Full opinion text
WOODROUGH, Circuit Judge. These cases are brought to this court upon petitions filed under Section 19(b) of the Natural Gas Act, 52 Stat. 821, 831; 15 U.S.C.A. §§ 717, 717r(b), to review opinions and orders of the Federal Power Commission concerning rates, charges and practices of Northern Natural Gas Company, “a natural gas company” within the meaning of the Act. Northern is the petitioner in all the cases except No. 14,704, where the Corporation Commission of the State of Kansas, a party to the proceedings before the Commission, is the petitioner. The Commission is respondent in all the cases, and utility customers of Northern have intervened. Statement. Northern, as of the close of 1950, was engaged in operations in seven midwestern states, owning and operating an integrated natural gas pipe line system, producing, purchasing, transporting and selling natural gas at wholesale to 27 non-subsidiary utility companies, which in turn served 136 cities and towns, and to its then wholly owned subsidiary (since absorbed by it), Peoples Natural Gas Company, which served 92 cities and towns. In addition, it was serving 16 large volume direct industrial customers in 19 locations, approximately 58 small volume drilling, pumping and irrigation customers, and approximately 1,600 domestic customers. The sales to the 27 utilities represented 80.52% of its total sales, sales to its subsidiary Peoples, 10.48%, and sales to other customers 9% of total sales. Northern’s own production accounted for 18.68% of this supply, of which 5.50% was produced in the Panhandie Field in Texas, 13.12% in the Ilugoton Field in Kansas, and .06% in the Otis Field in Kansas, the remainder of 81.32% being purchased from other producers in Texas, Oklahoma and Kansas. . . Ihe proceedings before the Commission involved in Nos. 14,704, 14,706, and 14,743, arose out of rate filings made by Northern pursuant to the provisions of Section 4(d) of the Act to increase its rates and charges by approximately $8,400,000 and to make other changes in rate schedules. The first of these rate filings was made on March 27, 1950, naming increases in rates and charges amounting to approximately $3,200,000. The second was made by Northern on October 27, 1950, and proposed further increase in its rates and charges of approximately $5,200,000. A third filing was made on January 11, 1951, which proposed changes in certain provisions of Northern’s rate schedules but did not seek increase in the level of rates and is not involved in these review proceedings. tt • r . Heanngs were commenced on the first , . • * , -o lnen , rate increase filing m August 28, 1950, and , ^ men , were recessed on October 27, 1950, as the , . ... , , second rate increase filing was made on that day. The second filing was consolidated for hearing with the first and hearings were resumed on March 26, 1951, and concluded on Tulv 20 1951 ’ Tile test period adopted by the Commission was the 12-month period (used by petitioner and respondent Commission) of Decomber 1, 1950 to November 30, 1951, which was the first year of operation of the compauy’s system at 600 M c f capacity. The test period therefore reflects actual expericnee for only five months since the hearings were held and concluded during the test period. Decision was rendered by the Presiding Examiner on January 18, 1952, and many exceptions were taken. After two days of oral argument before it, the Commission on June 11, 1952, issued its Opinion No. 228 and order prescribing rates to be charged by Northern which effected an increase applicable to Northern’s customer companies of approximately $5,000,000 per annum over tile rates in effect prior to the rate filing of March 27, 1950. Commission denied applications for rehearing except that it granted the applicatlon ^ Northern for rehearing in respect to an ltem of working capital”. Thereaftcr Northern filed its present petition for of °Pim°n N°- 228 and order in No. 14’706’ and the Kansas Commission filed its Petltl(m íor revlew lherTOÍ ln Ou September 25, 1952, the Commission after hearing in respect to the “working capital” item, entered its Opinion No. 228-A an<1 order, affirming its determination as to the item “working capital” set forth in Opinion No. 228 and order of June 11, 1952, and Northern filed its present petition for review of the order affecting “working caphal case No. 14,743. Subsequent to the conclusion of the hearings on July 20, 1951, and prior to the Com- . . , % . mission s Opinion No. 228 and order issued , ,, ,T , June 11, 1952, Northern filed on December , • , , , 26, 1951, certain new schedules increasing itg rates tQ itg customer ^ in an amount of $10j600,000 over its filings on March 27; 19S0 and October 27, 1950. Hearings on said third increase proposal were liad on March 17, 18, 20, 24 and 25, 1952, and were then recessed after Nortliern had presented its showing except as it requesled permission to submit at a later date testimony as to rate of return, 0n June 26, 1952, fifteen days after the Commission’s Opinion No. 228 and order, issued on June 11, 1952, the Commission’s Staff and some of Northern’s customers, interveners in the proceedings, severally moved for dismissal of a portion of the third rate increase in the amount of $7,601,-853 on the ground that Northern had included the same matters in its submission of the'prior rate increases to the Commission and the Commission had disposed of them adversely to Northern by its Opinion No. 228 and order. Northern resisted the motions. After 'hearing, the Commission on July 30, 1952, issued its Opinion No. 233 and order, disallowing the items of the third rate increase filing which aggregated $7,-601,853. The Commission authorized the continuance under bond only of the remainder of the third proposed $10,000,000 increase of rates and charges pending further hearings as to that remainder. Northern’s application for rehearing on Opinion No. 233 and order was denied and it has filed its petition for review of it in No. 14,733. The Commission found in its Opinion 228 of June 11, 1952, that Northern’s average gas plant in service, including the average undeveloped leaseholds, as of November 30, 1951, represented $162,093,934, including in the determination $347,799 allowed for interest during construction. From the amount of $162,093,934 the Commission deducted the average reserves for depreciation and depletion amounting to $33,025,473, and contributions in aid of construction in an amount of $127,867. It then added thereto an allowance of $1,004,437 for working capital to arrive at an average net investment rate base of $129,945,031. On that rate base the Commission allowed an annual rate of return of 5i/£% (or a return of $7,146,977), which it found to be fair and reasonable. It determined Northern’s total cost of service, including return, to be $38,041,317 and allocated the costs between the business over which the Commission has jurisdiction under the Act and the business over which it does not have jurisdiction. The Commission found that there was a deficiency in revenues associated with jurisdictional business in an amount of about $5,000,000 compared with the cost of service, including a return of 5i/>, percent on property related thereto. In making the analyses and in arriving at the finding the Commission considered but ascribed- no-weight to an order which was