Federal Power Commission v. Memphis Light, Gas & Water Division

Background

Texas Gas Transmission, the operator of a large interstate pipeline, asked the Federal Power Commission to let it stop “flow-through” tax accounting and instead use “normalization” for older and replacement plant. The dispute grew out of the 1969 Tax Reform Act (§441), which changed rules about how utilities may claim depreciation for tax purposes. Several customers and a state utility commission challenged the Federal Power Commission’s permission to change methods for pre-1970 and replacement property, and a federal appeals court reversed the regulator.

Reasoning

The Court examined whether the 1969 tax law removed the regulator’s long-standing authority under the Natural Gas Act to decide what depreciation method utilities may use for rate-making. Reviewing the statute and its legislative history, the Court concluded that Congress intended to limit certain switches to faster tax depreciation but did not take away the regulator’s power to permit abandonment of flow-through in appropriate cases. The Court emphasized the regulator’s responsibility both to protect consumers and to preserve the financial health of pipelines, and it reversed the Court of Appeals’ narrower reading of the tax law.

Real world impact

The decision restores the regulator’s discretion to allow utilities to change depreciation accounting, which can affect how taxes and costs show up in utility rates. Utilities, investors, and customers will be affected as the regulator applies its statutory standard to specific company requests. The case is sent back to the Court of Appeals for further proceedings consistent with the Supreme Court’s interpretation.