduced by the amount of the incre
mental income taxes associated with the increased reve
nues from the rate increase. The Commission, however,
rejected such an adjustment, noting that additional taxes
would have “no effect on the computed expense lag.” The
Company used a lead-lag study,’ based upon test period
experience data, to calculate the cash working capital al-
lowance. In the lead-lag study relied upon by the Com-
*In a lead-lag study, the average dollar day lag in the re-
ceipt of revenues and the average dollar day lead in the pay-
ment of expenses are computed. From this, a composite ex-
pense lag is calculated. This composite expense lag is multi-
plied by the average daily cash requirement to determine the
cash working capital allowance.
[2892]
9a
pany, dollar day lead or lag times were assigned to income
tax payments and, thus, the incremental tax payments
were taken into account in the Company’s calculations. In
choosing to credit the Company’s cash working capital
allowance calculation, the Commission implicitly took into
consideration the fact that actual expenses and actual
revenues in the utility’s actual year may vary from those
in the test year used in the study; this, however, should
have no effect on the calculated expense lag. We defer to
the Commission's use of a lead-lag methodology in calcu-
lating cash working capital alowance and, consequently,
conclude that the Commission did not err in refusing to
reduce the cash working capital allowance by the amount
of the incremental income taxes.
B. Gross Receipts Tax
D.C. Code 1981, § 47-2501 provides that each gas
company must make an affidavit
on or before the 1st day of August each year as
to the amount of its . . . gross earnings or gross
receipts, as the case may be, for the preceding
year ending the 30th day of June, and each gas
company ... shall pay to the Collector of Taxes
of the District of Columbia per annum 6 per
centum on such gross receipts... .
OPC asserts that the gross receipts taxes are paid
after the money for these taxes is collected from the
customers and, consequently, the cash working capital al-
lowance should be reduced a corresponding amount. The
Commission found no merit in this argument. It con-
cluded that although the tax liability was calculated on
the previous year’s gross receipts, the taxes were actually
paid in three advance installments. After examining the
[ 2393)
10a
record, we conclude that there is sufficient evidence to
support the Commission’s determination that the gross re-
ceipts taxes were prepaid and, consequently, should not
be deducted from the cash working capital allowance.
C. Levelized Billing Plan
OPC also argues that WGL’s use of a levelized billing
plan reduces its need for cash working capital. The Com-
mission, noting that WGL’s estimate of the net expense
lag was actually too low, found that OPC’s proposed ad-
justment was not convincing in light of the other evidence
introduced. Again, we find sufficient evidence in the
record to support this conclusion.
D. Jurisdictional Computation
The Commission agreed with OPC’s position that the
cash working capital allowance should be calculated on a
jurisdictional rather than a systemwide basis. However,
in order to give WGL sufficient notice of the change, the
Commission deferred implementation of the change until
the next rate proceeding. OPC contends that the Commis-
sion abused its discretion in postponing the implementa-
tion of the jurisdictional computation. Finding no such
abuse, we defer to the Commission’s determination.
E. Accrued Interest
Finally, OPC asserts that the cash working capital
allowance should be reduced by the amount of accrued
interest owed to bondholders. In People’s Counsel v.
Public Service Commission, supra at 49-50, we directed
the Commission’s attention to Re lowa Power and Light
Co., 6 P.U.R.4th 446 (1974) (dedueting the amount of
accrued interest on long-term debt from the cash working
[2394]
lla
capital allowance), for the Commission’s “serious con-
sideration in formulating the rate base in future proceed-
ings.” People’s Counsel v. Public Service Commission,
supra at 50. However, we declined to remand for further
consideration the Public Service Commission’s decision not
to reduce WGL’s cash working capital allowance by the
amount of the accrued interest because “the matter [was]
of insufficient magnitude to merit the unraveling of a
complex rate structure solely on this account.” /d.
In the proceedings being reviewed, the Commission has
again declined to reduce the cash working capital allow-
ance by the amount of the accrued interest on bonds, stat-
ing that it was “no more disposed to adopt such an argu-
ment than in the past” and citing only People’s Counsel
v. Public Service Commission, supra, and its order No.
7135 in Re Potomac Electric Power Co., 36 P.U.R.4th
139 (1980). We note that in an order ot cited, Re
Potomac Electric Power Co., 29 P.U.R.4th 517, 555-57
(1979), the Commission gave several reasons for its de
cision to include only cash operating expenses in the
calculation of the cash working capital allowance. Es-
sentially, the Commission concluded that interest expense
is not an operating or “above the line” expense and it
should not be selectively included in the cash working
capital allowance, just as other “below the line” or non-
cash expenses are not so included. Since the Commission
has clearly articulated a bas’s for its treatment of ac-
crued interest, we refer to its ruling.
In light of our analyses of the five objections OPC
interposed to the Commission’s determination of cash
working capital allowance, we decline to overturn the
Commission’s ruling in that regard.
[2395]
12a
III. MARKET PRESSURE AND FLOTATION COSTS
ADJUSTMENT
WGL asserts that the Commission erred in disallow-
ing its request for an adjustment to its rate of return
for market pressure and flotation costs associated with
the issuance of new stock. Market pressure refers to the
depression in the price of stock which occurs when ad-
ditiona] stock is issued; flotation costs are costs incurred
in issuing the additional stock, for example, underwriting
costs, attorneys’ and accountants’ fees, etc. When new
stock is issued by a utility, these costs properly are con-
sidered in calculating the rate of return.
Among the factors a regulatory agency must consider
in setting a utility’s rate of return is the return an in-
vestor must receive in order to enable the utility to com-
pete successfully for capital. The regulatory agency is
obliged to allow a rate of return to equity holders that
is “sufficient to assure confidence in the financial in-
tegrity of the enterprise, so as to maintain its credit and
attract capital.” Federal Power Commission v. Hope
Natural Gas Co., supra at 603. See also Blucfield Water
Works & Improvement Co. v. Public Service Commission
of the State of West Virginia, 262 U.S. 679 (1923).
