Pennsylvania Water Power Company v. Federal Power Commission/Opinion of the Court

In 1944 the Maryland Public Service Commission, the Mayor and Council of the City of Baltimore, the Baltimore County Commissioners, and several private purchasers of electric power decided to ask the Federal Power Commission for help. They requested the Commission to investigate allegedly 'excessive rates' the Pennsylvania Water & Power Company (Penn Water) was charging Consolidated Gas Electric Light and Power Company of Baltimore (Consolidated). The Maryland interests wanted the Federal Power Commission to reduce these charges so that the state commission could lower Consolidated's rates to its Maryland customers. The federal Commission held many months of extensive hearings and found that Penn Water had charged its customers almost three times what it should have in 1946. In that year it had a net operating income of $3,477,408, as contrasted with $1,300,672 which the Commission found would have been a fair return (5 1/4%) on a fair rate base ($24,774,712), allowing Penn Water 'about 8.64% for common stock and surplus, which is adequate.' The Commission ordered Penn Water to file a new schedule of rates and charges to bring about the reductions required.

In subsequent orders the Commission denied Penn Wate's applications for rehearing, rejected as insufficient new rate schedules filed by Penn Water, and itself prescribed the rate schedules which Penn Water here seeks to avoid. On review the Court of Appeals gave full consideration to Penn Water's multitudinous challenges and approved the Commission's action, one Judge dissenting. 89 U.S.App.D.C. 235, 193 F.2d 230.

Most of the numerous questions presented and decided by the Commission and the Court of Appeals are not presented here by the petitions for certiorari which we granted. We are not called on to review the adequacy of the evidence to support the Commission's findings as to a fair rate base, a fair rate of return, or any other findings except insofar as our decision of several rather general questions presented might indirectly undermine some of them. The questions we must decide are in general these:

(1) Does the fact that Penn Water is a licensee under Part I     of the Federal Power Act, and therefore subject to      regulation under that Part, preclude its regulation under      Part II of the Act as a public utility engaged in interstate      commerce?

'(2) Assuming that Penn Water can be subjected to regulation     under both Parts of the Act, were the Commission and the      Court of Appeals correct in holding that all of Penn Water's      sales at wholesale were 'in interstate commerce' within the      meaning of Part II of the Act?

(3) Does the Commission's rate reduction action compel the     continuance of, or is it improperly based upon contractual agreements between Penn Water and      Consolidated which Penn Water cannot carry out without      violating the federal antitrust laws or the laws of      Pennsylvania forbidding surrender by Pennsylvania      corporations of their corporate independence?

Although Penn Water is the type of 'public utility' subject to regulation under Part II of the Act, it argues that since it is subject to regulation under Part I as a licensee, it cannot be regulated under Part II as a public utility. We cannot agree. With some express exceptions not here relevant, the language of Part II of the Act makes all 'public utilities' subject to the regulation it prescribes. No reason has been advanced which could possibly justify a judicial exception to this statutory command. A major purpose of the whole Act is to protect power consumers against excessive prices. Part I leaves regulation to the states under some circumstances. But, under § 20 of Part I the Federal Government is to protect the consumer if a state regulatory body does not exist or the 'States are unable to agree * *  * on the services to be rendered, or on the rates or charges of payment therefor *  *  * .' Part II proceeds on the assumption that regulation of public utilities transmitting and selling power at wholesale in interstate commerce is a matter which must be accomplished by the Federal Government. Part II therefore provides for a more expansive federal regulation than that authorized under Part I. It would hinder, not help, the Power Act's program if we should impliedly exempt Part I licensees from the more expansive Part II regulation. It may be possible that some future cases will develop minor inconsistencies in the administration of the two Parts. Today's case, however, is not such a one. We hold that Penn Water is subject to regulation under Part II of the Act. It is also subject to Part I regulation since the Commission found on substantial evidence, as the court below held, that the States were 'unable to agree' within the meaning of § 20 of Part I of the Act.

It is contended that some of Penn Water's sales at wholesale were not 'in interstate commerce' and therefore were not subject to federal regulation under Part II. This contention refers to sales made by Penn Water in Pennsylvania to Pennsylvania customers. These are alleged to include about 83% of Pennsylvania generated power. Because of the following circumstances we agree with the Commission and the Court of Appeals that these sales were 'in interstate commerce.'

Penn Water and Safe Harbor Water Power Corporation (Safe Harbor) have hydrogenerating plants on the Susquehanna River in Pennsylvania. Consolidated operates large steam-generating plants in Baltimore. The flow of the Susquehanna varies greatly even from day to day. During periods of low flow, Penn Water receives steam-generated energy from Baltimore in order to meet its power supply commitments. Conversely, during periods of high flow, Consolidated is able to receive the cheaper hydroelectric power from Penn Water and Safe Harbor. For many years Penn Water, Consolidated, and Safe Harbor have been operating under contracts for the coordinated sale and distribution of electric power in Maryland and Pennsylvania. A complete integration and pooling of the power producing and transmitting facilities of the three companies was thus achieved. With reference to this coordinated system of production and distribution, the Commission said:

'The central fact disclosed by the record about Penn Water's     sales in Pennsylvania is that they are not sales of the      output of Penn Water's own plant, but sales of output of the      integrated and coordinated interstate electric system of      which Penn Water's facilities are an integral part. * *  *

'In this manner energy crossing the State boundary, with     other system energy, is used to fulfill system requirements. There result times when system energy generated in     Pennsylvania is used, mixed or unmixed, in meeting system      requirements in Maryland. Similarly, there are occasions when     system energy from Maryland is used, mixed or unmixed, in      meeting system requirements in Pennsylvania. Energy flows in,     across, and out of the system transmission network as the      needs of the interconnected members develop from minute to      minute and day to day.

