A supplier of electric power which is a "public utility" subject
to regulation under Part II of the Federal Power Act entered into a
contract, duly filed with the Federal Power Commission, to supply
electric power to a distributor at a special low rate for 15 years.
Before expiration of the contract, and without the consent of the
distributor, the supplier filed with the Commission under § 205(d)
of the Act a schedule purporting to increase its rate to the
distributor. Acting under § 205(e), the Commission conducted
proceedings to determine the reasonableness of the new rate, denied
the distributor's motion to reject the filing on the ground that
the supplier could not thus unilaterally change the contract, and
held the new rate not to be "unjust, unreasonable, unduly
discriminatory, or preferential."
1. These proceedings were not effective to supersede the
supplier's contract with the distributor. United Gas Pipe Line
Co. v. Mobile Gas Service Corp., ante,
p. 350 U. S. 332
350 U. S.
2. The requirements of § 206(a), which provides that, if the
Commission finds an existing rate to be "unjust, unreasonable,
unduly discriminatory or preferential," it may determine a "just
and reasonable rate" and fix the same by order, were not satisfied
by the Commission's statement that,
"if a finding on the lawfulness of the [existing] contract rate
were necessary or appropriate, on the record before us, that
finding would have to be that the [existing] rate is unreasonably
low, and therefore unlawful. For none of the evidence in this
record warrants a finding that any rate would be reasonable that
would produce a return of substantially less than the 4.75%
resulting from the proposed rate, which is the minimum [the
supplier] is willing to accept."
Pp. 350 U. S.
(a) Under § 206(a), the Commission has undoubted power to
prescribe a change in contract rates whenever it determines
Page 350 U. S. 349
them to be unlawful, but its power is limited to prescribing the
rate "to be thereafter observed," and it can effect no change prior
to the date of the order. P. 350 U. S.
(b) If the proceeding here satisfied in substance the
requirements of § 206(a), it would seem immaterial that the
investigation was begun as one into the reasonableness of the
proposed rate, rather than the existing contract rate. P.
350 U. S.
(c) The purpose of the power given the Commission under § 206(a)
is the protection of the public interest, as distinguished from the
private interest of the utilities, and a contract may not be said
to be either "unjust" or "unreasonable" simply because it is
unprofitable to the public utility. Pp. 350 U. S.
3. The order of the Court of Appeals setting aside the
Commission's approval of the new rate and remanding the case to the
Commission is affirmed with instructions to remand the case to the
Commission for such further proceedings, not inconsistent with this
opinion, as the Commission may deem desirable. P. 350 U. S.
96 U.S.App.D.C. 140, 223 F.2d 605, affirmed.
MR. JUSTICE HARLAN delivered the opinion of the Court.
This case presents questions under Title II of the Federal Power
Act, 49 Stat. 847, 16 U.S.C. § 824 et seq.,
which are in
part similar to those we have decided today under the Natural Gas
Act in United Gas Pipe Line Co. v. Mobile Gas Service Corp.,
p. 350 U. S. 332
Page 350 U. S. 350
The pertinent provisions of the Federal Power Act, set forth in
the margin, [Footnote 1
] are §§
205(c), (d), and (e), and 206(a), which are substantially identical
to §§ 4(c),
Page 350 U. S. 351
(d), and (e), and 5(a), respectively, of the Natural Gas. Act.
Respondent Sierra Pacific Power Company (Sierra) distributes
electricity to consumers in northern Nevada and eastern California.
For many years, it has purchased the major part of its electric
power from petitioner Pacific Gas and Electric Company (PG&E),
a "public utility" subject to regulation under Part II of the
Federal Power Act. In 1947 Sierra, faced with increased post-war
demands and consumer agitation for cheaper power, began
Page 350 U. S. 352
negotiating for power from other sources, including the Federal
Bureau of Reclamation, which at the time had unused capacity at
Shasta Dam. To forestall the potential competition, PG&E
offered Sierra a 15-year contract for power at a special low rate,
which offer Sierra finally accepted in June, 1948. The contract was
duly filed with the Federal Power Commission.