The rate of return required to attract capital invest-
ment is referred to as the “cost of equity.” The Com-
mission calculated WGL’s cost of equity by the discounted
cash flow (DCF) method. That method takes into account
an investor’s anticipated income from dividends and capi-
tal gain upon eventual sale of the stock in order to ar-
rive at an estimated rate of return which the investor
must receive in order to induce him to invest in the utility
stock. The cost of equity arrived at by the DCF method
is referred to as the “bare-bones” cost of equity, i.e., the
cost of equity determined solely on the basis of current
[2396 |
ap gr ee
13a
dividend returns and anticipated growth, without adjust-
ment for factors such as the issuance of additional stock.
In the instant case, the Commission set the cost of
equity to WGL as a return on equity of 13.25%.* WGL
does not appeal this determination of the “bare-bones”
cost of equity, but appeals the Commission’s refusal to
adjust the rate of return upward to reflect market pres-
sure and flotation costs expected to result from WGL’s
anticipated issuance of additional common stock in 1981.
The Commission concedes that the rate of return allowed
to equity holders should include an allowance for market
pressure and flotation costs when additional stock is is-
sued, but justifies its refusal to grant the allowance here
on the grounds that WGL did not present sufficient evi-
dence that it would issue additional stock in the near
future to warrant granting the allowance.®
The record reflects that WGL Chief Financial Offi-
cer, Patrick J. Maher, in testimony filed with the Com-
mission on March 31, 1980, stated that WGL planned a
public offering of common stock in 1981, and that on
April 8, 1980, Mr. Maher testified that a five-year plan
to issue stock, including a projected issuance of fifteen
to twenty million dollars worth of common stock in 1981,
had been approved by the WGL'‘ Board of Directors in
March, 1980.
In its Proposed Order, the Commission noted that Mr.
Maher was “probably in the best position to determine
* Commission’s Final Order No. 7209, ordering paragraph B,
at 2, Nov. 10, 1980.
5 Commission’s Proposed Order No. 7193, ordering para-
graph D, at 32, Oct. 3, 1980.
[2397]
14a
[WGL’s] need for new equity,” and that he “indicated
quite strongly” that approximately fifteen to twenty mil-
lion dollars in new equity would be needed in 1981. Yet,
the Commission concluded that the evidence submitted to
it indicated “little more than a possibility” of a new is-
suance of common stock.* We disagree. The evidence be-
fore the Commission in the form of testimony of the com-
pany’s Chief Financial Officer was that the Board of
Directors had approved the issuance of common stock
having a value of approximately fifteen to twenty million
dollars. As the Commission itself concedes, WGL’s fail-
ure to announce a more specific plan regarding the is-
suance was “not unusual since such information com-
monly is released only shortly in advance [of actual
issuance].’’”
We conclude that the evidence concerning WGL’s pro-
jected issuance of common stock in 1981 was such that
it was unreasonable for the Commission to deny an ad-
justment to the rate of return to reflect the market pres-
sure and flotation costs associated with the issuance.*
We hold, therefore, that the Commission’s refusal to grant
the adjustment was error.
* Id.
7 Id.
*In our review of the evidence before the Board on this
issue, we did not consider Mr. Maher's reported statement to
the Maryland Public Service Commission, as represented to
the Commission by WGL in its Exceptions to the Commis-
sion’s Proposed Order, nor did we consider WGL’s application
to the Commission in March, 1981, for authorization to issue
new common stock; the statement and application were not
properly before the Board as evidence in the proceedings un-
der review here.
[2398]
Sa
IV. MARKET RE-ENTRY
OPC contends that the Commission’s decision to re-
duce WGL’s revenue requirement by only $600,000 by
reason of market re-entry was not supported by substan-
tial evidence. The term market re-entry as used here
refers to the anticipated growth in sales expected to be
realized by WGL as a result of relaxation of restrictions
on the Company’s extension of its service to new cus-
tomers. The restrictions were imposed by the Commis-
sion in 1972 due to a shortage of natural gas. As the
availability of gas increased, the restrictions were eased
and, in 1978, the Commission approved a plan for gradual
increase in the number of WGL customers.
Additional sales by WGL under the program began in
approximately October, 1979, and were considered in the
calculation of the Company’s cost-of-service for 1979. In
addition, the Commission reduced the Company’s annual
revenue requirement by $600,000 in consideration of pros-
pective sales increases. WGL does not appeal the Com-
mission’s order with respect to the adjustment to the rev-
enue requirement. OPC, however, contends that the Com-
mission’s decision is unsupported by substantial record
evidence.
In proceedings before the Commission, WGL contended
that no revenue adjustment was necessary to account for
market re-entry. At the same time the Company pro
jected an increase in future sales which the Commission
calculated would have the net effect of reducing the reve-
nue requirement by $423,891 annually. Commission staff
estimated a gross increase in Company revenues of
$5,896,000 annually resulting in a net reduction to the
revenue requirement of approximately $795,000 annually.
OPC projected a $6,444,000 annual increase in gross rev-
enues with a resultant reduction to revenue requirement
of $927,872.
[2399]
I6a
The requirement of the District of Columbia Adminis-
trative Procedure Act, D.C. Code 1981, § 1-1509(e), that
agency decisions be accompanied by findings of fact and
supported by substantial evidence imposes upon the agency
the duty to make findings of basic facts upon which the
agency decision rests. Put another way, the agency must
“show on what it relied in reaching its decision.” Citizens
Association of Georgetown, Inc. v. District of Columbia
Zoning Commission, D.C.App., 402 A.2d 36, 42 (1979),
quoting Miller v. Commission on Human Rights, D.C.
App., 339 A.2d 715, 719 (1975). Moreover, the agency
decision must rationally follow from the facts. Citizens
Association of Georgetown, Inc. v. District of Columbia
Zoning Commission, supra at 41.
