UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
May 11, 1972
MEMPHIS LIGHT, GAS AND WATER DIVISION, PETITIONER
FEDERAL POWER COMMISSION, RESPONDENT; TEXAS GAS TRANSMISSION CORPORATION AND TENNESSEE VALLEY
FEDERAL POWER COMMISSION, RESPONDENT; TEXAS
Fahy, Senior Circuit Judge, and Robinson and Wilkey, Circuit Judges.
UNITED STATES COURT OF APPEALS FOR THE DISTRICT COLUMBIA CIRCUIT
Municipal Gas Assoc., Etc., Intervenors. Public
Service Commission of the State of New
Nos. 24,517, 24,632
Reported at: 462 F.2d 813 at 865. 1972.CDC.131
Date Reported: Original Opinion of February 18, 1972 at: 462 F.2d 813
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WILKEY
WILKEY, Circuit Judge:
Petitions of the Federal Power Commission and Texas Gas Transmission Corporation, an intervenor, for rehearing and suggestions for rehearing en banc, of this court's action in vacating the order of the Commission with respect to Texas Gas' pre-1970 and post-1969 non-expansion property, focus on three main points:
*fn1. Whether Congress' enactment of the 1969 Tax Reform Act limited the extent of the Commission's authority to permit regulated utilities such as Texas Gas to shift from accelerated depreciation with flow -through to similar depreciation with normalization with respect to their pre-1970 and post-1969 non-expansion property.
*fn2. The import of the explanation of Section 441(a) of the 1969 Tax Reform Act in regard to point 1 (supra) provided by the Staff of the Joint Committee on Internal Revenue Taxation.
*fn3. The court's caveat, at the end of its opinion, with respect to the effect of Section 441(a) of the Act on the Commission's discretion to permit regulated utilities such as Texas Gas to abandon flow-through.
We deny the petitions for rehearing, as we find the Commission's and Texas Gas' arguments unpersuasive. Since both manifest some confusion over the meaning of our opinion and what we deem the proper interpretation of the statute involved, we set forth these additional views on the specific points raised in an effort at clarification for the responsible regulatory agency and the industry involved. I. The Extent of the Commission's Authority under Section 441(a) of the
1969 Tax Reform Act re Non-Expansion Property
The Commission and Texas Gas return to the initial House version of Section 441(a) of the 1969 Tax Reform Act to support their contention that Section 441(a), as finally enacted, did not curtail the Commission's discretion, with respect to pre-1970 and post-1969 non-expansion (existing or replacement) property, to permit regulated utilities such as Texas Gas to shift from accelerated depreciation with flow -through to similar depreciation with normalization. They point out (we do not disagree, see first full paragraph of text, page 862) that the House version would have permitted Texas Gas, with the Commission's approval, to shift from flow -through to normalization with respect to its pre-1970 and post-1969 non- expansion (as well as its post-1969 expansion) property.
It is at the Senate stage of the proceedings that our views diverge. Texas Gas and the Commission argue that the FPC's discretion to permit a regulated utility such as Texas Gas to shift its depreciation treatment of non-expansion property survived through both the Senate and Conference Committee versions of the legislation. Their interpretation is that subsequent versions reflect additional provisions (e.g., the 180-day period during which the company may elect to change its method of depreciation) rather than substitute provisions which eventually made up the final bill. We think our analysis (pp. 861-863) of the changes at different stages of the legislation makes clear why this contention is not valid, but for greater clarity we shall chart the transformations as the Tax Reform Act progressed through the legislative stages.
House Version House Senate Conference
Version Pro- Version Envi-
sioned Three posed These sioned Same Committee
ble Present sible Changes, with Present Situations, Version
re both No Time Limit re but (1) Created
non-expansion Changes Under III
erty Depreciation ence In Agency
and (2) Limited
Either Change to a
Period I. Straight-line None allowed (Same) (Same) II. Normalization To straight-line, (Same) (Same)
change to flow-
through) Same as Senate, but III. Flow-through Continue flow- Continue flow- modified to
through, unless through, unless 180-day
change to change to (d) in Conf.
Straight-line, with A. Straight-line, ply to new
agency without property only,
approval; or agency
approval; or and available
Normalization, B. Normalization
with agency only with capacity increased.