Early in 1953, when power from Shasta Dam was no longer
available to Sierra, PG&E, without the consent of Sierra, filed
with the Commission under § 205(d) of the Federal Power Act a
schedule purporting to increase its rate to Sierra by approximately
28%. The Commission, acting under § 205(e), suspended the effective
date of the new rate until September 6, 1953, and initiated a
proceeding to determine its reasonableness. Sierra was permitted to
intervene in the proceeding, but its motion to reject the filing on
the ground that PG&E could not thus unilaterally change the
contract was denied. After completion of the hearings, the
Commission, by order dated June 17, 1954, reaffirmed its refusal to
reject the filing and held the new rate not to be "unjust,
unreasonable, unduly discriminatory, or preferential." 7 P.U.R. 3d
256. On Sierra's petition for review, the Court of Appeals for the
District of Columbia, holding that the contract rate could be
changed only upon a finding by the Commission that it was
unreasonable, set aside the Commission's order and remanded the
case with instructions to the Commission to dismiss the § 205(e)
proceeding, but without prejudice to its instituting a new
proceeding under § 206(a) to determine the reasonableness of the
contract rate. 96 U.S.App.D.C. 140, 223 F.2d 605. We brought the
case here because of the importance of the questions involved in
the administration of the Federal Power Act. 349 U.S. 937.
The first question before us is whether PG&E's unilateral
filing of the new rate under § 205(d), and the
Page 350 U. S. 353
approval of the new rate by the Commission under § 205(e), were
effective to supersede PG&E's contract with Sierra. We think
not. As the parties concede, the provisions of the Federal Power
Act relevant to this question are in all material respects
substantially identical to the equivalent provisions of the Natural
Gas Act. In United Gas Pipe Line Co. v. Mobile Gas Service
decided today, we construed the Natural Gas Act
as not authorizing unilateral contract changes, and that
interpretation is equally applicable to the Federal Power Act.
Accordingly, for the reasons there given, we conclude that neither
PG&E's filing of the new rate nor the Commission's finding that
the new rate was not unlawful was effective to change PG&E's
contract with Sierra.
This case, however, raises a further question not present in the
case. The Commission has undoubted power under §
206(a) to prescribe a change in contract rates whenever it
determines such rates to be unlawful. While this power is limited
to prescribing the rate "to be thereafter observed," and thus can
effect no change prior to the date of the order, the Commission's
order here, if based on the necessary findings, could have been
effective to prescribe the proposed rate as the rate to be in
effect prospectively from the date of the order, June 17, 1954. If
the proceedings here satisfied in substance the requirements of §
206(a), it would seem immaterial that the investigation was begun
as one into the reasonableness of the proposed rate, rather than
the existing contract rate.
The condition precedent to the Commission's exercise of its
power under § 206(a) is a finding that the existing rate is
"unjust, unreasonable, unduly discriminatory or preferential."
Petitioners contend that the Commission did, in fact, make such a
finding. It was stipulated in the proceedings before the Commission
that 5.5% was normally a reasonable rate of return for PG&E's
Page 350 U. S. 354
that the contract rate would produce a 2.6% rate of return, and
that the proposed rate would produce a 4.75% rate of return. The
Commission concluded that the proposed rate was not unreasonably
high, because it provided no more than a fair return, and was not
unreasonably low because the 0.75% deficiency of its yield from the
stipulated reasonable rate of return was not being made up on other
sales, and was justified in order to retain business the loss of
which by PG&E would result in idle facilities. It also
concluded that the proposed rate was not unduly discriminatory or
preferential, despite substantial differences between it and the
rates being charged other customers. While no further findings were
necessary in view of the Commission's interpretation of the Act as
permitting unilateral contract changes, the Commission went on to
"However, we may point out that, if a finding on the lawfulness
of the 1948 contract rate were necessary or appropriate, on the
record before us, that finding would have to be that the 1948 rate
is unreasonably low, and therefore unlawful. For none of the
evidence in this record warrants a finding that any rate would be
reasonable that would produce a return of substantially less than
the 4.75% resulting from the proposed rate, which is the minimum
PG&E is willing to accept."
It is contended that by this statement the Commission in
substance found that the existing contract rate was "unreasonable,"
and fixed the proposed rate as "the just and reasonable rate,"
thereby satisfying the requirements of § 206(a).
But, even accepting this statement as a finding of
unreasonableness of the contract rate, the Commission's conclusion
appears, on its face, to be based on an erroneous standard. In
short, the Commission holds that the
Page 350 U. S. 355
contract rate is unreasonable solely because it yields less than
a fair return on the net invested capital. But, while it may be
that the Commission may not normally impose upon a public utility a
rate which would produce less than a fair return, it does not
follow that the public utility may not itself agree by contract to
a rate affording less than a fair return or that, if it does so, it
is entitled to be relieved of its improvident bargain. Cf.