promulgated by the State Corporation Commission of Kansas on February 21, 1951, modified March 8, 1951, requiring that all takers of gas from the Kansas Hugoton Field shall-attribute to all gas taken (except gas for-operation of lease's) for all purposes, the fair and reasonable minimum value of not less than eight (8) cents per M c f at the-well head. Rates, charges and classifications determined to be “just and reasonable” were prescribed for Northern to be effective June 11, 1952. The Commission found that under the rates prescribed Northern should earn the determined fair rate of return on its investment in property devoted to jurisdictional business. But in prescribing the new rates the Commission disallowed Northern’s, application to issue two new rate schedules proposed by it, designated, respectively,. Schedules Ind-1 and Ind-2, and acting under Section 4(e) of the Act, the use of the schedules was suspended. They purported to relate respectively to Northern’s sales of natural gas for resale “for large volume industrial use only” and to sales of natural' gas by Northern to gas utilities for their own use. They are more particularly described later on in the opinion. The Commission found that the proposed' Ind-1 and Ind-2 schedules were not of themselves complete rate schedules but were dependent on a general schedule called CD-I and that Northern made no sales of gas to utility customers for industrial use only, or for any utility’s own use, and that the sales it made to the utilities were all sales in interstate commerce for resale and therefore subject to the Commission’s jurisdiction. There was included in the schedules for rate increases proposed by Northern a provision for hilling demand in the amount of 100'% of the contract demand regardless of the actual volume of gas purchased by the customer utility, but the form of schedules prescribed by the Commission restricted the billing demand that may be made by Northern to an 80% minimum of contract demand. The Commission also prescribed a new separate schedule for deliveries of gas in excess of contract demand. Petition for Review. The petition for review filed by Northern has challenged the Opinions 228, 228-A and 233 and Orders as invalid, and it is contended that the Power Commission erred: (1) in concluding that the rates set by Northern in proposed schedules Xnd-1 and Ind-2 were suspendible under Section 4(e) of the Act, 15 U.S.C.A. § 717c(e); (2) in refusing to attribute a value of 8 cents per M c f to the gas produced from Northern’s own wells in the Hugoton field in Kansas; (3) in its allocation of Northern’s costs between the sales over which the Commission has and those over which it does not have jurisdiction; (4) in allowing $347,799 instead of $579,-010 as interest during construction; (5) in deducting $2,120,973 from the $3,125,410 allowed for working capital; (6) in issuing its Opinion No. 233 and order dismissing $7,601,853 of Northern’s third rate increase filing and refusing to put its $7,601,853 of increase rates into effect under bond pursuant to Section 4 (e); (7) in forbidding Northern’s proposed change from an 80 percent minimum billing demand to a 100 percent billing demand; (8) in prescribing a separate rate schedule for deliveries of gas in excess of contract demand; (9) in concluding that a 5]/z percent rate of return was fair and reasonable; (10) in failing to make adequate findings to support its conclusions, basing them on insufficient evidence, disregarding pertinent evidence and legal standards and acting arbitrarily, capriciously and in deprivation of Northern’s constitutional rights. The Corporation Commission of Kansas, pursuant to its petition for review, contends that the refusal of the Power Commission to attribute 8 cents cost per M c f at the well head to the gas produced by Northern in Kansas was erroneous. It also contends that the Opinion 228 and Order respecting Rate Schedules CD-I and Plugo ton Area sales should be remanded to the Power Commission with direction to determine actual costs to the cities which lie atop or are adjacent to the Hugoton Gas Field of Kansas. Opinion. The Findings of the Commission. In our consideration of the assailed findings and conclusions of fact made by the Commission, we are controlled by the provision of Section 19(b) of the Act that “The findings of the Commission as to the facts, if supported by substantial evidence, shall be conclusive.” We recognize the duty to determine substantiality in the light of all that the record relatively presents, but as between two fairly conflicting views the court may not displace the Commission’s choice, even though the court would justifiably have made a different choice had the matter been before it de novo. The review here is not de novo, but the division of functions assigned to the Commission and those assigned to the courts on review remains the same under the Administrative Procedure Act and the decision of the Supreme Court in Universal Camera Corp. v. National Labor Board, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456, as it has always been recognized in this court. It was well stated in Cities Service Gas Company v. Federal Power Commission, 10 Cir., 155 F.2d 694, 698: “Jurisdiction of the Commission and scope of review — It is of first importance to take account of the respective provinces assigned to the Commission and the .courts on review in order that we may perform the functions assigned to us without trespass upon the administrative prerogatives. The primary aim of the Natural Gas Act of 1938, 15 U.S.C.A. § 717 et seq., was to ‘protect consumers against exploitation at the hands of natural gas companies/ Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 610, 64 S.Ct. 281, 291, 88 L.Ed. 333. To effectuate that • purpose, the Act provides that all rates and charges subject to-the jurisdiction of the Power Commission shall be just and reasonable, and declares that any charge which is not just and reasonable is unlawful. Sec. 4(a). To that end, the Commission is . specifically authorized, after hearing, to determine ‘the just and reasonable-rate’, and to fix the same by order-Sec. 5(a). Any aggrieved party to an order of the Commission may obtain a review to the appropriate circuit court of appeals, which is vested with ‘exclusive jurisdiction to affirm, modify,, or set aside such order in whole or in part. * *' * ’. But, ‘the finding of the Commission as to the facts, if supported by the substantial evidence, shall be conclusive.’ Sec. 19(b). In delineating the scope of review, the courts have left no doubt of their disposition to give the Commission a free rein in the effectuation of the Congressional purpose. The administrative process is no longer fettered by judicial notions of the ‘economic merits’ of the rate order.” 