Panhandle Eastern Pipe Line Co. v. Federal Power Commission

1945-04-09

Headline: Interstate natural gas rates cut: Court affirms federal agency’s order forcing a pipeline company to lower wholesale rates, allowing the agency to allocate excess earnings and include production facilities in rates.

Holding: The Court affirmed the Federal Power Commission’s order requiring the pipeline company to reduce interstate wholesale rates, finding the Commission did not abuse its discretion in allocating excess earnings and including production and gathering facilities in the rate base.

Real World Impact:

Requires the pipeline to cut interstate wholesale gas rates per the Commission’s order.
Gives the federal agency leeway to assign profits from nonregulated sales to regulated rates.
Allows utility production and gathering costs to be included when setting rates.

Topics: natural gas rates, utility regulation, pipeline companies, federal agency power

Summary

Background

A large pipeline company that produces, transports, and sells natural gas (serving many states and hundreds of thousands of customers) was accused by Detroit and Wayne County of charging unfair wholesale rates. The Federal Power Commission investigated and issued an interim order requiring the company to reduce its interstate wholesale rates based on 1941 sales. The Circuit Court of Appeals affirmed that order, and the pipeline company appealed to the Supreme Court.

Reasoning

The Court focused on two practical questions: whether the agency had to make a formal separation of regulated wholesale business from small, interruptible direct industrial sales, and whether the agency could include the company’s production and gathering facilities in the rate base. The Court found the company had operated as a single business, had not kept segregated accounts, and had not pressed a property-segregation objection in its rehearing request. Given those facts, the Court held the agency did not abuse its discretion in allocating excess earnings to the regulated wholesale business and in including production and gathering facilities in the rate base.

Real world impact

The ruling means the company must lower interstate wholesale rates as ordered. It also affirms that, when circumstances make formal allocation impractical and a company fails to preserve objections, the federal agency has discretion to use informed judgment in assigning earnings and valuing facilities when setting rates.

Dissents or concurrances

A separate concurrence noted several Justices joined the judgment only because the company failed to object on rehearing to including production and gathering facilities in the rate base.