'It is accordingly evident that the operations of the unified     system enterprise are completely interstate in character,      notwithstanding the fact that system energy transactions at      some particular times may involve energy never crossing the      State boundary.' 8 F.P.C. 1, 12, 15.

We hold that the Federal Power Commission has complete authority to regulate all of this commingled power flow. The Commission's power does not vary with the rise and fall of the Susquehanna River.

Penn Water contends that the Commission's orders improperly require it to continue performing an illegal contract and that continued performance of this contract is the basis for some of the Commission's findings. This contract allegedly requires Penn water to subject the management of its business affairs to the domination of Consolidated and for this reason violates the federal antitrust laws and the corporation laws of Pennsylvania under which Penn Water is incorporated. In private litigation, the Court of Appeals for the Fourth Circuit has agreed with Penn Water that certain provisions of the contract are illegal for the reasons stated. Viewing these provisions as inseparable, that court held the entire contract unenforceable.

We need not now decide the question much argued here concerning what, if any, power the Commission has to rely on or to compel parties to carry out private contracts which would otherwise be illegal; the Commission has not attempted to exercise such power in this case. It is true that Penn Water must continue to do some of the things it used to do in compliance with the Penn Water-Consolidated contract. For under the present schedules prescribed by the Commission's order Penn Water must continue to buy, sell, and transmit power in the same coordinated manner in which it and Consolidated have been functioning for more than twenty years. But the Commission's order, as construed by the Commission, by the Court of Appeals and by us, neither expressly nor impliedly requires Penn Water to yield to any contractual terms subjecting it to the control of Consolidated. In the highly unlikely event that Penn Water's managerial freedom is ever threatened by such an order, it will be time enough to consider its validity. To the extent that Penn Water is being controlled, it is by the Commission, acting under statutory authority, not by Consolidated, acting under the authority of private contract terms 'legalized' by the Commission. The duty of Penn Water to continue its coordinated operations with Consolidated springs from the Commission's authority, not from the law of private contracts.

Nor has the Commission premised any of its findings upon the assumed existence and continuation of this contract. Penn Water first made this contention to the Commission in seeking a rehearing of the Commission's order directing a reduction in its rates. At that time the Commission fully re-examined its former opinion, findings and orders, modified some and reaffirmed and strengthened others, and expressly stated that the validity of its order was not dependent upon the legality of the contract. It said: 'If there are questions as to legality of the foundation contracts which are in litigation, as respondents' application for rehearing indicates, the validity of our order is not dependent upon the decision of those questions.' 8 F.P.C. 170, 175. We agree with the Court of Appeals that neither the order nor the findings were premised on the continuation of the Penn Water-Consolidated contract.

The Act gives the Commission ample statutory power to order Penn Water and Consolidated to continue their long-existing operational 'practice' of integrating their power output. Section 206 provides that 'Whenever the Commission, after a hearing * *  * shall find that any rate *  *  * is unjust, unreasonable *  *  * the Commission shall determine the just and reasonable rate, *  *  * practice, or contract to be thereafter observed and in force, and shall fix the same by order.' In ordering such 'practice' continued, the Commission was furthering the expressly declared policy of the Act. Moreover, the Commission found here ready-made by prior contractual arrangements a regional coordination of power facilities of precisely the type which the Commission is authorized to require under § 202. Section 202(a) declares:

'For the purpose of assuring an abundant supply of electric     energy throughout the United States with the greatest      possible economy and with regard to the proper utilization      and conservation of natural resources, the Commission is      empowered and directed to divide the country into regional      districts for the voluntary interconnection and coordination      of facilities for the generation, transmission, and sale of      electric energy, *  *  * .'

The Commission was further directed in that section to 'promote and encourage' such interconnection and coordination. Under certain circumstances § 202(b) authorizes the Commission to compel interconnection and coordination in the public interest, and to 'prescribe the terms and conditions of the arrangement to be made between the persons affected by any such order, including the apportionment of cost between them and the compensation or reimbursement reasonably due to any of them.'

If Penn Water wishes to discontinue some or all of the services it has rendered for the past twenty years, the Act, as the Commission pointed out, opens up a way provided Penn Water can prove that its wishes are consistent with the public interest. Shortly after Part II of the Power Act was passed in 1935, Penn Water, as required by § 205(c), filed with the Commission the contract here attacked and then designated by the Commission as 'Penn Water's Federal Power Commission Rate Schedule No. 1.' Section 205(d) provides that 'no change shall be made by any public utility in any such * *  * service *  *  * or contract relating thereto, except after thirty days' notice to the Commission and to the public.' Here instead of following the procedure for changing existing services and practices-a procedure which the Congress has authorized and which the Commission has supplemented by rules of its own-the company has rather tried to utilize a violation of the Sherman Act, 15 U.S.C.A. § 1 et seq., so as to nullify a rate-reduction order.

Nothing whatever has been presented by Penn Water to show that the end result of this rate reduction is unjust or unreasonable. Cf. Federal Power Comm. v. Hope Gas Co., 320 U.S. 591, 603 64 S.Ct. 281, 288, 88 L.Ed. 333.

Affirmed.

Mr. Justice FRANKFURTER, not having heard the argument, owing to illness, took no part in the disposition of these cases.

Mr. Justice DOUGLAS, with whom Mr. Justice REED concurs, dissenting.