1. The Suspension of Northern’s Proposed Schedules Indr-1 and Ind-2. Northern contends that the Commission erred in finding that its proposed Rate Schedule Ind-1 was subject to suspension under Section 4(e) of the Act. It also contends that the proposed Rate Schedule Ind-2 was not subject to the Commission’s jurisdiction and therefore was not subject to suspension. As to Rate Schedule Ind-1. Northern does not contend that the sales of natural .gas for resale “for large-volume industrial use only” to which the rate schedule by its terms purported to relate, are not subject to the Commission’s rate fixing power. Its contention is only that suspension of the rate schedule was prohibited by the proviso of Section 4(e), reading as follows: “Provided, That the Commission shall not have authority to suspend the rate, charge, classification, or service for the sale of natural gas for resale for industrial use only”. With respect to the Rate Schedule Ind-2. Northern’s contention is that the rate schedule relates to sales of natural gas by Northern to gas utilities for their own use and that such sales are completely exempt from the Commission’s jurisdiction, and consequently not subject to suspension by Section 1(b) of the Act, providing as follows: “* * * The provisions of this act 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, 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 * * In its Opinion 228 the Commission said: “The record, however, does not bear out Northern’s contentions. The IND-1 and IND-2 schedules are not of themselves complete rate schedules but are dependent on the C D-l rate schedule, which Northern does not deny was subject to suspension and is subject to our jurisdiction. Additionally, the record conclusively establishes, and we find, that Northern makes no sales of gas to utility customers for industrial use only or for such purchaser’s own use; that the gas to which the IND-1 and IND-2 schedules are intended to apply is actually sold under Rate Schedule C D-l which is applicable to sales for resale for residential, commercial and small industrial users. For these reasons, we find that the IND-1 and IND-2 schedules were subject to our suspension power in accordance with Section 4(e) of the Natural Gas Act and within the purview of the suspension authority therein conferred upon us and were suspended by our order issued April 26, 1950.” It appears that at the time Northern filed its proposed Rate Schedule Ind-1 and Ind-2 on March 27, 1950, it had for its main line system only one general service rate schedule, identified as its C D-l schedule for the sale of natural gas to its gas utility customers for all uses. The rale was stated in the C D-l rate schedule as a two-part rate, consisting of two charges, a demand charge and a commodity charge. The requirements of the utilities under the CD-I rate schedule were determined by the requirements of their domestic commercial and small volume industrial customers and were purchased for sale for all uses. Northern was making no sales of gas to the utility customers for industrial use only or only for the gas utilities’ own use. Northern’s gas was delivered to them in one indistinguishable mass to the town border station, at which point the sale was consummated. Title to and control of the gas upon passing through the metering station vests in the gas utility and Northern control and obligations are terminated. At that time the ultimate disposition of the gas is unknown. From the town border station the gas flows, usually at reduced pressures, into the gas utility’s distribution system, where it is resold for residential, commercial and industrial uses. In some customer’s systems, the purchased gas is commingled with gas manufactured by the gas utility with the result that there is no way of determining the destination of the gas purchased from Northern. At times all of the gas must be used to meet resale customers’ requirements, but at other times, during off-peak periods for example, some part of the gas is available for the gas utility’s own use or for resale on an interruptible basis for industrial use. Northern’s operations were not proposed to be and were not in fact altered when it filed rate schedules Ind-1 and Ind-2. The schedules were created by Northern in the thought that the rates would be put beyond the authority of the Commission to suspend because they were formulated to relate by their terms to separate sales for resale made by Northern to the gas utility customers which were for industrial use only and separate sales to the utility customers which were not for resale. They were inseparably connected to the C D-l schedule by the fact that they provided on their face that they were available only to gas utilities which purchase “Contract Demand under Northern’s Rate Schedule C D-l”. The Commission declared in view of the substantive facts of Northern’s operations: “The contract demand is the amount estimated by the purchasing utilities as required to meet firm requirements of their domestic or residential, commercial and small industrial users on peak day. This gas when delivered by Northern is available for all these uses and at no time is gas delivered by Northern for or with the understanding that it is for industrial use only or for the purchaser’s own use. No part of the gas is ‘earmarked’ for any particular customer or use. Indeed, it is not disputed, that if any part of the gas delivered by Northern is sold by the purchaser to a large industrial user (a sale purportedly covered by IND-1) or is used by the purchaser (a sale purportedly covered by IND-2), the volumes so used are included as part of the volumes delivered in satisfaction of Northern’s contract demand obligation under C D-l schedule. This is, of course, consistent with the fact that the gas is sold for resale to domestic, commercial and small industrial users and is not sold either for industrial use only or solely for the purchaser’s own use. “In the face of these facts we do not think Northern’s contentions as to-IND-1 and IND-2 may be sustained. But, additionally, there is actually no-rate for the services purportedly made available by the IND-1 and IND-2 rate schedules. Northern’s rates are two-part rates, consisting of a demand' charge and a commodity charge. Admittedly, the IND-1 and IND-2 schedules contain only the commodity charge and reference must be had to-the C D-l schedule for demand charge. Without reference to the C D-l schedule the charge for the services purportedly available under IND-1 and' IND-2 cannot be computed. The C D-1 schedule is an inseparable part of the IND-1 and IND-2 schedules. The significance of this lies in the fact that the C D-l schedule relates to sales-for resale for domestic, commercial' and industrial uses and the demand' •charge is associated with such services. In short, the IND-1 and IND-2 rate-schedules are not only incomplete rate-schedules but actually there is neither a complete rate nor complete rate-schedule for services claimed to be-non-suspendible and non-jurisdictional. “The inseparable nature of the C D-1 and IND-1 and IND-2 schedules-would bring about an absurd result if' Northern’s contentions were sustained. One part of the rate, the demand' charge, would be subject to suspension, whereas another part of the rate, the commodity charge, would not be subject to suspension or even subject to our jurisdiction. This absurd result, we think shows that Northern’s claims are untenable.” The particulars of Northern’s argument-in support of the non-suspendibility of its Ind-1 and Ind-2 rate schedules are substantially remarshalled by it in its discussion of the Commission’s decision in City of Hastings v. Kansas-Nebraska Natural! Gas Co., Inc., Docket G 1487 F.P.C. Opinion No. 244, issued February 5, 1953. Northern argues that in that case the natural gas company which sold the city natural gas for resale under a two-part demand and commodity charge