In its Proposed Order, the Commission set forth find-
ings of fact and cited to record evidence in support of
its determination that the estimates of future sales pro-
vided by the parties were deficient.’ The Commission’s
stated reasons for ordering a $600,000 reduction to
WGL’s revenue requirement were that the net effect of
the sales growth forecast by WGL was “too conservative ;”
the estimates by staff and OPC might prove to be “un-
realistically high: an increase in sales was “a virtual
certainty,” and the rate of growth in sales was “slower
than anticipated.” The Commission made no express find-
ings, however, to underpin the revenue adjustment it ulti-
mately ordered.
Thus, there is some merit in OPC’s contention that the
Commission’s conclusion is not properly supported by its
findings. We must recognize, at the same time, that
implicit in its determination of a revenue requirement re-
duction is a PSC estimate of the amount of sales growth
WGL will experience due to its re-entry into the market.
* Order No. 7193 at 35-40.
[2400]
17a
The record provided the Commission with sufficient evi-
dence on the market re-entry issue to provide an adequate
basis for decision, although, necessarily, the evidence con-
sisted in large part of estimates and projections. In view
of the Commission’s implicit finding as to sales growth,
we decline to set aside its decision in this regard.
V. GAS RESEARCH INSTITUTE EXPENSES
WGL challenges the Commission’s refusal to allow the
company to recover, as operating costs, projected increases
in the wholesale cost of natural gas attributable to in-
creases in Gas Research Institute surcharges effective
January 1, 1981. The Commission limited the Company’s
recovery to the “current amount” of Gas Research In-
stitute surcharges, t.e., the amount paid by WGL in the
test year, 1979, approximately $93,000.'°
The Gas Research Institute (GRI) is a non-profit re-
search and development corporation supported by the nat-
ural gas industry. Its members include interstate pipe-
line and distribution companies. GRI’s costs are assessed
its members who, in turn, incorporate the cost of their
contributions into the rates they charge their retail utility
customers such as WGL. Before the interstate whole-
salers can raise their rates to reflect increases in their
assessed contributions, they must receive approval from
FERC."
The Natural Gas Act, 15 U.S.C. §8§ 717 et seq. (1976),
authorizes FERC to regulate the interstate transporta-
1° Commission Order 7209, ordering paragraph E at 4 (No-
vember 10, 1980).
'' The FERC was created pursuant to 42 U.S.C. §§ 7101 et
seq. (Supp. II 1978) and Executive Order No. 12009, 42 Fed.
Reg. 46267 (1977), and as of October i, 1977, assumed the
functions of the Federal Power Commission (FPC).
{2401}
Ra
tion and sale of natural gas, including approving rates
charged in interstate sales. So that wholesale companies
need not petition FERC for permission to raise their
rates whenever their assessed contributions are raised,
FERC allows research and development corporations such
as GRI to submit to FERC for approval a proposed
budget, including contributions assessments. FERC ap-
proval of the research and development organization’s
plan constitutes approval of the member companies’ con-
tributions to the organization, including the wholesale rate
increase reflecting the higher assessments.
Since a wholesaler’s rates reflect contributions to GRI,
any increase in GRI costs to the wholesaler results in a
higher purchase cost of gas to the local utility. The local
utility’s purchase cost is an operating expense and is
properly included in the cost of service,
WGL purchases natural gas from two wholesale com-
panies, Columbia Gas Transmission Corporation and
Transcontinental Gas Pipeline Corporation. Both whole
salers are members of GRI. In September 1980, FERC
approved an increase in GRI assessments from .048 per
Mcf,’* to .056 cents per Mef. effective January 1, 1981."
In the ratemaking proceeding under review here, WGL
requested that it be allowed to raise its rates to reflect
the correspondingly increased wholesale costs resulting
from the increased GRI surcharges approved by FERC,"*
The Commission granted WGL permission to charge rates
reflecting the Company's GRI contribution as of October,
‘? One Mef. is 1,000 cubic feet.
FERC Opinion No, 96, Ordering Parayraph (B) at 18
(Sept. 30, 1980).
’WGL estimated its yearly contributions to GRI from
1980 to 1984 inclusive, to be: 1980—$127,109; 1981—
$175,665; 1982—$213,930; 1983—$246,846; 1984—$254,162.
[2402)
19a
1979, but refused to allow an adjustment to reflect the
increase effective January, 1981. The Commission justi-
fied its decision on the grounds that the FERC approved
increase was not a “known and measurable expense,” and
that few benefits would accrue to District of Columbia
ratepayers as a result of GRI activities.
The Commission agrees that the entire wholesale cost
of gas is recoverable by WGL as a cost of service, It is
the Commission’s position, however, that the authority of
FERC to approve GRI charges to member companies was
in question at the time of the present ratemaking pro-
ceeding, and thus that portion of wholesale costs attribu-
table to GRI charges was not a measurable and certain
expense. The Commission further contends that, even if
FERC is found to have authority to approve the GRI
increase, the Commission acted properly in denying the
GRI charges and that the correct procedure was for the
Company to return to the Commission and ask for a rate
increase when the issue of FERC jurisdiction was settled.
At the time the Commission issued its order, a suit was
pending in the United States Court of Appeals for the
District of Columbia Circuit challenging FERC’s juris-
diction to approve GRI charges to member companies.
Subsequent to the Commission’s order in the present case,
the court ruled that FERC has jurisdiction to approve
GRI’s program and budget and to rule on applications for
rate increases submitted by GRI on behalf of the juris-
dictional members. Public Utilities Commission of the
State of Colorado v, Federal Energy Regulatory Com-
mission, 660 F.2d 821, 825 (D.C.Cir. 1981), cert. denied,
— U.S. ——, 102 S.Ct. 2009 (1982) .”
