1. Wholesales to distributors within State of natural gas which
the wholesaler purchases within the State, but which moves in a
continuous stream across state lines to the local distributor, are
in interstate commerce, and subject to regulation under the Natural
Gas Act. P.
324 U. S.
630.
2. The rate reduction ordered by the Commission in this case is
sustained to the extent that it reflects a valid reduction in the
rates of a company from which the petitioner purchases gas; but, as
to the balance of the rate reduction, the judgment approving the
rate reduction order is reversed because of inadequate findings by
the Commission. P.
324 U. S.
634.
142 F.2d 943 affirmed in part; reversed in part.
Certiorari, 323 U.S. 701, to review the affirmance of a rate
order of the Federal Power Commission under the Natural Gas
Act.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
This case is a companion case to
Colorado Interstate Gas Co.
v. Federal Power Commission and
Canadian River
Page 324 U. S. 627
Gas Co. v. Federal Power Commission, ante, p.
324 U. S. 581.
Petitioner began operations in 1925. Until 1929, petitioner
obtained its entire supply from the Wellington Field of the
Continental Oil Co., near Ft. Collins, Colorado. Its transmission
line ran from that point north to Cheyenne, Wyoming. The Wellington
Field began to diminish. So petitioner, in October, 1929, entered
into a twenty-year contract with Colorado Interstate to purchase
gas from it the gas to be delivered to petitioner at its metering
station near Littleton, Colorado. Accordingly, in 1929 and 1930,
petitioner constructed a pipeline between Ft. Collins, Colorado,
and Littleton, Colorado, where connection was made with Colorado
Interstate's transmission system. Between 1929 and 1939, branch
lines were constructed to serve various cities, towns, and
industrial customers in Colorado. At the present time, all but two
percent of its gas is obtained from Colorado Interstate. Petitioner
sells gas at the Cheyenne city gate to its affiliate Cheyenne
Light, Fuel, and Power Co. It also sells directly to industrial
consumers in Colorado, and to some extent in Wyoming. And it sells
gas at various city gates in Colorado for resale.
The investigation and hearings on the interstate wholesale rates
of Canadian, Colorado Interstate, and petitioner were consolidated.
As we have seen, the Commission ordered Canadian to reduce its
rates by $561,000 per year. That amount made up part of the
$2,065,000 annual reduction which the Commission ordered in the
rates of Colorado Interstate. In the present case, the Commission
found that petitioner's revenues were $159,000 in excess of costs
and a fair return, and that $119,000 of that excess were allocable
to petitioner's sales for resale. The Commission ordered petitioner
to reduce its wholesale rates by $119,000 a year. 43 P.U.R. (N.S.)
205, 234. That does not represent the net decrease in revenue,
since the Commission ordered Colorado Interstate to reduce its
Page 324 U. S. 628
rates to petitioner by $98,000 a year. Accordingly, the net
decrease in revenues of petitioner will be $21,000 if the
Commission's order stands. The petition for certiorari which we
granted to review the judgment of the Circuit Court of Appeals
affirming the order of the Commission (142 F.2d 943) was limited to
the question whether the allocation of cost of service used by the
Commission is without support in the record and contrary to
law.
The Commission in this case, as in
Colorado Interstate Gas
Co. v. Federal Power Commission and
Canadian River Gas Co.
v. Federal Power Commission, did not make a separation of
properties used in the regulated business from those used in the
unregulated. It used instead the same method of allocation of costs
as it did in those other cases. Petitioner contends that the
Commission's method of allocation of costs included in the
regulated business a part of its business which Congress has not
subjected to regulation by the Commission. As we have noted,
petitioner's transmission line commences in Colorado near
Littleton, where it connects with the pipeline of Colorado
Interstate. Petitioner sells some of its gas in Colorado for resale
to domestic users in certain towns in Colorado. The Commission held
that those wholesale sales were subject to its jurisdiction.