rate schedule was permitted by the Commission to use a separate billing for the gas which was consumed by the city itself in its power plant and the Commission held that it did not have jurisdiction over the natural gas company’s charge for that service. Northern has pointed out in its brief a number of particulars in which the service to the City of Hastings was the same as that rendered by Northern to its utility customers for which it proposes its Ind-2 rate schedule here involved. It is insisted that the Commission’s lack of jurisdiction was the same here as the Commission itself found in the City of Hastings case. But in that case it was expressly found by the Commission that there was a long subsisting contract between the natural gas company involved and the City of Hastings by 1he terms of which the gas company sold the City the interruptible supply of gas it used itself in the power plant by direct sale to the City for that use. The Commission said, “ * * * our analysis above shows that the parties had effectively established separate rates for separate sales under two separate contracts- — the town border resale contract subject to our rate regulatory powers, and the direct sale power plant contract exempt by statute from our rate authority. * * * the distinguishing circumstance here is that the parties in fact and in law consummated a separate and long continued direct sale beyond our jurisdiction. * * * Having found that the gas consumed by the City at its electric generating plant is not the subject of a resale but rather of a separate sale for consumptive use, we are directly forbidden by Section 1(b) to fix the rate of such sale.” But in the case at bar, Northern’s contracts with its utility customers are like the town border contracts in the City of Hastings case. They are “sale for resale” contracts which are made subject to the jurisdiction of the Commission by the plain terms of Section 1(b) of the Act. Both the demand charges which Northern makes in its sales of natural gas for resale to -its utility customers and its commodity charges that are added to make up the full price charged for such gas are within the jurisdiction of the Commission. It was not open to Northern to withdraw its business from that jurisdiction by the expedient of issuing schedules Ind-1 and Ind-2 to cover its charges' either in whole or in part for the gas it sells for resale. In the absence of proof such as existed in the City of Hastings case of direct sales for industrial use or for the purchasing utility’s own use, the statute conferring the jurisdiction to regulate on the Federal Power Commission is controlling. In United States v. Public Utilities Commission, decided April 6, 1953, 345 U.S. 295, 73 S.Ct. 706, it appeared that California Electric Power Company produced electricity in California by hydro-electric projects licensed under the Federal Power Act as amended by the Public Utility Act, 16 U.S.C.A. § 791(a) et seq., and marketed the greater portion of it subject to the State Public Utilities Commission’s authority in that state. The company sold power under duly executed contracts to the Navy Department and to Mineral County, Nevada, for resale and for consumption there and having obtained permission from the State Commission to raise its rates, undertook to impose the new rates on the Department and on the County. The Federal Power Commission issued an order to the Company to show cause why the rates as to the two purchasers were not subject to exclusive federal jurisdiction. The issues were heard by both Commissions in a joint proceeding and both decided in favor of their own asserted authority. The Supreme Court of California upheld the State Commission and the Court of Appeals of the 9th ‘Circuit, California Electric Power Co. v. Federal Power Commission, 199 F.2d 206, upheld the Federal Commission. On writs of certiorari from the Supreme Court of the United States to' the Supreme Court of California, it was held that the federal authority was paramount and exclusive and the decision of the Supreme Court of California was reversed. In the course of the opinion, at page 303 of 345 U.S., at page 711 of 73 S.Ct., the Court said that the jurisdictional lines between local and national authority in the regulation of such sales in interstate commerce as are involved, “were not finally determined until this court’s opinion in Public Utilities Commission of Rhode Island v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 549. This decision followed the Federal Water Power Act by some seven years. In short, that case established what has unquestionably become a fixed premise of our constitutional law but what was not at all clear in 1920, that the Commerce Clause forbade state regulation of some utility rates. State power was -held not to extend to an interstate sale ‘in wholesale quantities, not to consumers, but to distributing companies for resale to consumers’. 273 U.S. at page 89, 47 S.Ct. at page 296. Attleboro reiterated and accepted the holding of Pennsylvania Gas Co. v. Public Service Commission, 252 U.S. 23, 40 S.Ct. 279, 64 L.Ed. 434, that sales across the state line direct to consumers is a local matter within the authority of the agency of the importing state. But it prohibited regulation of wholesale sales for resale by either interested commission.” In the same case’, the Supreme Court also considered the contention that as it appeared that both the Navy and the County used some of the power bought from the California company for their own purposes, that fact deprived the Federal Commission of power to regulate the whole sales. The court held that as the electric power was sold to the Navy and to the County under contracts like those in the case at bar, containing no limitations on the rights of the purchasers, the contention could not be sustained. The court said that the problem was, 345 U.S. 317-318, 73 S.Ct. 719, “whether the entire sale is a ‘sale for resale.’ For purposes of this case, we need not decide the question of whether a somewhat similar ‘commingling’— of power resold with that consumed directly by the purchaser — requires entire federal jurisdiction. For, even assuming arguendo respondents’ proposition that it may be proportionally limited, we hold that the record before us in this case does not present a set of facts or findings justifying that result. By the statute, Commission jurisdiction extends to ‘sales for resale,’ ‘but not to any other sale.’ § 201(b). The problem, then, in applying respondents’ suggested interpretation, is to decide just what power transaction falls within this category of ‘sale for resale’— whether one involving the entire volume of electricity transmitted to the Navy or merely that which the buyer resells to others; the determinant is the delineation of ‘sale for resale.’ See Panhandle Eastern Pipe Line Co. v. Public Service Commission, 332 U.S. 507, 516-517, 68 S.Ct. 190, 194-195, 92 L.Ed. 128. Assuming respondents’ theory, this would turn, of course, on whether an essentially separate transaction covering the power directly consumed by the purchaser is identifiable. The present record will not permit such a finding.” We think the record here equally precludes such a finding. We find no error in the Commission’s exercise of jurisdiction in suspending the proposed schedules Ind-1 and Ind-2. 