18 We agree with OPC that nothing in the holding of the
case can be read as extending FERC’s jurisdiction to the issue
[24038]
20a
The issue before us is whether the Commission erred
in disallowing the increased GRI charges as reasonable
operating expenses on the grounds that the above appeal
was pending at the time of the Commission’s decision.
We hold that it did. It is well settled that the Na‘u al
Gas Act provides for exclusive federal regulation of in-
terstate wholesales of natural gas. See Northern Natural
Gas Company v. State Corporation Commission of Kan-
sas, 372 U.S. 84 (1963) ; Illinois Natural Gas Compzny v.
Central Illinois Public Service Commission, 314 U.S, 498
(1942). State and local commissions have no authority,
therefore, to inquire into the reasonableness of wholesale
rates, but must allow them as reasonable ope ating ex-
penses. See, e.g., Citizens Gas Users Association v. Public
Utilities Commission of Ohio, 165 Ohio St. 536, 188 N.E.
2d 383 (1956); City of Chicago v. Illinois Commerce
Commission, 13 Ill.2d 607, 150 N.E.2d 776 (1958);
United Gas Corp. v. Mississippi Public Service Commis-
sion, 127 So.2d 404 (Miss. 1961).'"
of whether increased wholesale costs shall be passed through
to retail customers by the local utility. The determination of
the extent to which wholesale costs should be reflected in local
utility rates lies exclusively with local utility commissions.
See Narragansett Electric Co. v. Burke, 381 A.2d 1358, 1363
(R.I. 1977), cert. denied, 435 U.S. 972 (1978).
The Commission’s refusal to allow increased GRI charges
to be reflected in retail rates in the instant case, however, was
based upon the Commission’s erroneous conclusion that the
increase in wholesale costs was not a just and reasonable op-
erating expense, rather than upon a determination that the
expense should not be passed through to retail customers.
1° The highest courts of at least two jurisdictions have held
that state utility commissions are not free to disallow, as op-
erating expenses, wholesale rates filed with, but not yet ap-
proved by, the FERC. See Narragansett Electric Co. v. Burke,
supra; United Gas Corp. v. Mississippi Public Service
Comm’n., supra.
12404 |
2la
In the instant case, the Commission chose to disregard
a final FERC order approving wholesale rates on the
ground that FERC’s jurisdiction had been challenged by
another utility commission in a petition for judicial
review of the order. The Commission ignored the fact
that in the avsence of a stay the FERC order, as a final
agency order, was fully in effect during proceedings for
review. Jupiter Corp. v. Federal Power Commission, 137
U.S.App.D.C. 295, 308, 424 F.2d 783, 791 (1969), cert.
denied, 397 U.S. 937 (1970); Ecee, Inc. v. Federal Power
Commission, 526 F.2d 1270, 1274 (5th Cir.), cert. denied,
429 U.S. 867 (1976).
We hold that the Commission had no authority to dis-
allow as a reasonable operating expense the wholesale
purchase cost of natural gas approved by FERC, includ-
ing that portion of wholesale costs attributable to GRI
surcharges to become effective January 1, 1981. Because
we hold that the Commission had no jurisdiction to rule
on the reasonableness of such surcharges, we need not
reach, and the Commission was unauthorized to consider,
the issue whether the GRI charges benefit the District of
Columbia ratepayers.
Finally, we decline PSC’s invitation to rule that the
United States Court of Appeals erred in Colorado and to
hold that FERC was without jurisdiction to approve GRI
expenses as a part of the wholesale rate paid by gas
retail companies including WGL. Review of the rulings
of FERC is vested by statute in the United States Court
of Appeals, not this court. See 15 U.S.C. § 717r(b)
(1976).
VI. MODIFIED MASSACHUSETTS FORMULA
WGL serves consumers in the District of Columbia,
Maryland and Virginia. Both WGL and OPC assert that
the Commission erred in adopting a new formula for al-
(2405)
224
locating to the District of Columbia its fair share of
administrative and general [A&G] expenses
In Formal! Case No. 686, the Commission directed WGL
to:
[Either reflect A&G expenses allocation solely
according to a modified “Massachusetts For-
mula” or if it nonetheless still advocate[d] a
different approach, present a complete alternate
cost of service which reflects allocation under
modified “Massachusetts Formula.” [Commis-
sion Order No. 6051, ordering paragraph C at
76.)
The Massachusetts Formula, originally used by the
Massachusetts Department of Revenue to determine the
amount of tax owed to Massachusetts by corporations do-
ing some of their business in the state, allocates admin-
istrative and general expenses by employing an average
of the percentage of property, wages and (twice the per-
centage of) sales related to the jurisdiction. Formerly,
the Commission had permitted WGL to allocate admin-
istrative expenses not directly assignable to a jurisdiction
on the basis of a factor, expressed in terms of labor ex-
penses, which was a composite of a number of factors
including therm sales, plant, and labor. At the rate
proceeding below, WGL continued to use its existing
method for allocating A&G expenses and presented a com-
parative statement showing the revenue requirement us-
ing the “Massachusetts Formula” for allocating A&G
expenses. OPC advocated that all A&G expenses—both
labor-related and non-labor-related—be allocated accord-
ing to the modified Massachusetts Formula and that an
adjustment of $1.5 million be made to the revenue re-
quirement.
[2406]
23a
In its order the Commission purported to adopt a modi-
fied Massachusetts Formula, and stated that it allocated
labor-related A&G expenses in the same manner as all
A&G expenses had been allocated in the past and non-
labor-related expenses on the basis of a simple average of
the jurisdiction’s share of plant, sales and labor.’’ The
Commission reduced WGL’s allocation of A&G expenses
to the District of Columbia by $856,000. WGL contends
that the Commission’s decision to adopt the modified
Massachusetts Formula for allocating A&G expenses is
not supported by substantial evidence, lacks the requisite
findings of fact and jeopardizes the company’s ability to
recover its cost of service in the Washington metropolitan
area. OPC supports the use of the modified Massachu-
setts Formula, but argues that the record does not sup-
port the amount of the adjustment made by the Commis-
sion.