Either change to be
elected within 180
For legislative history supporting this analysis, see: H.R. Rep. No. 413 [To Accompany H.R. 13270], 91st Cong., 1st Sess. 131-134 (1969); S. Rep. No. 552 [To Accompany H.R. 13270], 91st Cong., 1st Sess. 171-176 (1969); Conf. Rep. No. 782, 91st Cong., 1st Sess. 312-313 (1969).
Thus, between the initial House and Senate versions of Section 441(a), two differences emerge with respect to Situation III and to shifting from flow-through: First, under the Senate version, in contrast to the House, FPC approval is not required to shift from the flow-through to the straight-line method; and, second, the Senate limited (the Commission and Texas Gas can point to no language to the contrary) all changes re both expansion and non-expansion property to a 180-day election period. In view of these differences, the Conference Committee was free to modify the House and Senate versions in an attempt to resolve them.1 Neither Texas Gas nor the Commission dispute the power of the conferees to make the second change, to curtail the 180-day election provision so as to apply only to post-1969 expansion property.
As to the first change, there was clearly a disagreement between the Senate and the House over the right of a regulated utility to shift from accelerated depreciation with flow-through to straight-line depreciation, with or without agency approval. This disagreement entitled the conferees (1) to choose the Senate version, limiting all shifting from the flow-through method to a 180-day period, and (2) to make it applicable to post-1969 expansion property only. Clearly, such an option is a "germane modification of subjects in disagreement" -- here the permissible extent of abandonment of accelerated depreciation with flow-through.
The variety and extent of differences between the two versions was acknowledged by the Staff of the Joint Committee on Internal Revenue Taxation,2 a source much relied upon here by the Commission and Texas Gas: "The Tax Reform Act of 1969, because of its comprehensive scope and because of the many changes which were made in this legislation, both by the Senate and subsequently by the conferees, is an illustration where the differences [between the versions of each House] were especially significant."3
In permitting a taxpayer such as Texas Gas to shift from accelerated depreciation with flow-through to straight-line depreciation with or without the appropriate agency's approval, the Senate was no doubt interested in increasing governmental revenues (since under flow-through the tax reduction is passed on to the utility's customers). The House, however, by limiting changes from flow-through either to straight-line or normalization only with agency approval, was reflecting the concern that emphasis on a shift to straight-line depreciation, as expressed by the Senate version, would place taxpayers such as Texas Gas at a competitive disadvantage, both as to the sale of their products or services and as to their attractiveness to equity investors. *fn4
Thus, the conferees' resolution of this disagreement in favor of the latter concern by limiting the extent to which regulated utilities may abandon flow-through reflects Congress' overall intent "in general to 'freeze' the current situation regarding methods of depreciation in the case of those companies in what are, by and large, the more healthy utility industries." *fn5 And, as both the House and Senate Reports indicate, "About half the regulatory agencies require utilities that use accelerated depreciation for tax purposes to 'flow through' the resulting reduction in Federal income taxes currently to the utilities' customers. . . . Some agencies insist that utilities subject to their jurisdiction use accelerated depreciation for tax purposes; even if those utilities use straight line depreciation for tax purposes, such agencies treat them for ratemaking purposes as though they had reduced their Federal income tax expense by using accelerated depreciation." *fn6
This overall congressional objective to forestall prospective revenue losses, without handicapping the utility industry, was a prime consideration at all stages of the legislation. In focusing on the specific language of the House version of the bill, Texas Gas and the Commission give no notice to this overall objective, the weight it had at all stages, and how the final conferees' changes reflect this, although we stressed this in our opinion (pp. 862-864). II. Import of the General Explanation by the Staff of the Joint
Reliance by the Commission and Texas Gas on one specifically cited portion of the General Explanation of the Tax Reform Act of 1969, H.R. 13270, 91st Congress, Public Law 91-172, prepared by the Staff of the Joint Committee on Internal Revenue Taxation (3 December 1970), for support for the proposition that Section 441(a) of the Act as finally enacted did not diminish the Commission's authority to permit a taxpayer such as Texas Gas from abandoning flow-through with respect to its pre-1970 and post-1969 non-expansion property is mistaken. We are cited to page 151 of the General Explanation, to wit:
More specifically, in the case of existing property the following rules apply:
(3) If the taxpayer was taking accelerated depreciation and flowing through to its customers the benefits of the deferred taxes as of August 1, 1969, then the taxpayer would continue to do so (except for a special election procedure discussed below), unless the appropriate regulatory agency permits a change as to that property. That is, the Act does not require the taxpayer to flow through, but it also does not affect any power the regulatory agency might have to require the taxpayer to flow through. (Emphasis supplied.)