2. The Kansas 8 Cent per M c f Valuation Order. Opinion 228 of the Commission includes the following: “The Kansas Commission Attribution Order. “Northern produces natural gas in the ITugoton Field, located in the State of Kansas. The gas produced in that field constitutes one of Northern’s sources of supply for its sales in interstate commerce of natural gas for resale. Respecting the production of natural gas in the Hugoton Field, the Corporation Commission of the State of Kansas entered an order on February 21, 1951, as subsequently modified on March 8, 1951, requiring: “ ‘ * * * all persons, firms or corporations which have taken gas or caused gas to he taken from the Kansas Hugoton Field since March 1, 1949, or which are taking or causing gas to be taken from said field, shall, from and after March 1, 1949, attribute to all gas taken (except gas for the operation of leases), for all purposes, including the payment to producers, land owners, lease owners and royalty owners, the fair and reasonable minimum value of not less than Eight (8) cents per thousand feet at the wellhead until the further order of the Commission in the investigation instituted in Docket No. G-164.’ “Based solely on these provisions of the Kansas Commission’s order, Northern contends that it is required to- include the gas which it produces from the Hugoton Field at an ‘attributed’ value of 8 cents per M c f in computing its cost of service and that hy reason of the requirement placed upon it hy the order, we are legally hound in fixing just and reasonable rates to disregard the actual cost o-f such gas and to substitute 8 cents per M c f for whatever the actual cost. The effect of Northern’s contention would be to add a fictitious $1,914,574 to Northern’s actual cost of service. “Northern does not, and of course «mid not, claim that the $1,914,574 will be incurred by it or that it represents cost. Nor does Northern contend, that disallowance of the claimed value would be confiscatory. Neither does Northern contend, nor has it attempted to show, that so-und economic reasons exist for a departure from an actual cost of service basis for fixing just and reasonable rates. Its contention, stated baldly, is simply that: The Kansas Commission has ordered this and we are legally bound to obey. “On the facts of this case and after consideration of Northern’s contentions, we find that the actual cost of the gas to Northern is all that can be allowed.” In the brief for the Federal Commission in this court it is stated that “there is no dispute that the dollar difference involved between the Commission’s allowance of the actual cost of production of Hugoton Field gas (approximately Sf per M c f) atul the allowance of the claimed value thereof at 8$ per M c f is $1,914,574” (as asserted by Northern). It is also sufficiently established by the record that Northern’s contention joined in by the Kansas Commission for an allowance of a value of 85! per M c f must rest, as the Commission stated, on the above order of the Kansas Commission. The Federal Commission’s refusal to enforce the Kansas “attribution order” does not effect confiscation. The sole question that results from it on this review is, as indicated in the Commission’s opinion, whether or not the Federal Commission was bound to obey the Kansas Commission’s order in performing the Federal Commission’s function of regulating Northern’s rates. Although it is argued that the sovereign state rights of Kansas are involved and that there has been unconstitutional invasion thereof hy federal authority, we think the problem is rather to determine the extent of the power to regulate Northern’s sales in interstate commerce for resale that Congress has conferred upon the Federal Power Commission. Undoubtedly Congress has power under the Commerce clause of the constitution to regulate commerce in natural gas between the states and it is equally clear that to some extent it has undertaken to do so. By Section 1(a) of the Natural Gas Act it declared that “the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest, and that Federal regulation in matters relating to the transportation of natural gas and the sale thereof in interstate and foreign commerce is necessary in the public interest.” To that end it vested authority in the Federal Power Commission to require natural gas companies to keep records appropriate for administration and exercise of the power to regulate their rates and charges. Through the course of years the Commission has established its method of regulating a natural gas company by first ascertaining its costs and then comparing such costs with the charges exacted from its customers. The essential factor of the method is a system of accounting that shows such costs and that is the system that has been imposed on the natural gas companies. It includes 'no means of showing values of the companies’ properties, but by virtue of the showing of the costs and the charges the Commission has been kept informed of the relation between what they paid out and what they took in, and has been able through that knowledge to uniformly regulate them during a number of years. A contention has long been reiterated that the regulation of a business affected with a public interest must include consideration of just return on the fair value of the used and useful property. Probably no rate case is contested before the Commission in this era of high prices without a revivor of that contention. We think the argument here that the Commission is bound to give effect to the 8 cent valuation made in Kansas is merely such a revivor of it. It is simply another attempt to prevent the Federal Commission’s exercise of its power to regulate within the confines of . its jurisdiction according to its own judgment by reference to costs and charges, and without reliance upon opinions as to values. This court is firmly committed that no reversible error is inherent in the Commission’s method of regulation. Panhandle Eastern Pipe Line Co. v. Federal Power Commission, 8 Cir., 1944, 143 F.2d 488, loc. cit. 492, which was affirmed, 324 U.S. 635. We followed the decisions of the Supreme Court to that effect in Canadian River Gas Co. v. Federal Power Commission, 10 Cir., 1944, 142 F.2d 943, affirmed, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206; Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333. In the absence of the order of the Kansas State Commission there could be no questioning of the Commission’s power to regulate on the cost basis the charges Northern makes for gas it produces from its own wells in the Hugoton Field and sells in interstate commerce for resale. The Supreme Court holds on full consideration that the regulation of a natural gas company’s charges may be made by the Commission through that method without consideration of values of the gas in the field or at the company’s well heads. In Panhandle Eastern Pipe Line Co. v. Federal Power Commission, 324 U.S. 635, 65 S.Ct. 821, 828, 89 L.Ed. 1241, the company contended that "it was incumbent on the Commission to determine the field price or actual field value of natural gas in the areas in which petitioner produces gas,” but the Supreme Court affirmed this court’s rejection of the contention. In Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206, the court established the legality of the Commission’s method in the regulation of charges of a natural gas