As we observed in the discussion above of the scope of
our review, “[b]efore meaningful judicial review to de-
termine the reasonableness of a Commission decision is
possible, the Commission, of course, must satisfy its own
burden: to base its decision on sufficient evidence and to
explain its actions ‘fully and carefully.’” Metropolitan
Washington Board of Trade v. Public Service Commission,
supra at 351; See Washington Public Interest Organiza-
tion v. Public Service Commission, supra at 75-78; Missis-
sippi River Fuel Corp. v. Federal Power Commission,
17 OPC questions the Commission’s actual application of the
Modified Massachusetts Formula. Although the Commission
gave a general description of its concept of the Modified Mas-
sachusetts Formula in its order, it failed to elaborate on its
methodology, i.e., disclosure of the percentages of revenue,
plant and labor allocated to each jurisdiction, and a breakdown
of the administrative and general expenses subaccounts into
labor and non-labor-related expenses.
{2407]
24a
supra at 224, 1638 F.2d at 433. Although our review
function is narrow, before we can give deference to the
Commission’s choice of methodology, that methodology
must be fully disclosed. Washington Public Interest Or-
ganization v. Public Service Commission, supra at 76-77.
In its order, the Commission failed to explain the rea-
sons for its choice of the so-called Modified Massachusetts
Formula, the method it used to employ that formula, and
the calculation of the amount of the adjustment to the
District’s share of A&G expenses."* In the absence of such
an explanation, it is impossible for us to determine
whether the Commission’s choice of the Modified Massa-
chusetts Formula is reasonable. Therefore, we must
remand the case to the Commission for an explanation
of precisely what formula was used, why that formula
was chosen, and how the amount of the adjustment was
computed. See Washington Public Interest Organization
v. Public Service Commission, supra at 78; Mississippi
River Fuel Corp. v. Federal Power Commission, supra at
227, 163 F.2d at 436.
VII. REMEDY
We reverse the Commission’s refusal to adjust the rate
of return to reflect market pressure and flotation costs
associated with the issuance of common stock and its
disallowance of the projected increases in GRI surcharges
as operating expenses. In light of the relatively small
amounts of revenue involved, see People’s Counsel v. Pub-
lic Service Commission, supra at 50, and the policy
against retroactive ratemaking, see Bebchick v. Washing-
46 From its order, it is impossible for us to determine which
party’s exhibits and calculations, if any, the Commission
credited and relied upon in adopting its version of the Modi-
fied Massachusetts Formula.
[2408]
25a
ton Metropolitan Area Transit Commission, 158 U.S.App.
D.C. 79, 85, 485 F.2d 858, 864 (1973); Payne v. Wash-
ington Metropolitan Area Transit Commission, 134 U.S.
App.D.C. 321, 329-31, 415 F.2d 901, 909-11 (1968), how-
ever, we do not remand these aspects of the order for
recalculation of the revenue requirement."®
We remand the Commission’s adoption of the Modified
Massachusetts Formula for an explanation of its reasons
for choosing this formula. In this regard, we note that
we have
not reversed the conclusions of the Commission,
except in the procedural sense necessary to a re-
mand. [We have] remanded the case for clarifi-
cation where clarity is not present, and for com-
pletion where incompleteness now exists. When
the findings and conclusions are complete and
clear, the court will then, if appropriate proceed-
ings are brought, consider whether the ultimate
rulings of the Commission are within the per-
missible bounds of its power. [Mississippi River
Fuel Corp. v. Federal Power Commission, supra
at 227, 163 F.2d at 452.]
See also Washington Public Interest Organization v. Pub-
lic Service Commission, supra.
In all other respects, the order under review is affirmed.
Affirmed in part; reversed in
part; remanded for further
proceedings in part.
'» We observe that, in view of our rulings herein, there
is no aspect of the GRI or market pressure-flotation cost
issues that will require PSC consideration upon our remand
on the issue of allocation of A&G expenses.
[2409]
Dae
26a
DISTRICT OF COLUMBIA COURT OF APPEALS
500 INDIANA AVENUE, N.W.
WASHINGTON, D.C, 20001
(202) 638-71 13 DISTRICT OF COLUMBIA
COURT OF APPEALS
FILED JAN 21 1983
Nos. 81-229 and 81-232
Clerk
WASHINGTON GAS LIGHT COMPANY, Petitioner,
Vv.
PUBLIC SERVICE COMMISSION OF
THE DISTRICT OF COLUMBIA, Respondent.
OFFICE OF PEOPLE’S COUNSEL, Intervenor.
BEFORE: Newman, Chief Judge; *Kelly, Kern, Nebeker,
Mack, Ferren, Pryor, *Belson, and Terry,
Associate Judges.
ORDER
On consideration of respondent’s petition for rehearing
or rehearing en banc and the supplemental memorandum
in support thereof, it is
ORDERED for the merits division* that respondent’s
petition for rehearing is denied; it appearing that no judge
of this court has called for a vote thereon, it is
27a
FURTHER ORDERED that respondent’s petition for
rehearing en banc is denied.
PER CURIAM
Copies to:
Lewis Carroll, Esq.
1100 H Street NW, 20080
Lloyd N. Moore, Jr., Esq.
451 Indiana Avenue NW, 20001
Brian J.H. Lederer, Esq.
1012 14th Street NW, #303, 20005
James M. Broadstone, Esq.
821 15th Street NW, 20005
28a
APPENDIX
Excerpt from Proposed Final Order in F.C. No. 722
Order No. 7193
F. Gas Research Institute
The Gas Research Institute (GRI) was formed in 1977 to
coordinate and accelerate critically needed research into
gaseous fuels. It replaced the American Gas Association’s
efforts in this area. The membership of GRI consists of
137 distribution companies, 28 interstate pipeline com-
panies and 24 municipal utilities and represents the vast
majority of gaseous fuel suppliers in the United States.
