Before MARIS, McLAUGHLIN and HASTIE, Circuit Judges.
Panhandle Eastern Pipe Line Company, hereinafter called Panhandle, is asking that this court review and set aside an order of the Federal Power Commission "granting in part" a motion to dismiss a rate proceeding which Panhandle had initiated pursuant to Section 4 of the Natural Gas Act, 15 U.S.C.A. § 717c, by filing a revised gas tariff to achieve certain price increases and other changes. The commission suspended the proposed tariff revisions pending hearing. When the matter came on for hearing Panhandle was permitted to present its case in chief. Government counsel and counsel for certain intervenors then moved to disallow the proposed changes and to dismiss the proceeding. This motion was granted in part by an order directing the elimination of certain elements and factors from the proposed revised tariff. It is this order that we are reviewing. To complete the procedural picture it may be noted that the required eliminations have been made under protest and what remained of the proposed rate increases has been put into effect on an interim basis as provided by law until the pending litigation can be finally adjudicated by the commission.
The order under review eliminated as unjustified those parts of the proposed revisions which were accomplished in four ways: (1) by increasing Panhandle's previously approved overall rate of return from 5 3/4 to 6 3/4 percent; (2) by adding to Panhandle's working capital requirement, as the commission had formerly computed it, an item representing minimum bank balances; (3) by certain changes in the allocation of costs; (4) by certain other changes characterized by the commission as "major revisions of Panhandle's rate structure and form of tariff", as approved by the commission in earlier rate proceedings. The commission stood on its approach to and analysis of these factors in other recent Panhandle rate proceedings, principally Opinion No. 269 issued on April 15, 1954. It also found that no new or supervening occurrences had been shown by Panhandle to warrant reconsideration of the commission's recent conclusions with reference to these matters.Panhandle says that this disposition of its contentions was both an unwarranted use of the doctrine of res judicata and an arbitrary refusal to give effect to its actual showings of recently changed conditions and circumstances.
A preliminary point concerns the procedure followed by the commission in this case. Panhandle says that it was improper and unfair for the commission to take dispositive action disallowing its proposed rate increases and tariff changes in part before final decision of this rate case in its entirety. It is pointed out that in cases of this type parties are permitted to present evidence of changed circumstances and recent occurrences up to the time hearings finally close. Therefore, Panhandle reasons, judgment on such a matter as fair rate of return should be postponed until all parties have presented all of their evidence on that and all other issues, thereby permitting any supplementary showing on the issue of fair rate of return which may be made possible by new developments and changing circumstances during the pendency of the total rate proceeding.
But Panhandle must have based its claim for a higher rate of return upon justification existing at the time of filing. It is difficult to see how else a change could have been proposed in good faith. True, in recognition of the time involved in these often long drawn out rate proceedings, the commission quite properly permits the basic showing of the justification which existed at the time of filing to be supplemented by evidence of occurrences since filing. But this is far from saying that a party who tries and fails to make a prima facie showing to support severable elements of his claim is entitled to a postponement of adjudication thereon in anticipation of possible new justification which some future event may supply before the overall case can be completed.
Here the record shows that Panhandle was given full opportunity to offer all of its evidence in support of the items which the commission disallowed in the order now on appeal. Thereafter, the commission was under no obligation to postpone its ruling on those matters. Indeed, to have done so would have permitted Panhandle to put into effect, albeit under bond and subject to possible future refund, increased rates, parts of which it had attempted and, in the commission's view, failed to justify.
This brings us to Panhandle's contention that the commission has erroneously treated certain issues, among them the propriety of a 5 3/4 percent rate of return, which were decided in its Opinion No. 269 as res judicata. In this connection it is argued that here, as in Mississippi River Fuel Corporation v. Federal Power Commission, 3 Cir., 1953, 202 F.2d 899, although for a different reason, the commission has improperly rejected a filing without hearing and adjudication on its merits. But this entire argument either misconceives the nature of res judicata or inaccurately pictures the course of this case.
When a tribunal disposes of an issue as res judicata, it invokes a rule of law to make a prior decision binding on a litigant and to deny him another hearing on the previously decided matter. But when a tribunal permits a party to make whatever showing and justification he will on the merits of an issue and, that showing considered, concludes that it will adhere to its own earlier decision on substantially the same point, res judicata has not been invoked. It is clear that the latter course was followed here. Panhandle was not denied a hearing on the merits of any issues which had once been decided against it. Rather, it was permitted to present its entire case in chief. Thereafter, on motion to dismiss, the commission concluded that certain claims and justifications presented by Panhandle here were addressed to but not persuasive upon issues it had recently considered and decided in other rate cases. Accordingly, the commission elected to be guided by those rulings. At most the commission was undertaking to follow its own recent and considered exercise of judgment and to make its successive rulings, exhibit continuity and consistency. This is quite different from imposing a rule of res judicata upon a litigant. Contrast Georgia Public Service Commission v. United States, 1931, 283 U.S. 765, 51 S. Ct. 619, 75 L. Ed. 1397, and In re Barratt's Appeal, 1899, 14 App.D.C. 255, in both of which the administrative agency adhered to its earlier ruling without such hearing and consideration as the record shows here. We conclude that this case presents no issue of the propriety of res judicata in administrative proceedings. And, res judicata aside, it certainly is not arbitrary for an administrative agency to be guided by its own prior exercise of expert judgment as reflected in its recent decisions.
