Colorado Interstate Gas Co. v. FPC,
324 U.S. 581 (1945)

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U.S. Supreme Court

Colorado Interstate Gas Co. v. FPC, 324 U.S. 581 (1945)

Colorado Interstate Gas Co. v. Federal Power Commission

No. 379

Argued January 29, 30, 1945

Decided April 2, 1945*

324 U.S. 581


The Federal Power Commission, under the Natural Gas Act, ordered reductions in petitioners' interstate wholesale rates. Though separate companies, petitioners operated their properties as an integrated system. Their business consisted of intrastate sales, direct industrial sales, and interstate wholesales, of which only interstate wholesales are subject to regulation by the Commission.


1. In determining the amount of the reductions in the interstate wholesale rates, the Commission was not bound to make a separation of the properties used in the regulated business from those in the unregulated, and its formula for allocation of costs between regulable and nonregulable sales did not contravene the Act. P. 324 U. S. 586.

(a) Minnesota Rate Cases, 230 U. S. 352, and Smith v. Illinois Bell Telephone Co., 282 U. S. 133, distinguished. P. 324 U. S. 589.

(b) Under the Act, the appropriateness of the allocation formula used by the Commission is a question of fact, not of law. P. 324 U. S. 590.

(c) The Commission's formula did not ignore or fail to give full effect to the priority -- recognized in the contracts with industrial users and in municipal franchises -- which the wholesale gas had over direct industrial sales. P. 324 U. S. 590.

(d) The Commission's treatment of the transmission line as a unit -- though some laterals and equipment were used exclusively for interstate wholesales, some exclusively for intrastate or direct industrial sales, and some in common in varying degrees by the several classes of business -- was not unfair. P. 324 U. S. 590.

(e) The Commission having found that, but for the direct industrial market at Pueblo and the wholesale market at Denver, the pipeline would not have been built, it was fair to determine

Page 324 U. S. 582

transmission costs for the pipeline as a whole, and not to compute them on a mileage demand basis. P. 324 U. S. 591.

(f) Considerations of fairness, not mere mathematics, govern allocation of costs. P. 324 U. S. 591.

(g) The contention that certain intrastate wholesales are burdened with too large a share of transmission costs is rejected. P. 324 U. S. 591.

(h) The Commission's inclusion in the total cost of petitioners' service of a 6 1/2% return on the rate base was not inappropriate inasmuch as the rate reduction ordered was based solely on the excess of revenues over costs (including return) derived from the regulated business. P. 324 U. S. 593.

(i) The 6 1/2% return allowed by the Commission on the rate base does not limit the earnings of the whole enterprise to 6 1//2%, but merely measures the earnings allowed from the regulated business. P. 324 U. S. 594.

(j) The findings of the Commission on the allocation of costs, though they leave much to be desired, are not so vague as to make the judicial review contemplated by the Act a perfunctory process, and the case need not be remanded for further findings. P. 324 U. S. 595.

2. Interstate sales of gas for resale, including that sold for resale for industrial use, are subject to rate regulation under the Act. P. 324 U. S. 595.

(a) In § 1(a) of the Act, the words "ultimate distribution to the public" do not imply distribution to domestic users alone. P. 324 U. S. 596.

(b) The declaration of policy in § 1(a) of the Act may not be construed as taking out of § 1(b) the express provision subjecting to regulation gas sold for resale for "industrial use." P. 324 U. S. 596.

(c) From the proviso of § 4(e) of the Act that the Commission shall not have authority to suspend the rate "for the sale of natural gas for resale for industrial use only," it may not be inferred that such rates are not subject to regulation by the Commission. P. 324 U. S. 596.

(d) That the petitioners are treated as an integrated system for the purpose of allocation of costs does not require that interstate sales by one to the other for resale for industrial use be regarded as nonregulable direct industrial sales. P. 324 U. S. 596.

3. The provision of § 1(b) that the Act shall not apply "to the production or gathering of natural gas" does not preclude the

Page 324 U. S. 583

Commission from taking into account the production properties and gathering facilities of natural gas companies in determining the reasonableness of rates subject to its jurisdiction. Pp. 324 U. S. 597, 324 U. S. 604.

(a) The Commission is not precluded under the Act from including production and gathering facilities in the rate base, and is not required instead to make an allowance in operating expenses for the fair field price of the gas as a commodity. P. 324 U. S. 600.

4. The Commission's inclusion of production properties in the rate base at actual legitimate cost was not erroneous as matter of law. Error in this respect could be determined only on consideration of the end result of the rate order -- a question not presented on the limited renew granted in this case. P. 324 U. S. 604.

5. Gas lease and producing properties which were transferred at a write-up from one wholly owned subsidiary to another were properly included in the rate base at the original cost to the transferor, where no additional investment was shown to exist. A. T. & T. Co. v. United States, 299 U. S. 232, distinguished. P. 324 U. S. 607.

142 F.2d 943 affirmed.

Certiorari, 323 U.S. 807, to review the affirmance of rate orders of the Federal Power Commission under the Natural Gas Act.

Page 324 U. S. 584

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