Petitioner contends that those sales are made in intrastate
commerce, and are not subject to the Commission's ratemaking
powers. Its position is that the one and only sale for resale by it
in interstate commerce is the sale at the city gate in Cheyenne,
since none of the Colorado sales involve interstate commerce so far
as petitioner is concerned.
The answer turns on the meaning of § 1(b) of the Act (52 Stat.
821, 15 U.S.C. § 717), which provides:
"(b) The provisions of this chapter shall apply to the
transportation of natural gas in interstate commerce, to the sale
in interstate commerce of natural gas for resale for ultimate
public consumption for domestic, commercial,
Page 324 U. S. 629
industrial, or any other use, and to natural gas companies
engaged in such transportation or sale, but shall not apply to any
other transportation or sale of natural gas or to the local
distribution of natural gas or to the facilities used for such
distribution or to the production or gathering of natural gas."
The Commission relied on Illinois
Natural Gas Co. v. Central
Illinois Public Service Co., 314 U. S. 498, in
concluding that it had jurisdiction over the wholesale sales in
Colorado. That case presented the question whether the Illinois
Commission or the Federal Power Commission had authority to
authorize a pipeline extension wholly within Illinois. The company
proposing the extension (Illinois Gas Co.) owned a pipeline system
wholly in Illinois which was connected at various points in that
State with the pipeline of its parent company, Panhandle Eastern
Pipe Line Co., which owned and operated a natural gas pipeline
system from gas fields in Texas, Kansas, and Oklahoma across
Illinois and into Indiana. The Illinois company purchased its gas
under a long-term contract from Panhandle Eastern and transported
it through its own lines to local gas distributing utilities in
Illinois to which it sold the gas for distribution to consumers in
various Illinois cities. We held that the Illinois company, by
virtue of § 7(c) of the Act,
* could
Page 324 U. S. 630
build an extension to connect with the facilities of a company
distributing gas to consumers in Illinois only after obtaining a
certificate of public convenience and necessity from the Federal
Power Commission. We held that the Illinois company and Panhandle
Eastern were engaged "in interstate commerce in the purchase and
sale of the natural gas which moves in a continuous stream from
points without the state" into the pipes of the Illinois company,
and that
"the particular point at which the title and custody of the gas
passes to the purchaser without arresting its movement to the
intended destination does not affect the essential interstate
nature of the business."
314 U.S. pp.
314 U. S.
503-504. We pointed out that the purpose of the Act was
to provide
"an agency for regulating the wholesale distribution to public
service companies of natural gas moving interstate, which this
Court had declared to be interstate commerce not subject to certain
types of state regulation."
Id., p.
314 U. S. 506.
We reviewed the earlier decisions of the Court which adopted the
mechanical test for determining when interstate commerce ends and
intrastate commerce begins,
viz., when the gas is
introduced into the service pipes of the local distributor. We
noted that it was to fit the pattern of state regulation reflected
in those decisions that the Natural Gas Act was passed.
Accordingly, we conclude that, if petitioner's pipeline were to
be constructed today from Littleton, Colorado, to the city gates of
the Colorado towns where petitioner's gas is resold, § 7(c) would
require that a certificate of public convenience and necessity be
obtained from the Commission. For, in this case as in Illinois
Natural Gas Co. v. Central Illinois Public Service Co.,
supra, the gas which petitioner purchases from Colorado
Interstate moves in a continuous stream across state lines to local
distributing companies in Colorado as well as Wyoming. If
petitioner is engaged in "the transportation of natural gas in
interstate commerce"
Page 324 U. S. 631
to those Colorado towns within the meaning of § 1(b), its
wholesale sales in Colorado are also sales "in interstate commerce
of natural gas for resale for ultimate public consumption," as
those words are used in § 1(b). That commerce does not end until
the gas enters the service pipes of the distributing companies.
Most of the other objections which petitioner raises to the
Commission's method of allocation of costs have been considered in
the cases of
Colorado Interstate Gas Co. v. Federal Power
Commission and
Canadian River Gas Co. v. Federal Power
Commission. We need not repeat what we said there. But there
are a few distinct phases of this case which must be separately
stated.