company regardless of the company’s claim that its gas had a fair value at the well heads far in excess of its costs. The law as established by the Supreme Court in these cases and in the case of Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333, is that Congress has vested the power in the Federal Commission to regulate in the national interest the charges natural gas companies may make for the gas they sell in interstate commerce for resale and that in accomplishing the regulation the Commission is free from the compulsion of giving any weight to the element of value of the companies’ gas at the well heads. In that state of the federal law there is no room for the exercise of any local power to obstruct or prevent the lawful functioning of the federal agency entrusted with the federal power of regulation. The federal power to regulate the commerce in natural gas derives directly from the constitution and is, of course, the dominant power. To the extent that Congress has entered the field, exercised its power and authorized its Commission to regulate charges by natural gas companies for the gas they produce and sell in interstate commerce for resale, its mandate must prevail. The decisions of the Supreme Court in the Panhandle, Colorado Interstate and Hope cases all turned squarely upon the issue and affirmed that Congress has made such grant of power to the Federal Commission. The only argument that merits discussion to the point that there was a power in the Kansas Commission to override and invalidate the Federal Commission’s regulation is the argument that such an inference may be drawn from the Supreme Court’s decisions in Cities Service Gas Co. v. Peerless Oil & Gas Co., 340 U.S. 179, 71 S.Ct. 215, 95 L.Ed. 190, and Phillips Petroleum Co. v. State of Oklahoma, 340 U.S. 190, 71 S.Ct. 221, 95 L.Ed. 204. As to those cases, it is not claimed that they make any reference to or expressly qualify or overrule the prior cases in that court which fully sanction the Federal Commission’s method of regulation. But argument is drawn from them to induce this court not to follow the Hope, Panhandle and Colorado Interstate cases in this case. In Cities Service v. Peerless, the facts as stated by the Supreme Court were that the respondent Peerless was the owner and operator of producing gas wells in the Hugo ton Gas Field in Oklahoma, but had no pipe line outlet of its own. Tt proposed to sell the potential output of its wells to Cities Service, the operator of an interstate gas pipe line system in the field, but was dissatisfied with the terms obtainable. Peerless accordingly applied to the state commission to order Cities Service to make connection with a Peerless well and purchase the output. Peerless also requested the Commission to fix a price and to require Cities to pay for it. The state commission upon hearing and due proceedings concluded that there was no competitive market for gas in the field, that the integrated well and pipe line owners were able to dictate the prices paid to producers without pipe line outlets and that as a result gas was being taken from the field at a price below its economic value. It further concluded that the taking of gas at the prevailing prices resulted in both economic and physical waste of gas, loss to producer and royalty owners, loss to the state in gross protection taxes, inequitable taking of gas from the common source of supply and discrimination against various producers in the field. On the basis of these findings the Commission issued the two orders that were challenged in the Supreme Court. The first provided “that no natural gas shall be taken out of the producing structures or formations in ihe Guymon-Hugoton field — at a price at the well head, of less than 7<ji per thousand cubic feet of natural gas measured at a pressure of 14.65 pounds absolute ¡pressure per square inch”. The second directed Cities Service “to take natural gas ratably from * * * [Peerless] wells * * * in accordance with the formula * * * prescribed” and “at the same price * * * indicated in the general field price order.” Cities Service appealed to the Supreme Court of Oklahoma which affirmed the orders. From the judgment of that court Cities Service appealed to the Supreme Court of the United States on the grounds that the due process and equal protection clauses of the Fourteenth Amendment and also the Commerce Clause, Art. 1, § 8 of the Constitution of the United States were violated. Mr. Justice Black was of the opinion that the alleged federal constitutional questions raised on the appeal were frivolous and all the Justices were agreed that the Due Process and Equal Protection issues raised by the appellant “were virtually without substance”. But a very brief opinion of the court was directed to consideration of the constitutional issue claimed to arise under the Commerce Clause. The court made it clear that it did not consider whether the State Commission’s orders might come into conflict “with the federal authority asserted by the Natural Gas Act,” [340 U.S. 179, 71 S.Ct. 221] and observed that the Federal Power Commission had not participated in the proceedings and it gave no further consideration to the Natural Gas Act. It said, “Whether the Gas Act authorizes the Power Commission to set field prices on sales by independent producers, or leaves that function to the states, is not before this Court.” When the restrictions on the scope of the issues involved in the case, so recognized and stated by the court, are borne in mind, it is manifest that the decision was intended to be narrowly applicable to the particular situation before the court. After stating as elementary that “The Commerce Clause gives to the Congress a power over interstate commerce which is both paramount and broad in scope”, the court declared, 340 U.S. 179, 186, 71 S.Ct. 215, 219, “It is now well settled that a state may regulate matters of local concern over which federal authority has not been exercised, even though the regulation has some impact on interstate commerce.” And proceeding from there the court finds nothing in the Commerce Clause of the federal constitution to prevent Oklahoma from compelling the pipe line company monopolizing natural gas transportation in the Oklahoma gas field to take and transport the gas from the Peerless wells in that field on fair and non-discriminatory terms, including the payment of a fair price for it. Or to prevent the promulgation of rules to effect the same treatment of others situated like Peerless. But the argument that the decision affords justification for this court to fail to follow the elaborately studied and expounded law laid down by the Supreme Court in the Panhandle, Canadian River and Hope cases, lacks persuasion. In those cases the court told the Power Commission that it could regulate natural gas companies’ charges by the method it has applied here. It says nothing to qualify those instructions in the Peerless case and our only duty is to enforce the Commission’s exercise of the authority so sanctioned by. the Supreme Court. The case of Phillips Petroleum Co. v. State of Oklahoma, 340 U.S. 190, 71 S.Ct. 221, 95 L.Ed. 204, was decided by the United States Supreme Court on the same day as the Peerless case and was referred to by the Court as “a companion case”. Phillips complained of the same order of the Oklahoma Corporation Commission