Arkansas Natural Gas Co. v. Arkansas Railroad Comm'n,
261 U. S. 379
such circumstances, the sole concern of the Commission would seem
to be whether the rate is so low as to adversely affect the public
interest -- as where it might impair the financial ability of the
public utility to continue its service, cast upon other consumers
an excessive burden, or be unduly discriminatory. That the purpose
of the power given the Commission by § 206(a) is the protection of
the public interest, as distinguished from the private interests of
the utilities, is evidenced by the recital in § 201 of the Act that
the scheme of regulation imposed "is necessary in the public
interest." When § 206(a) is read in the light of this purpose, it
is clear that a contract may not be said to be either "unjust" or
"unreasonable" simply because it is unprofitable to the public
Whether, under the facts of this case, the contract rate is so
low as to have an adverse effect on the public interest is, of
course, a question to be determined in the first instance by the
Commission. We shall therefore affirm the order of the Court of
Appeals, with instructions to remand the case to the Federal Power
Commission for such further proceedings, not inconsistent with this
opinion, as the Commission may deem desirable.
It is so ordered.
* Together with No. 53, Pacific Gas & Electric Co. v.
Sierra Pacific Power Co.,
also on certiorari to the same
"SEC. 205. . . . (c) Under such rules and regulations as the
Commission may prescribe, every public utility shall file with the
Commission, within such time and in such form as the Commission may
designate, and shall keep open in convenient form and place for
public inspection schedules showing all rates and charges for any
transmission or sale subject to the jurisdiction of the Commission,
and the classifications, practices, and regulations affecting such
rates and charges, together with all contracts which in any manner
affect or relate to such rates, charges, classifications, and
"(d) Unless the Commission otherwise orders, no change shall be
made by any public utility in any such rate, charge,
classification, or service, or in any rule, regulation, or contract
relating thereto, except after thirty days' notice to the
Commission and to the public. Such notice shall be given by filing
with the Commission and keeping open for public inspection new
schedules stating plainly the change or changes to be made in the
schedule or schedules then in force and the time when the change or
changes will go into effect. The Commission, for good cause shown,
may allow changes to take effect without requiring the thirty days'
notice herein provided for by an order specifying the changes so to
be made and the time when they shall take effect and the manner in
which they shall be filed and published."
"(e) Whenever any such new schedule is filed, the Commission
shall have authority, either upon complaint or upon its own
initiative without complaint at once, and, if it so orders, without
answer or formal pleading by the public utility, but upon
reasonable notice, to enter upon a hearing concerning the
lawfulness of such rate, charge, classification, or service, and,
pending such hearing and the decision thereon, the Commission, upon
filing with such schedules and delivering to the public utility
affected thereby a statement in writing of its reasons for such
suspension, may suspend the operation of such schedule and defer
the use of such rate, charge, classification, or service, but not
for a longer period than five months beyond the time when it would
otherwise go into effect; and, after full hearings, either
completed before or after the rate, charge, classification, or
service goes into effect, the Commission may make such orders with
reference thereto as would be proper in a proceeding initiated
after it had become effective. If the proceeding has not been
concluded and an order made at the expiration of such five months,
the proposed change of rate, charge, classification, or service
shall go into effect at the end of such period, but, in case of a
proposed increased rate or charge, the Commission may by order
require the interested public utility or public utilities to keep
accurate account in detail of all amounts received by reason of
such increase, specifying by whom and in whose behalf such amounts
are paid, and, upon completion of the hearing and decision, may, by
further order, require such public utility or public utilities to
refund, with interest, to the persons in whose behalf such amounts
were paid, such portion of such increased rates or charges as by
its decision shall be found not justified. At any hearing involving
a rate or charge sought to be increased, the burden of proof to
show that the increased rate or charge is just and reasonable shall
be upon the public utility, and the Commission shall give to the
hearing and decision of such questions preference over other
questions pending before it, and decide the same as speedily as
49 Stat. 851-852, 16 U.S.C. § 824d.
"SEC. 206. (a) Whenever the Commission, after a hearing had upon
its own motion or upon complaint, shall find that any rate, charge,
or classification, demanded, observed, charged, or collected by any
public utility for any transmission or sale subject to the
jurisdiction of the Commission, or that any rule, regulation,
practice, or contract affecting such rate, charge, or
classification is unjust, unreasonable, unduly discriminatory or
preferential, the Commission shall determine the just and
reasonable rate, charge, classification, rule, regulation,
practice, or contract to be thereafter observed and in force, and
shall fix the same by order."
49 Stat. 852, 16 U.S.C. § 824e.
Set forth as footnote 1 to the opinion in the Mobile
p. 350 U. S.