MR. JUSTICE BURTON delivered the opinion of the Court.
The principal question before us is whether, on a petition to review a natural gas rate reduction order of the Federal Power Commission, a Court of Appeals may consider, sua sponte, an objection which has not been urged before the Commission in the application for rehearing prescribed by § 19 of the Natural Gas Act.
In 1948, the Federal Power Commission, petitioner herein, instituted a rate investigation against respondent, the Colorado Interstate Gas Company, under § 5 (a) of the Natural Gas Act, 52 Stat. 823-824, 15 U. S. C. § 717d (a). While this was pending, respondent and the Canadian River Gas Company filed a joint application under § 7 of the same Act, 52 Stat. 824-825, as amended, 15 U. S. C. § 717f. That application sought a certificate of public convenience and necessity permitting respondent to merge with the latter company, acquire and operate its properties, and construct additional facilities. Objection was made that consumers, receiving natural gas from respondent, might be forced by this merger to share respondent's loss if the costs of certain gasoline operations to be undertaken by it exceeded its revenues from them. To meet this objection, respondent proposed that the Commission, in any natural gas rate proceeding, exclude such loss from the company's cost of service.
March 1, 1951, the Commission wrote in the above proposal as a condition of its certification of the merger. 10
The rate investigation was resumed in 1951 and the year 1952 became the test year. The usual intermediate decision was omitted and, on August 8, 1952, the Commission issued its findings and rate order. 95 P. U. R. (N. S.) 97. In that proceeding, respondent had argued for a "volumetric" allocation of gasoline costs which, in 1952, would result in a showing of no loss suffered by it from the gasoline operations in question. The Commission, however, had declined to adopt that method and had applied a "relative market value method" of allocating costs. This showed a loss of $421,537 from such operations and, pursuant to its merger order, the Commission held that such loss "shall not be considered as a part of the cost of service which we have heretofore determined." On that basis, the Commission found respondent's total cost of service, in 1952, to be $14,952,567, including federal taxes of $185,599 and the proceeds of a 5.75% rate of return ($3,280,317 on a rate base of $57,048,988). Deducting
Respondent applied for a rehearing pursuant to § 19 (a) of the Natural Gas Act. The application stated respondent's objections to the Commission's allocation of the expense of the gasoline operations and a claim that, if the costs were properly allocated, there would be no resulting loss. Respondent complained further that the Commission's computation, in effect, reduced the company's rate of return from 5.75% to 5.01%. At no point did respondent contend that the Commission's order excluding respondent's loss from gasoline operations from its cost of service was invalid. Upon consideration of the application, the Commission denied the rehearing and modified the new rates only to a slight degree not material here.
On respondent's petition for review by the Court of Appeals for the Tenth Circuit, that court generally upheld the Commission's findings and order. It accepted the Commission's method of allocating respondent's gasoline costs and the computation which fixed the resulting loss at $421,537. However, the court held, sua sponte, that, despite the action taken in the merger proceeding, this loss must be added to respondent's cost of service. The court therefore reversed the Commission's order and remanded the cause for further proceedings. 209 F.2d 717. After reargument, the court reaffirmed its position. 209 F.2d 732. Recognizing the importance of such a result in relation to the judicial review of administrative orders, we granted the Commission's petition for certiorari but denied respondent's cross-petition. 347 U.S. 1009; 348 U.S. 818, 884. 28 U. S. C. § 1254 (1); 52 Stat. 831-832, 15 U. S. C. § 717r (b).
Respondent first contends that its application for a rehearing by the Commission did, in substance, object to the validity of the merger condition and thus did meet the requirements of § 19 (b). We find, however, that in such application, respondent objected to the exclusion of the loss of $421,537 from gasoline operations merely on the ground that the Commission's certificate approving the merger required a "proper allocation" of the costs, and that the method of allocation chosen by the Commission was not "proper." Respondent also unsuccessfully proposed an alternative method of allocation, which would eliminate the loss. In passing upon these contentions, the Commission assumed, as did respondent, that any properly
Respondent's second and principal contention is that, although its application did not meet the requirements of § 19 (b) and it therefore is barred from attacking the validity of the merger condition in the Court of Appeals, nothing precludes that court itself from raising, considering and sustaining the same objection, sua sponte. Respondent's error appears on the face of the statute. Section 19 (a) first precludes the bringing of any proceeding in a Court of Appeals to review an order of the Commission, unless the person bringing it previously has applied to the Commission for a rehearing on that order. Section 19 (b) then expressly precludes the consideration by the court of any objection to an order of the Commission, unless the objection shall have been urged before the Commission in the application for rehearing. As the court is thus expressly precluded from considering an objection when, without prior application to the Commission, that objection is presented to the court by the party directly aggrieved,
Section 10 (e) of the Administrative Procedure Act does not require a different result.
Furthermore, § 10, by its own terms, is made inapplicable in "so far as (1) statutes [as here] preclude judicial review," and § 10 (e) applies only to situations where the question at issue has been properly "presented," as has not been done here. It is not a reasonable interpretation of the general terms of that Act to hold that they repeal the administrative procedures specifically set forth in the Natural Gas Act.
Respondent further suggests that to limit the judicial review of the Court of Appeals to those objections which have been urged specifically before the Commission prevents that court from reviewing effectively the "end result" of the rate order. See Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591. To accept that argument would wipe out at a single stroke the expressly prescribed policy of § 19 (b). Not only would such acceptance be contrary to the terms of the statute, but it would fail to recognize the fundamental consideration that it is not the function of a court itself to engage in rate making.
Returning to the language of § 19, we hold that the Court of Appeals does not here have authority, either under § 19 or sua sponte, to reverse the Commission by overruling its exclusion of $421,537 of gasoline production expense from respondent's cost of service for rate purposes.
As an alternative ground for reversal, the Commission also contends that the Court of Appeals is here precluded from redetermining the validity of the merger condition because of respondent's and the Commission's previous conduct in approving it. Cf. United States v. Hancock Truck Lines, 324 U.S. 774, 778-780. In 1950, respondent proposed this condition in its merger proceeding.
The judgment of the Court of Appeals accordingly is
MR. JUSTICE HARLAN took no part in the consideration or decision of this case.
"(e) SCOPE OF REVENUE.—So far as necessary to decision and where presented the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of any agency action. It shall (A) compel agency unlawfully withheld or unreasonably delayed; and (B) hold unlawful and set aside agency action, findings, and conclusions found to be (1) arbitrary, capricious,an abuse of discretion, or otherwise not in accordance with law; (2) contrary to constitutional right, power, privilege or immunity; (3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; (4) without observance of procedure required by law; (5) unsupported by substantial evidence in any case subject to the requirement of sections 7 and 8 or otherwise reviewed on the record of an agency hearing provided by statute; or (6) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court. In making the foregoing determinations the court shall review the whole record or such portions therefore as may be cited by any part, and due account shall be taken of the rule of prejudicial error." (Emphasis supplied.) 60 Stat. 243-244, 5 U. S. C. § 1009 (e).