fixing a minimum well head price for gas taken from the same field. The State Commission had concluded that Phillips had no standing to attack the order since he was complying with it. The State Supreme Court disposed of Phillips’ appeal to that court in a paragraph not here relevant. The Supreme Court of the United States said that the appeal to it presented “only minor variations of the issues raised by Cities Service”, and we discern no points decided in the case by that Court that are material to the issues here. Both Northern and the Kansas Commission have placed stress and reliance upon the clause of Section 1(b) of the Natural Gas Act, 15 U.S.C.A. § 717 (b), providing that the Act “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.” They argue that this exclusion of “production or gathering” from the operation of the Act prevents the federal authority from regulating the charges of the “natural gas company” as it has done here on the basis of the company’s production and delivery costs. Our conclusion that the contention is refuted by the Supreme Court in the cases we have referred to is supported by the recent decision of the Court of Appeals for the District of Columbia in State of Wisconsin v. Federal Power Commission (Phillips Petroleum Company), 205 F.2d 706. The issue in that case was whether or not the Phillips Company was a natural gas company and as such subject to have its charges for its sales in interstate commerce of natural gas for resale regulated by the Federal Power Commission. That Commission was of opinion that Phillips’ transportation in interstate commerce, together with its processing operations and its sales of natural gas, “all constitute a part of its gathering business, or they are incidents of or activities related to such business, so that such movements, processing, and sales come within the exemption of production and gathering in Section 1 (b) of the Act.” The Court analyzed and discussed the Supreme Court cases and decided that it was the duty of the Federal Power Commission to regulate Phillips’ charges for the sales Phillips made which were analogous to the sales that Northern makes in this case. The Court said: “The Commission finds that the sales involved here are sales in interstate commerce of natural gas for resale. That finding is not disputed. It follows that no state can regulate these sales. It was plain long before the Natural Gas Act was passed that ‘state regulatory power could not reach high-pressure trunk lines and sales for resale. This was the “gap” which Congress intended to close.’ Federal Power Commission v. East Ohio Gas Co., 1950, 338 U.S. 464, 472-473, 70 S.Ct. 266, 271, 94 L.Ed. 268. As we have shown, the Supreme Court has determined that Congress closed it.” In footnotes 9 and 10 the Court added: “Since Phillips’ sales are made after the gas has been gathered into trunk lines Cities Service Gas Co. v. Peerless Oil & Gas Co., 1950, 340 U.S. 179, 71 S.Ct. 215, 95 L.Ed. 190, is irrelevant. That case upholds a state’s power, in aid of conservation, to fix minimum prices for natural gas sold at the wellhead for interstate movement. Such sales arc obviously made during the ‘production and gathering’ which Congress reserved to state control, and it ‘is now well settled that a state may regulate matters of local concern over which federal authority has not been exercised, even though the regulation has some impact on interstate commerce.’ 340 U.S. at page 186, 71 S.Ct. at page 219. Moreover the Supreme Court has said: ‘prior constitutional decisions, not what we have since decided or would decide today, form the measure of the gap which Congress intended to close by this Act.’ Federal Power Commission v. East Ohio Gas Co., 1950, 338 U.S. 464, 472, 70 S.Ct. 266, 270, 94 L.Ed. 268.” “Again on April 7, 1953, the Court said: ‘Especially in the litigation arising under the Gas Act has this Court expressed the view that the limitations established on Commission jurisdiction therein were designed to coordinate precisely with those constitutionally imposed on the states.’ United States v. Public Utilities Commission of California, 345 U.S. 295, 311, 73 S.Ct. 706, 716.” We are not in disagreement with the decision of the Court of Appeals for the District of Columbia in this Phillips case. We conclude that the Commission was not in error in subjecting the charges of Northern for natural gas it sold in interstate commerce for resale to regulation on the basis of its costs and in refusing to accede to the 8 cents M c f valuation ordered by the Kansas Commission. 3. Allocation of Costs. Northern’s business consists in part of direct sales to' industrial and domestic consumers and in part of sales to public utilities for resale. Only the latter portion of Northern’s total sales are subject to regulation by the Federal Power Commission. In its regulation of Northern’s sales subject to its jurisdiction, it is obvious that in determining just and reasonable rates the Commission has the duty and power to determine the costs involved in those sales. The problem is not simple and there is no exact mathematical formula leading to a conclusive result. The difficulty, of course, arises out of the fact that all the gas handled by Northern, both for regulated and unregulated sale, passes through and is processed and distributed by an integrated set of facilities. In addition, there are among Northern’s industrial consumers what are termed “interruptible” customers. Service to such customers can be curtailed by the gas company whenever the company needs the gas to meet the “firm” requirements of its other customers. Thus, although through the course of a year the interruptible customers may use very substantial quantities of gas, during a time of maximum demand when other consumers are drawing all or a large portion of their “firm” gas requirements, the interrupti'bles may be drawing very little gas. Thus, in the case under review, during the 12 months ending October 31, 1950, 9.85% of the total annual volume of gas delivered is shown to have been direct . (unregulated) sales, while on an average of 3 peak days (not the “peak-period” days actually used in the calculations of the Commission) only 2.77% of the volume was direct sales. However, facilities are installed and certain expenses are incurred on the basis of the maximum demand of the customer rather than on the basis of his average daily use — and this fact becomes important because the “firm” customers have priority over the interruptibles up to their firm requirements and the facilities of the gas company must necessarily be sufficient to meet all the firm requirements no matter how much gas is drawn on a certain day. The problem is apparent. In enacting the Natural Gas Act the Congress did not provide any formula for the Commission to follow in its considerations of the problem. In that situation the courts will be slow to reject any solution adopted by tile Commission as long as the Commission keeps within the statutory bounds of the scheme of regulation. We recognize that, as stated in Colorado Interstate Gas Company v. Federal Power Commission, 324 U.S. 581, 589, 65 S.Ct. 829, 833, 89 L.Ed. 1206, “Allocation of costs is not a matter for the slide-rule. It involves judgment on a myriad of facts. It has no claim to an exact science. * * * Under this Act the appropriateness of the formula