BENEFITS TO RETAIL CONSUMERS The Commission is mindful of the fact that the ultimate purpose of its rate regulatory activities is the assurance of reasonable rates for ultimate consumers. This purpose has been recognized by the courts, particularly the U. S. Circuit Court of Appeals for the 7th Circuit in connection with the Commission's order involving the Natural Gas Pipeline Company of America and Texoma Natural Gas Company. In its "Memorandum on Methods of Making Refunds to Customers of the Peoples Gas Light and Coke Company" s the court said in part (p. 265): Associated with this problem of costs, one utility serving Nebraska City asks that the refund go to it and not to its customers. That it and others may know and plan accordingly, we express our conclusion, and our holding, which is all refunds which petitioners must make, belong to the consumers, for whose benefit these proceedings were instituted. The utilities with whom petitioners contracted, were merely conduits, by which natural gas transported by petitioners was delivered to customers by utilities. The refunds do not belong and should not go to the utilities. The court said further: The proceedings which were instituted by Federal Power Commission and furthered by the Illinois Commerce Commission to reduce the natural gas cost to the utilities were for the benefit of the consumers. They so declare. Most of the utilities have steadfastly disclaimed any right to or interest in the refund. They realize that the proceedings were for the benefit of the 'consumers, not to enrich them. Referring specifically to certain utilities in states without utility commissions, the court concluded: * Now one or two of these utilities located where no state supervisory commission exists, are endeavoring to seize the fruits of the litigation brought for the consumers and retain the money for their own individual gain. It would be a gross travesty upon the proceedings, if they were to succeed. With their efforts in this respect, we have no sympathy. The court will make an order on this finding that the money refunded by petitioners belongs to the consumers and none belongs to the utility or utilities. The reasoning of the court in this memorandum dealing with refunds of accumulated excess charges appears equally applicable to the situation involving the passing on of the benefits to the ultimate consumers at the time a reduction in wholesale gate rates is filed. Northern has recognized this relationship of wholesale to retail rates. It is in a position, however, to pass this reduction on only in the case of sales to Peoples Natural Gas Company, which it controls through ownership of all voting stock. Northern has advised the Commission that Peoples Natural Gas Company will undertake the necessary studies for the purpose of determining appropriate adjust & Natural Gas Pipeline Co. v. Federal Power Commission, 134 F. (2d) 263. ments in retail rates to pass on the reduction in wholesale rates to the retail consumers. The Peoples company distributes gas in 70 communities, the largest of which is Rochester, Minnesota. The total reduction to the Peoples company is $321,000, of which $95,500 is applicable to Rochester, Minnesota. The Commission has been advised by the City of Minneapolis, which has jurisdiction over local rates, that any reduction in the cost of gas to the Minneapolis Gas Light Company would be "immediately reflected in rates charged the users of gas." The reduction in gate rate to the Minneapolis Gas Light Company is estimated to be $262,000 annually. The largest single reduction to any distributor is the $323,000 to the Iowa-Nebraska Light and Power Company. This company distributes gas in 35 communities, including Lincoln, Nebraska. The amount of reduction applicable to sales to Lincoln, Nebraska, alone, is approximately $205,000. Exhibit A to the attached order lists all the distributors which purchase gas from Northern. A summary of the total amount of the reduction applicable to each distributor is shown on p. 383 in the exhibit. On the remaining pages of the exhibit there is listed each community served by distributors and the amount of reduction applicable to each community. This information is attached to the order so that each distributor and each community may be advised of the estimated reduction applicable to it, thereby enabling prompt consideration of an appropriate reduction in the retail rates in each case. COOPERATIVE PROCEDURE Since the passage of the Natural Gas Act, Northern has cooperated with the Commission in meeting the requirements of regulatory procedures to which the Act subjected the company for the first time. It has voluntarily brought in its rate problems for discussion and has adopted many suggestions made by the staff. Illustrative of this attitude was its adoption in 1942 of simplified uniform rates in lieu of the