We next consider the rate of return issue in the light of Panhandle's contention that it has made a showing of new circumstances which justify a higher rate of return than heretofore allowed. Our starting point is the order issued by the commission April 15, 1954 and supported by Opinion No. 269, which concluded Panhandle's rate case then pending at No. G-1116 and other docket numbers by approving certain rate increases as of May 1, 1954. A 5 3/4 percent overall rate of return, rather than a 6 1/2 percent or higher rate then sought by Panhandle, was allowed in that order. The present proceeding was instituted on June 30, 1954, 75 days after the decision in No. G-1116, by filing tariffs revised to yield a 6 3/4 percent rate of return. Since hearings in No. G-1116 ended in May 1953 and Panhandle presented its case in chief in the present proceeding in October 1954, the parties are agreed that occurrences between May 1953 and October 1954 may be used and should be considered in justification of a higher rate of return. Actually, Panhandle was permitted to make whatever showing it could or would with reference to such recent changes. The motions to dismiss put into the issue the question whether it had succeeded in that effort.
Panhandle argues that it has shown significant changes in three respects; in its capital structure, in the cost of debt capital, and in the matter of comparative earnings-price ratios on common stocks of similar companies.
As to the second and third of these items we think it clear that Panhandle did not make any significant showing of changed circumstances, but rather sought to have the commission reconsider certain theories which underlay its earlier rulings. Nothing helpful to Panhandle's position was shown by way of events in 1953 and 1954 indicating that it had experienced or was facing a higher cost of debt capital than earlier evidence of historic cost indicated. Rather, Panhandle contended, as it had urged unsuccessfully in earlier litigation, that the commission should use as the cost of debt capital a hypothetical figure in the nature of an expert estimate of what financing costs would be if Panhandle had a hypothetical standard capital structure. Similarly, the basic issue raised by Panhandle with reference to comparative earnings-price ratios of natural gas company common stocks was not that any significant change in circumstances had occurred but rather that such computations and comparisons are unsatisfactory guides to a fair rate of return. Thus the commission's rejection of Panhandle's contentions on these two points represented a difference of judgment on debatable theory as to the most satisfactory way of estimating a fair rate of return, rather than any refusal to take into account evidence of recent occurrences. We are satisfied that the commission's action, viewed in this light, was neither arbitrary nor unreasonable. It was an entirely permissible exercise of judgment with reference to a subject matter peculiarly within the area of its special competence and knowledge.
The remaining matter urged in justification of a higher rate of return is the claim that Panhandle's capital structure has changed. Any such change may be relevant because an approved overall rate of return characteristically is achieved by a computation allowing a much higher return on equity capital than on borrowed capital. Panhandle says that since hearings closed in the earlier case there has been a substantial increase in the equity component of its capital structure and that the overall rate of return should be adjusted upward to reflect that change. The commission counters by denying that any such change has in fact been shown. It points out that Panhandle, in its computation of equity capital, has included a large item of surplus which stands earmarked for refund to certain customers in a pending proceeding. We think the commission's insistence that this item be eliminated was reasonable and proper. The commission also points out that, although Panhandle insists generally on the relevancy of events up to the very time of hearing, in calculating its present capital structure it has ignored a recent change unfavorable to its present argument. More particularly, it has based argument upon its capital structure as of March 31, 1954, ignoring a very substantial increase in debt capital which resulted from the sale of thirty-five million dollars in debentures in June 1954. Thus, the commission says that it is only by an unjustified inclusion and an equally unjustified omission in its computation that Panhandle is able to show any significant change of capital structure favorable to the allowance of a higher overall rate of return. Our study and analysis of the record leads us to agree with the commission.
The next controverted ruling is one which required the elimination of an item representing "minimum bank balances" from working capital. It is agreed that in calculating the rate base for its revised tariff Panhandle determined its working capital needs in conventional manner, as recently approved by the commission in Opinion No. 269 and other cases, except that it added an item of $3,500,000 representing "minimum bank balances" which Panhandle believes it should maintain. In the present ...