WGL is a member as is Columbia and Transco, WGL’s
pipeline suppliers. The research and development program
under GRI is reviewed by its advisory council, research
coordination panel, industry technical advisory commit-
tee, and municipal gas system advisory committee, which
evaluate GRI research from the viewpoints of economic,
consumer, environmental, scientific, industrial and
regulatory interests.
WGL states that each year GRI submits its five-year
research plan and budget to FERC for review and ap-
proval to insure that the its activities are prudent, well-
designed, and in the public interest. Once approved, the
costs of funding the research program are embodied in the
wholesale cost of gas. WGL is thereafter assessed by its
pipeline suppliers for these charges as part of its gas bills.
WGL’s portion of the charges as part of its gas bills.
WGL’s portion of the costs through October 1979 which is
allocated to the District of Columbia operations is $93,000
(WGL Exh. H, p. 7). However, GRI’s budget continues to
—————— a Cl
29a
grow throughout its most recent five-year forecast period
and, with it, WGL’s share. Thus, WGL’s projected con-
tributions to G.R.I. on a D.C. basis are $127,109 for 1980,
$175,665 for 1981, $213,930 for 1982, $246,846 for 1983,
and $254,162 for 1984 (OPC brief, p. 233.)
WGL argues that a utility is entitled to charge all of its
legitimate operating expenses to its ratepayers and that its
GRI assessment is no different than the expenses it incurs
for any other utility operation. It cites Mississippi Fuel
Corporation v. FPC, 163 F.2d 433 at 437 (D.C. Cir. Ct.
1947) and West Ohio Gas Company v. Ohio Public
Utilities Commission, 294 U.S. 63 at 72 (1975) for the pro-
position that the allowed return on investment, which is
that amount over and above expenses, must be proved and
that the court — and presumably this regulatory agency —
should not substitute is judgment for a utility’s as to the
appropriate amount of an expenditure.
WGL claims that were it not to pay its assessment it
would not be able to buy its gas supplies, in that the assess-
ment is merely one component of WGL’s commodity cost
of gas which it is legally entitled to recover. WGL claims
that neither the District of Columbia Commission nor the
company has any control or any right of control over the
company’s commodity costs except to the extent that each,
by intervention in federal rate proceedings, exercises its
powers of persuasion.
WGL maintains that the GRI research and development
programs benefit the ratepayers by improving the gas sup-
ply, promoting the conservation of natural gas and safety
programs, improving environmental quality, and
eliminating fragmented and often duplicative research
which individual companies might otherwise undertake. In
view of the foregoing, WGL maintains that the entire
Wa
amount allocated to GRI in its cost of service study should
be allowed by the Commission.
Staff's position is similar to that of WGL. Staff argues
that the Federal Energy Regulatory Commission has
specifically authorized the GRI surcharge for interstate
gas as a reasonably incurred operating expense under the
“filed rate doctrine.” The charge, staff maintains, is also
recognized as a component of the legal rate charged to
WGL. Narrangansett Electric Company v. Bruke, 381
A.2d 1358, 1362 (R.I. 1977), cert. denied 435 U.S. 972
(1978). Staff also agrees with WGL that as the company
has no realistic choice but to pay the rate included in the
GRI charge, equity would demand that these increased
costs be recovered in a rate adjustment.
OPC equates this issue with the AGA expense issue, in
that WGL has to carry the burden on the record of the
propriety of these expenses. OPC cites the case of Re:
Western Slope Gas Company (Decision No. C79-907,
1979), a Colorado decision which denied a utility its re-
quest for automatic flow-through of the GRI assessment
but did permit the company to set out the charge in the
context of the general revenue investigation. OPC main-
tains that the record in this proceeding has failed to specify
or quantity potential benefits to customers from WGL’s
participation in GRI. OPC submits that D.C. ratepayers
can expect little or no benefits from WGL’s proposed
funding of GRI.
OPC maintains that the benefits of GRI will go to
manufactures first, appliance dealers second and WGL
and its ratepayers third. The benefit wold flow through to
the ratepayer only to the extent that he utilizes and pur-
chases the new, efficient gas appliances.
3la
OPC contends thai the Commission’s duty to establish
rates has not been usurped by the actions of FERC in ap-
proving the GRI budget. OPC submits that the District of
Columbia Commission has independent authority to
determine the ratemaking treatment of GRI on its own, ir-
respective of the manner in which FERC has decided the
issue. OPC concedes, however, that there is controversy
over the question of whether the FERC decision preempts
this Commission from disallowing the GRI contribution.
This preemption is being challenged in the case of State of
Colorado v. FERC (D.C. Cir., C.A. No. 80-117). OPC
would have the Commission reserve decision on this mat-
ter and render a separate decision when the legal authority
issue is resolved by the court in the above captioned case.
We do not contest the viability of the proportionate
assessment by WGL’s pipeline suppliers of its share of
GRI’s annual costs. We also are aware that FERC has
decided not to mandate shareholder contributions by its
member companies to meet GRI’s annual budgetary
needs.*’ Such action, however, does not predetermine our
obligation to assure that the D.C. ratepayers are charged
no more than is reasonably necessary by WGL for the
maintenance of safe, efficient and adequate gas service.
We recognize that the GRI program may provide some
benefits to ratepayers in the future. Nevertheless, insofar
as the immediate consumer is concerned, these bencfits are
indirect at best and, in our opinion, will be substantially
less to residential consumers — which comprise the ma-
jority of WGL’s customers, both in terms of absolute
37Gas Research Institute, Order Denying Request to Require
Shareholder Contributions, Docket No. RP 78-76, issued May 23,
1979.
32a
numbers and in volumes of gas consumed — than they will
be to industrial and commercial customers and to the gas
utility companies in general.
In Order No. 6051, pp. 69-71, we considered whether
certain payments made by WGL to the American Gas
Association in support of its activities were properly in-
cluded as an expense to be charged to WGL’s ratepayers.