hundreds of separate contracts with customers under which the majority of the companies operated. Beginning in November 1942, the City of Minneapolis undertook to obtain a lower wholesale rate for sales to the Minneapolis Gas Light Company so that the city might require the latter company to reduce its rates to the ultimate users in the city. Discussions had reached the point in December 1942, where Northern had considered an over-all reduction of $1,200,000 in rates, of which the share to the Minneapolis Gas Light Company was $150,000. At this point of agreement the company, in conformity with its practice of discussing such matters with the Commission, placed the problem informally before it. During this same period the Commission had under consideration the adoption of an order of investigation of Northern based upon its 1941 earnings record. When representatives of the Company advised the Commission of its plans for a general reduction in rates, the proposed order of investigation was set aside to afford an opportunity to reach an informal agreement regarding the amount of reduction that would be reasonable. From the inception of these discussions, there was complete agreement between representatives of the Company and the Commission that the computation of excessive returns (and consequently, the amount of reduction to be effected) would be in conformity with the regulatory principles established by the Commission in its recent natural-gas rate case opinions and orders. These principles allow a reasonable rate of return on the depreciated original cost of the property, reasonable allowances being made for operating expenses, depreciation, and taxes. Northern was requested to submit its computation in full showing its determination of the amount of excess earnings on this basis. The Commission staff also prepared such statements. A conference followed at which the results of the two statements were compared and discussed. The differences found in the statements were not large and it was determined that the results contained in the staff's estimates were substantially correct. After consideration, Northern agreed to reduce its rates in accordance with the amounts shown as indicated by the staff's studies. By this action the company and the Commission were saved considerable expense that would otherwise have been required if a more extended formal investigation were to be made and hearings held. This case and the others like it are examples of regulation made. effective and simple by the use of the original cost formula and acceptance of the principles by the companies involved. The results are reasonable and fair to the companies and to the public. LELAND OLDS. CLAUDE L. DRAPER. BASIL MANLY. JOHN W. SCOTT. CLYDE L. SEAVEY. Order making effective reductions in rates Northern Natural Gas Company It appearing to the Commission that: (a) Following conferences with representatives of the Commission, Northern Natural Gas Company (hereinafter sometimes referred to as Northern) filed on February 1, 1943, certain revisions in its rates for the sale of natural gas for resale representing an estimated reduction of $2,087,000, the details of the reductions by distributors. and communities being attached hereto as Exhibit A and made a part hereof; (b) This reduction in rates taken together with a previous reduction filed less than a year ago will reduce the earnings of Northern on its sales for resale to an amount not in excess of 61⁄2 percent on a rate base substantially representing original cost less depreciation plus working capital, as described in the memorandum opinion accompanying this order; (c) Northern has made application, pursuant to the request of the Commission, that the reduced rates be allowed to take effect for all bills rendered for natural gas deliveries during and after the February 1943 billing month, and it is in the public interest that such retroactive effective date be established. Now, therefore, in view of the foregoing and for the reasons set forth in its memorandum opinion in this matter issued with this order It is ordered that: (A) Original sheets Nos. 4a and 25a, revised sheets Nos. 5, 6, 7, 8, 9, 10, 12, 13, 15, 16, 18, 19, first revised sheets Nos. 3 and 24, and second revised sheets Nos. 2, 4, 11, 14, and 17 to the Northern Natural Gas Company's FPC gas rate schedules be and they hereby are allowed to take effect for all bills rendered for natural gas deliveries during and after the February 1943 billing month; (B) The aforesaid sheets shall be deemed to have been filed and published in compliance with the Natural Gas Act; (C) This order is without prejudice to any findings or orders which may be made by the Commission in any proceedings now pending, or hereafter instituted, by or against the applicant. Estimated effect of proposed rates EXHIBIT A.-Northern Natural Gas Company. |