Federal Power Commission v. Natural Gas Pipeline Co.

1942-03-16

Headline: Natural gas pricing upheld — Court affirms Federal Power Commission’s interim order cutting pipeline companies’ revenues by $3,750,000 and gives the agency broad authority over rate bases and amortization decisions.

Holding: The Court upheld the Federal Power Commission’s interim rate order, ruling the agency validly ordered a $3,750,000 annual revenue reduction, rejected mandatory separate going-concern valuation, and approved the Commission’s 6.5% return and amortization method.

Real World Impact:

Lets the federal agency reduce interstate gas company revenues without immediately setting a detailed rate schedule.
Permits regulators to use a 6.5% return and the Commission’s amortization method when supported by evidence.
Limits court review to whether rates are confiscatory, not to choosing valuation formulas.

Topics: natural gas rates, rate regulation, utility valuation, federal agency power

Summary

Background

Two affiliated pipeline companies produced and transported natural gas from the Texas Panhandle to Illinois and sold most of it wholesale to local utilities. After an Illinois complaint and the Commission’s own review, the Federal Power Commission accepted the companies’ valuation figures, set a rate base of $74,420,424, an amortization base of $78,284,009, allowed a 6.5% return, and ordered a $3,750,000 annual reduction in revenues effective September 1, 1940. The Court of Appeals upheld regulation but vacated the order because it said the companies’ claimed $8,500,000 going-concern value should have been included and the amortization dating should start later. The Supreme Court granted review and considered those issues.

Reasoning

The Court held the Natural Gas Act constitutional and ruled the Commission had authority to enter an interim revenue-decrease order without prescribing a final detailed rate schedule. The central question was whether the Commission’s rate was unconstitutionally low. The Court said courts may not overturn a reasonable rate supported by substantial evidence or substitute their own valuation formulas. It approved the Commission’s choices: not separately listing going-concern value, using the adopted amortization base and 23-year life, accumulating amortization at 6.5%, and allowing a 6.5% fair return on the adopted rate base.

Real world impact

The decision lets the federal agency reduce interstate pipeline revenues when supported by evidence and keeps traditional judicial review narrow, focusing on whether a rate is confiscatory. The court left unresolved questions about refunds of excess charges collected under a stay.

Dissents or concurrances

Several Justices joined the judgment but wrote separately to stress that courts should limit review of rate choices and to criticize older "fair value" valuation doctrines.