Petitioner says that the Commission treated it, along with
Canadian and Colorado Interstate, as an integrated unit for
purposes of the allocation of costs. The inference is that the
Commission combined petitioner's costs with those of the other two
companies and allocated the combined costs three ways. That is not
the fact. Petitioner is independent in management and control from
the other two. Its system was not constructed as part of Canadian's
and Colorado Interstate's system, but was started independently and
connected with the others at a later stage. The Commission
recognized that, in operation, the three-company project was a
single one in the sense that an alteration in Canadian's rates
affected the reasonableness of the rates of Colorado Interstate
and, in turn, the reasonableness of the rates of petitioner. But,
when it came to an allocation of costs among petitioner's classes
of business, the Commission considered petitioner's costs
alone.
Here, as in the cases of Canadian and Colorado Interstate, the
findings of the Commission leave much to be desired. The findings
are general, and incorporate by reference the staff exhibits on
which reliance is put for the subsidiary findings. But, in this
case, there are added difficulties.
Page 324 U. S. 632
The staff used one system, the Commission another. As the
Commission said, the staff
"departed from the use of the system peak day for allocating
demand (fixed) costs and combined the separate class peaks of
resale customers and of main line industrial customers."
43 P.U.R.(N.S.) at 233. The Commission thought a different
method would be in keeping with petitioner's operations. It
said:
"The Colorado Portland Cement Company, the principal main line
industrial user, is curtailed regularly during system peak days.
Its demand on the system peak day is, in our opinion, a proper
measure of its proportionate share of demand costs than its highest
off-peak demand. Accordingly, the principles and methods of cost
allocation presented by Commission staff are adopted with the
modification that the coincident demands of all customers on the
system peak day are used, and with exception of deliveries to
Highway Gas Company."
43 P.U.R.(N.S.) at 234. When we read that finding against the
record, there are ambiguities which we are unable to resolve, were
it our province to do so.
(1) The "system peak day" is February 9, 1939 -- the same day
chosen for Canadian and Colorado Interstate. We know from our
search of the record that is not the actual peak day in 1939 for
petitioner's business. We are told by the Commission in its brief
that it is the ratio of deliveries to the regulable and
nonregulable customers, rather than total deliveries, that
determines the allocation of capacity costs. But there are no
findings which indicate why the system peak day for other companies
should be taken as the system peak day for this company. Nor are
there any findings which indicate that the ratio on the system peak
day is a more reliable guide in the allocation of costs than the
ratio on the actual peak day of this company.
(2) The Commission says it allocated capacity costs on the basis
of the "coincident demands of all customers
Page 324 U. S. 633
on the system peak day." It said that Colorado Portland Cement
Co. is "curtailed regularly during system peak days," and that its
"demand" on that day is the proper measure of its proportionate
share of capacity costs. We assume it meant by "coincident demands"
on the system peak day the amount of gas actually delivered on that
day, not the customers' respective needs for gas on that day. But,
when we turn to the record, there are ambiguities. The staff
exhibit on which the Commission apparently relied designates as one
classification the "maximum day deliveries on Colorado Interstate
Gas Co. peak day -- Thurs., Feb. 9, 1939." Under that heading, we
compute 1,777 Mcf. to direct-sale customers and 9,009 Mcf. to
resale customers on February 9, 1939. The Commission, in its brief,
tells us that that was the basis on which it allocated capacity
costs --
viz., 83.5 percent to the resale gas, 16.5
percent to the direct sale gas. But there is evidence in the record
that the direct-sale customers received, on February 9, 1939, not
1,777 Mcf., but only 522 Mcf. If we use 522 Mcf., rather than 1,777
Mcf., in our computations, we shift to the interstate wholesale
sales almost $21,000 additional costs. Now the net rate decrease
ordered by the Commission in this case amounted to $21,000. Hence,
that net decrease substantially disappears if we take 522 Mcf.,
rather than 1,777 Mcf., as the amount of direct sales on Feb. 9,
1939. The choice of the lower figure would thus be fatal to the
Commission's case.