We concluded that they should not be so charged because
there was no evidence that the activities financed served to
improve customer service. Although GRI’s program dif-
fers in major respects from that of AGA, the principle
underlying the decision on cost recovery is the same.
In our opinion WGL and its stockholders stand to
receive a substantially greater benefit from the company’s
participation in GRI than will the customers themselves.
Nevertheless, at this time WGL’s share of GRI’s costs is
relatively small — $93,000 — and a number of activities
being engaged in by GRI do hold at least a promise of pro-
viding some general benefit to all gas consumers, including
those of WGL. Accordingly, we shall allow the current
amount in this case as part of the wholesale commodity
cost of gas to the company. Any increases above this
amount will be considered in later cases. In addition, we
will expect WGL to review critically GRI’s annual
budgetary submissions and to participate fully in any pro-
ceedings on this subject before that agency.
oe Eee
33a
Excerpt from Final Order In F.C. No. 722
Order No. 7209
E. Gas Research Institute
In Order No. 7193 we concluded that WGL should be
permitted to recover the “current amount” of the charges
included in its wholesale gas cost which is utilized to meet
the operational costs of the Gas Research Institute. This
current rate is 0.047 cents per therm which in 1979
amounted to $93,000, allocated to WGL’s operations in
the District. We also stated that any increases above the
current amount “... will be considered in later rate
cases.” Order No. 7193, p. 61. WGL notes that the charges
it must pay have already been increased, effective January
1, 1981, and requests that it be permitted to collect the ef-
fective GRI portion of its wholesale gas rates as fixed from
time to time by appropriate authority.
WGL’s exception is denied. We are aware (and were
aware at the time the Proposed Opinion issued) that the
per therm assessment would be increased effective January
1, 1981. Nevertheless, no increase over the current per
therm charge was authorized since the increase has not
been proven on the information before us and, although
approved by FERC, has not been shown to be justified on
a record before this Commission. Absent such justifica-
tion we have no way of evaluating the merit of the increase
or the proper amount to be accepted as allocable to
District of Columbia ratepayers.
34a
Excerpt From Order Denying Reconsideration
in F.C. No. 722
Order No. 7237
As noted earlier, WGL objects to our decision not to
reflect in these rates the increased GRI funding jassess-
ment it will beging paying on January 1, 1981, as part of
its pipeline suppliers’ FERC filed rates. We do not accept
this adjustment as a known change, required to be re-
flected in these rates. Although the Supreme Court of
Rhode Island in Narragansett Electric Co. v. Burke, 381
A.2d 1358 (RI. 1977), cert. denied, 435 U.S. 972 (1978),
rejected an attempt by that state’s commission to deny
recovery in retail rates of any portion of the FERC-
established wholesale rates. We believe that the issued of
WGL’s assessment rate for the support of GRI has not
been finally resolved. The FERC approved rate is
undergoing judicial review. See Colorado PUC v. FERC,
CADC, No. 80-1117; see also Office of Consumers’
Counsel v. FERC, _ Fed.2d _., CADC, No.
80-1303, et al issued December 8, 1980. Assuming the
revised rate is overturned, WGL, not having paid the in-
crease, will not be required to make refunds to its
customers. If the rate is sustained, WGL can seek current
recovery via the filing of a proper rate change request. The
fact that an exact matching of cost and revenues may not
take place provides no basis for an additional allowance
under existing circumstances.
Natural Gas Act § 2, 15 U.S.C. § 717a. Definitions
When used in this chapter, unless the context
otherwise requires -
(1) “Person” includes an individual or a cor-
poration.
35a
(2) “Corporation” includes any corporation,
joint-stock company, partnership, association,
business trust, organized group of persons
whether incorporated or not, receiver or
receivers, trustee or trustees of any of the forego-
ing, but shall not include municipalities as
hereinafter defined.
(3) “Municipality” means a city, county, or
other political subdivision or agency of a State.
(4) “State” means a State admitted to the
Union, the District of Columbia, and any
organized Territory of the United States.
(5S) “Natural gas” means either natural gas un-
mixed, or any mixture of natural and artificial
gas.
(6) “Natural-gas company” means a person
engaged in the transportation of natural gas in
interstate commerce, or the sale in interstate
commerce of such gas for resale.
(7) “Interstate commerce” means commerce
between any point in State and any point outside
thereof, or between points within the same State
but through any place outside thereof, but only
insofar as such commerce takes place within the
United States.
(8) “States commission” means the regulatory
body of the State or municipality having jurisdic-
tion to regulate rates and charges for the sale of
natural gas to consumers within the State or
municipality.
(9) “Commission” and “Commissioner”
means the Federal Power Commission, and
member thereof, respectively.
36a
Natural Gas Act § 4, 15 U.S.C. § 717c. Rates and charges;
schedules; suspension of new rates
(a) All rates and charges made, demanded, or
received by any natural-gas company for or in
connection with the transportation or sale of
natural gas subject to the jurisdiction of the
Commission, and all rules and regulations affect-
ing or pertaining to such rates or charges, shall
be just and reasonable, and any such rate or
charge that is not just and reasonable is declared
to be unlawful.
(b) No natural-gas company shall, with
respect to any transportation or sale of natural
gas subject to the jurisdiction of the Commis-
sion, (1) make or grant any undue preference or
advantage to any person or subject any person to
any undue prejudice or disadvantage, or (2)
maintain any unreasonable difference in rates,
charges, service, facilities, or in any other
respect, either as between localities or as between
classes of service.
(c) Under such rules and regulations as the
Commission may prescribe, every natural-gas
company shall file with the Commission, within
such time (not less than sixty days from June 21,
1938) and in such form as the Commission may
designate, and shall keep open in convenient
form and place for public inspection, schedules
showing all rates and charges for any transporta-
tion or sale subject to the jurisdiction of the
Commission, and the classifications, practices,
and regulations affecting such rates and charges,
together with all contracts which in any manner
affect or relate to such rates, charges, classifica-
tions, and services.
