UNITED STATES SUPREME COURT DECISIONS ON-LINE

Respondent United Gas Pipe Line Co. (United) was a member of an affiliated group of companies which filed consolidated federal income tax returns. Two of the companies had net losses. Thus, the total tax on a consolidated basis was less than what the total tax would have been had separate returns been filed. The Federal Power Commission (FPC) decided that, in determining the proper tax allowance to be included in United's cost of service for purposes of establishing a rate base, there should be an allocation of the actual consolidated taxes paid. The FPC formula (1) applies the losses of unregulated companies first to the gains of other unregulated companies, (2) applies any remaining losses to reduce the taxes of the regulated companies, and (3) allocates the consolidated tax among the regulated companies in proportion to their taxable income. The Court of Appeals set aside the FPC order holding that the FPC exceeded its jurisdiction and that United was entitled to include as a cost of service the full amount of taxes it would owe if it filed a separate return.

Held:

1. The jurisdiction of the FPC includes the determination of cost of service for ratemaking, and it has the power and the duty to limit cost of service to real expenses. Pp. 386 U. S. 243-245.

2. The FPC formula, which allocates tax liability among the group members which are regulated, regardless of whether they are regulated by it or by state or local authorities, is neither unjust nor unreasonable. Pp. 386 U. S. 245-246

3. There is no frustration of the tax laws inherent in the FPC action. Pp. 386 U. S. 246-247.

357 F.2d 230, reversed and remanded. clubjuris

Page 386 U. S. 238