We do not know why the lower figure was rejected. There are no
findings to guide us. In the record there is testimony which may
suffice as a partial reconciliation of the difference and which
casts some doubts on the accuracy of the lower figure. But we have
been unable completely to reconcile the difference. We do know from
a reading of the record that the staff exhibit from which the 1,777
Mcf. item was obtained was based at least in
Page 324 U. S. 634
part on averages or estimates, not on actual deliveries. It is
not clear whether 1,777 Mcf. rested on estimates or reflected
actual deliveries by petitioner on Feb. 9, 1939. The caption
"maximum day deliveries on Colorado Interstate Gas Co. peak day --
Thurs., Feb. 9, 1939" is ambiguous. It may mean that the gas
delivered to petitioner by Colorado Interstate on that day was
apportioned among the several classes of customers according to
their actual use on that day. It may mean actual deliveries by
petitioner during that day. The figures may or may not be the
same.
The review which Congress has provided for these rate order is
limited. Sec.19(b) says that the "finding of the Commission as to
the facts, if supported by substantial evidence, shall be
conclusive." But we must first know what the "finding" is before we
can give it that conclusive weight. We have repeatedly emphasized
the need for clarity and completeness in the basic or essential
findings on which administrative orders rest.
Florida v. United
States, 282 U. S. 194,
282 U. S. 215;
United States v. Baltimore & Ohio R. Co., 293 U.
S. 454,
293 U. S. 464;
United States v. Chicago, M. St. P. & P. R. Co.,
294 U. S. 499,
294 U. S.
504-505,
294 U. S.
510-511;
United States v. Carolina Freight Carriers
Corp., 315 U. S. 475,
315 U. S.
488-489. Their absence can only clog the administrative
function and add to the delays in ratemaking. We cannot dispense
with them, for Congress has provided the standards for judicial
review under this Act. § 19(b). The courts cannot perform the
function which Congress assigned to them in absence of adequate
findings. Nor are they authorized under § 19(b) to make findings
and substitute them for those of the Commission.
We think it is plain that $98,000 of the rate decrease ordered
by the Commission in this case is valid, since it reflects the
reduction in the rates of Colorado Interstate from whom petitioner
purchases practically all of its gas. But the balance of the
$119,000 rate decrease which was
Page 324 U. S. 635
ordered,
viz., $21,000, is so shrouded in doubt that
further findings by the Commission are necessary.
Accordingly, we affirm the judgment below insofar as it
sustained the order of the Commission directing petitioner to
reduce its rates by $98,000. As to the balance of the rate
reduction, we reverse the judgment below, set aside the order of
the Commission, and remand the cause for further proceedings in
conformity with this opinion.
See § 19(b).
It is so ordered.
THE CHIEF JUSTICE, MR. JUSTICE ROBERTS, MR. JUSTICE REED, and
MR. JUSTICE FRANKFURTER are of the opinion that the case should be
remanded to the Commission for separate allocation of investment
and operating cost between the regulable and nonregulable
properties, as well as for the clarification of findings directed
in the opinion. They agree that the deliveries to wholesales in
Colorado are in interstate commerce.
* Sec. 7(c) provides in part:
"No natural gas company shall undertake the construction or
extension of any facilities for the transportation of natural gas
to a market in which natural gas is already being served by another
natural gas company, or acquire or operate any such facilities or
extensions thereof, or engage in transportation by means of any new
or additional facilities, or sell natural gas in any such market,
unless and until there shall first have been obtained from the
Commission a certificate that the present or future public
convenience and necessity require or will require such new
construction or operation of any such facilities or extensions
thereof. . . ."
A natural gas company is defined in § 2(6) as a "person engaged
in the transportation of natural gas in interstate commerce, or the
sale in interstate commerce of such gas for resale."