employed by the Commission in a given case raises questions of fact not of law.” Our review of the questions concerning allocation will be governed accordingly. The charge which Northern makes for the gas it sells is made up of two elements, called demand charge and commodity charge, of which the Commission must take cognizance and which is adequately described in Mississippi River Fuel Corp. v. Federal Power Commission, 82 U.S.App.D.C. 208, 163 F.2d 433, 438, where it is stated: “The basis of the demand-commodity formula is the difference between costs which occur by reason of required plant and equipment capacity and costs which occur directly in the handling of the gas. The company must have the capacity to supply certain demands when made. That capacity must be available whether or not it is being used at any particular moment. Thus, such costs do not vary from time to time but, generally speaking, continue constant, or substantially so. They are demand, or capacity, or fixed costs. Other costs are incurred only when, as and if gas is being made, transported or sold. They relate to the commodity itself. They are commodity, or volumetric, or variable costs. They obviously vary with the sales.” In its brief Northern states that the issues presented in the allocation of costs problem are three: “The first is the problem of whether it is appropriate to assign costs for all of Petitioner’s transmission system to the Hugoton area sales. [This point is discussed last in the allocation of costs category.] The second problem relates to the classification of individual components of costs as between demand and commodity for the purpose of allocation, and the third relates to the selection of a peak period which should be utilized in determining a proper allocation of demand costs.” Turning to the problem of selecting a peak-period for the purpose of allocating the demand costs, we find that Northern and the Commission are in agreement that the three day period January 8, 9, and 10, 1951, represents the system-peak period— that is, the time when Northern’s system as a whole is carrying its peak load. The Commission used that period. Northern contends, however, that although the period used was representative of the peak load of Northern’s entire system, that that system peak load should have been averaged with the “firm” gas requirements peak. The firm peak, Northern contends, would be shown by the average of the three coldest days, January 29, 30 and 31, 1950, when the domestic users would be using the maximum amount of gas for heating purposes. The Commission rejected Northern’s contention, and used, in calculating the demand costs, the system peak period alone. The Commission stated in its opinion: “Sales during the coldest days do not, however, necessarily represent a period of operation of Northern’s system at maximum capacity. But they do represent the period when space heating customers are taking gas at their maximum demand and the jurisdictional portion of sales is maximized. By diluting the allocation percentages derived from the three-day period of maximum operations with percentages derived from a period when jurisdictional sales are at their greatest, the result is to reduce the assignment of capacity costs to non-jurisdictional sales and to transfer costs normally assigned to non-jurisdictional business to jurisdictional business.” We feel that the selection of the system peak period for the purpose of allocating the demand costs was well within the scope of the Commission’s discretion. The Commission has considered the matter fully, set forth the reasons for its rejection of Northern’s contentious, and has arrived at a result which we cannot say is unreasonable. Another method might possibly be more reasonable or more accurate, but such possibility does not justify reversal by this court of reasoned conclusions of the Commission. Further, the Supreme Court in Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 592, 65 S.Ct. 829, 89 L.Ed. 1206, approved the use of the system peak method, although it did not limit the Commission’s approach to that method alone. In this regard it might be said that the Commission’s statement that Northern’s “method of assigning demand costs is not supported by any sound reasons” should not be approved. The method that Northern advocated in the case under review was similar to that employed by the Commission itself in the Mississippi River Fuel Corporation case, reversed on other grounds in 82 U.S.App.D.C. 208, 163 F.2d 433, 438, 440. We agree with the statement made by the court in that case that “The use of the system peak day for the distribution of demand costs may well be a proper subject for further examination by the Commission and the courts in a case in which the facts indicate inaccuracy in the result thus reached.” We do not feel that the facts herein warrant our further investigation into the matter, but it can hardly be contended that the use of the system-peak method alone is an absolute answer for all cases. Using the system peak period, the Commission determined that 98.26% of the total demand costs were costs relating to jurisdictional, or regulated, sales of Northern. The commodity or volumetric figures showed that 92.91% of commodity costs were related to regulated salesl If the system peak-period method used by the Commission is approved, then apparently Northern has no complaint as to the actual percentages arrived at by the Commission. Petitioner’s further contentions on the allocation problem are based on its disagreement with the Commission’s allocation of costs between the demand, or fixed, costs and the commodity, or variable, costs. Since a higher percentage of demand costs, as compared with commodity costs, relate to jurisdictional business, it is apparent that it is to Northern’s advantage to put all the costs possible in the demand category. Basic to Northern’s general position is its contention that “once the character of the cost is determined [that is, whether the cost is fixed or variable], the realm of judgment is passed and the demand-commodity formula requires that fixed costs be allocated to demand and volumetric costs be allocated to commodity.” ■Concededly, the Commission did not so apportion the fixed costs. Instead, for example, the Commission assigned the item of depreciation (a fixed cost) 50% to- the demand component and 50% to the commodity component. The Commission does not set out fully its reasons for its departure from its former 100% allocation of fixed charges to demand in Opinion 228. It refers for such reasons to its opinion in Atlantic Seaboard Corporation, Opinion No. 225, decided April 23, 1952, wherein it is stated: “We are unable, however, to accept the premise that merely because certain costs do not vary with use they automatically become in toto demand or capacity costs.” The Commission follows that statement with an explanation of its reason for so acting, going on to say: “A pipe line would not normally be built to supply peak service, that is to say, service on the peak days only. We know from our administration of Section 7 of the Natural Gas Act, which involves the issuance of certificates of public convenience and necessity, that pipe lines are built to supply service not only on the few peak days but on all days throughout the year. In proving the economic feasibility of the project