37a
(d) Unless tne Commission otherwise orders,
no change shall be made by any natural-gas com-
pany in any such rate, charge, classification, or
service, or in any rule, regulation, or contract
relating thereto, except after thirty days’ notice
to the Commission and to the public. Such notice
shall be given by filing with the Commission and
keeping open for public inspection new schedules
stating plainly the change or changes to be made
in the schedule or schedules then in force and the
time when the change or changes will go into ef-
fect. The Commission, for good cause shown,
may allow changes to take effect without requir-
ing the thirty days’ notice herein provided for by
an order specifying the changes so to be made
and the time when they shall take effect and the
manner in which they shall be filed and pub-
lished.
(e) Whenever any such new schedule is filed
the Commission shall have authority, either
upon complaint of any State, municipality, State
commission or gas distributing company, or
upon its own initiative without complaint, at
once, and if it so orders, without answer or for-
mal pleading by the natural-gas company, but
upon reasonable notice, to enter upon a hearing
concerning the lawfulness of such rate, charge,
classification, or service; and, pending such hear-
ing and the decision thereon, the Commission,
upon filing with such schedules and delivering to
the natural-gas company affected thereby a state-
ment in writing of its reasons for such suspen-
sion, may suspend the operation of such schedule
and defer the use of such rate, charge, classifica-
tion, or service, but not for a longer period than
five months beyond the time when it would
Ra
otherwise go into effect; and after full hearings,
either completed before or after the rate, charge,
classification, or service goes into effect, the
Commission may make such orders’ with
reference thereto as would be proper in a pro-
ceeding initiated after it had become effective. If
the proceeding has not been concluded and an
order made at the expiration of the suspension
period, on motion of the natural-gas company
making the filing, the proposed change of rate,
charge, classification, or service shall go into ef-
fect. Where increased rates or charges are thus
made effective, the Commission may by order re-
quire the natural-gas company to furnish a bond,
to be approved by the Commission, to refund
any amounts ordered by the Commission, to
keep accurate accounts in detail of all amounts
received by reason of such increase, specifying by
whom and in whose behalf such amounts were
paid, and upon completion of the hearing and
decision, to order such natural-gas company to
refund, with interest, the portion of such increas-
ed rates or charges by its decision found not
justified. At any hearing involving a rate or
charge sought to be increased, the burden of pro-
of to show that the increased rate or charge is
just and reasonable shall be upon the natural-gas
company, and the Commission shall give to the
hearing and decision of such questions
preference over other questions pending before it
and decide the same as speedily as possible.
Natural Gas Act § 8, 15 U.S.C. § 717g. Accounts;
records; memoranda
(a) Every natural-gas company shall make,
keep, and preserve for such periods, such ac-
ie > a ae
39a
counts, records of cost-accounting procedures,
correspondence, memoranda, papers, books,
and other records as the Commission may by
rules and regulations prescribe as necessary or
appropriate for purposes of the administration
of this chapter: Provided, however, That nothing
in this chapter shall relieve any such natural-gas
company from keeping any accounts, memoran-
da, or records which such natural-gas company
may be required to keep by or under authority of
the laws of any State. The Commission may
prescribe a system of accounts to be kept by such
natural-gas companies, and may classify such
natural-gas companies and prescribe a system of
accounts for each class. The Commission, after
notice and opportunity for hearing, may deter-
mine by order the accounts in which particular
outlays or receipts shall be entered, charged, or
credited. The burden of proof to justify every ac-
counting entry questioned by the Commission
shall be on the person making, authorizing, or
requiring such entry, and the Commission may
suspend a charge or credit pending submission of
satisfactory proof in support thereof.
(b) The Commission shall at all times have ac-
cess to and the right to inspect and examine all
accounts, records, and memoranda of natural-
gas companies; and it shall be the duty of such
natural-gas companies to furnish to the Commis-
sion, within such reasonable time as the Commis-
sion may order, any information with respect
thereto which the Commission may by order re-
quire, including copies of maps, contracts,
reports of engineers, and other data, records,
and papers, and to grant to all agents of the
Commission free access to its property and its ac-
40a
counts, records, and memoranda when requested
so to do. No member, officer, or employee of the
Commission shall divulge any fact or informa-
tion which may come to his knowledge during
the course of examination of books, records,
data, or accounts, except insofar as he may be
directed by the Commission or by a court.
(c) The books, accounts, memoranda, and
records of any person who controls directly or in-
directly a natural-gas company subject to the
jurisdiction of the Commission and of any other
company controlled by such person, insofar as
they relate to transactions with or the business of
such natural-gas company, shall be subject to ex-
amination on the order of the Commission.
Natural Gas Act § 16, 15 U.S.C. § 717(c). Administrative
powers of Commission; rules, regulations, and orders
The Commission shall have power to perform
any and all acts, and to prescribe, issue, make,
amend, and rescind such orders, rules, and
regulations as it may find necessary or ap-
propriate to carry out the provisions of this
chapter. Among other things, such rules and
regulations may define accounting, technical,
and trade terms used in this chapter; and may
prescribe the form or forms of all statements,
declarations, applications, and reports to be filed
with the Commission, the information which
they shall contain, and the time within which
they shall be filed. Unless a different date is
specified therein, rules and regulations of the
Commission shall be effective thirty days after
publication in the manner which the Commission
Shall prescribe. Orders of the Commission shall
be effective on the date and in the manner which
4la
the Commission shall prescribe. For the purposes
of its rules and regulations, the Commission may
classify persons and matters within its jurisdic-
tion and prescribe different requirements for dif-
ferent requirements for different classes of per-
sons or matters. All rules and regulations of the
Commission shall be filed with its secretary and
shall be kept open in convenient form for public
inspection and examination during reasonable
business hours.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.