The first revealing aspect of this language is that all of it except the italicized portions (which were added by the Staff) was lifted, with only minor modifications, from the House and Senate Reports, *fn7 both of which were commenting on the initial House version of Section 441(a). For the Commission and Texas Gas, then, to point to this language as determinative of Congress' final intent in enacting Section 441(a) of the Act is unavailing. At best, this language is confusing and uncertain; it cannot carry meaning ascribed to it by the Commission and Texas Gas, particularly in view of the following page 152, discussed infra. Significantly, there is no mention of such continued Commission authority in this particular respect in the Conference Committee Report, an omission reflecting the conferees' resolution of the differences between the two initial versions of Section 441(a).
Furthermore, as we have seen by the provisions discussed and displayed in the chart (supra) there never was at any time in any version of the House, Senate, or conferees, a power in the agency to compel or permit a company to change from any method of depreciation accounting to flow-through. To have included such a provision would have been directly contrary to the overall objective of this portion of the Act -- "in general to 'freeze' the current situation regarding methods of depreciation." (As discussed pp. 862-864). After the Tax Reform Act of 1969, the permissible shifts were contemplated to be away from flow-through, at the company's option, with changed requirements as to agency approval and time (see chart, supra).
Finally, the comfort Texas Gas and the Commission derive from page 151 is taken away by page 152 of the General Explanation, not cited to us. There we find:
The Act permits an election to be made within 180 days after the date of enactment of the Act -- i.e., by June 28, 1970 -- for a utility in one of the regulated industries covered by this provision to shift from the flow-through to the straight line method, with or without the permission of the appropriate regulatory agency, or to permit it with the permission of the regulatory agency to shift to the normalization method, that is, to come under general rules of the Act.
This election applies to new property, but only to the extent it increases the taxpayer's capacity. . . . " *fn8
Here we have set forth the rule -- and the rationale therefor -- of the final version of the statute. "Utilities on flow-through could elect" to change to either straightline depreciation or accelerated depreciation with normalization within 180 days after enactment of the Act, but -- "This election applies to new property, but only to the extent it increases the taxpayer's capacity."
There is nothing about old, existing, non -expansion property which "increases the taxpayer's capacity." Only new, expansion property could do so. Hence, if we bear in mind the congressional intent generally "to freeze" the present depreciation situation, it appears logical that the permissible shift in accounting practices would be limited, and that an exception might logically be made for new expansion property increasing productive capacity, at taxpayer option, and with agency approval required if the shift is to normalization. If we take Texas Gas' and the Commission's evaluation of the words on page 151 -- and ignore page 152 completely -- then the exception is for all property and swallows up the whole, thus vitiating any congressional intent "to freeze" generally depreciation accounting practices for utilities. Texas Gas and the FPC continually urge that there are no words in this Tax Reform Act saying specifically that the Power Commission's discretion is curtailed, an argument which, to our minds, simply misses the purpose of this portion of the Act. The objectives in regard to a general freeze, in regard to balancing prospective revenue loss against possible impairment of the utilities' ability to raise capital and service customers at low rates, all would have been difficult to achieve without placing the resulting limitation on the Commission's discretion. This the language of the Tax Reform Act necessarily did, and to hold otherwise would be to undo what was most carefully done. III. The Court's Caveat with Respect to the Effect of Section 411(a)
Finally, the Commission asserts that the court's opinion is misleading in that "On the one hand, this Court finds that the Commission lost its discretion to allow Texas Gas to switch from flow-through. Yet this Court holds that the Commission has discretion to permit abandonment of flow-through in 'extraordinary circumstances.'" (Commission brief, p. 13, n. 6.)
The Commission fails to read the court's language with care. What we stated is that "There might be extraordinary circumstances in which Section 441(a), taken in conjunction with the mandate of the Natural Gas Act, should not be construed to prevent the FPC in its underlying responsibility to protecting consumer interests from finding that those interests would be furthered by permitting the abandonment of flow-through." [pp. 864-865 (emphasis supplied).] Clearly, the court's language indicates simply the possibility that such circumstances might exist; it does not state that they do. For the Commission to assume otherwise is to ignore the plain meaning of the court's language. What the court intended here was merely to leave open the possibility that such circumstances might exist, rather than to assume categorically that they do not. IV. Conclusion
For the reasons stated above, the petitions of the Commission and Texas Gas for rehearing are