An Arkansas public utility company (hereinafter Company) that
makes wholesale interstate electricity sales, as well as retail
industrial sales in competition with some of its wholesale
customers (including respondents, seven municipally owned electric
systems and two cooperatives, operating within Arkansas) filed a
wholesale rate increase with the Federal Power Commission (FPC).
Respondents sought to intervene before the FPC, urging that the
increase be rejected on the ground that it was
"an attempt to squeeze [respondents] . . . out of competition
and make them more susceptible to the persistent efforts of the
Company to take over the publicly owned systems in the State."
The FPC allowed only limited intervention, excluding the alleged
anticompetitive activities as outside the FPC's jurisdiction, which
does not reach retail sales. The Court of Appeals, on review, took
a contrary position, holding that the Company's retail rates
"in a market in which it is competing with its own customers are
part of the factual context in which the proposed wholesale rate
will function . . . ,"
and should be considered in determining whether or not the rate
increase was just and reasonable.
Held: The FPC's jurisdiction to review a petition to
set aside or reduce a public utility's wholesale electric rate
increase permits consideration of the utility's alleged purpose to
forestall its customers from competing with it at retail. Pp.
426 U. S.
276-282.
(a) Though the Federal Power Act confers jurisdiction on the FPC
with respect to the sale of electric energy at wholesale in
interstate commerce, and the FPC has no authority to correct an
alleged discriminatory relationship between wholesale and retail
rates by regulating the nonjurisdictional, retail price, § 205(b)
of the Act forbids the maintenance of any "unreasonable difference
in rates" or service "with respect to any . . . sale" subject to
the FPC's jurisdiction, and a jurisdictional sale is necessarily
implicated in respondents' charge that the difference between the
Company's wholesale and retail rates is unreasonable
Page 426 U. S. 272
and anticompetitive. To the extent that the alleged
discrimination is traceable to the jurisdictional rate § 205(b)
would apply, and the FPC would have remedial power over the
jurisdictional rate under § 206. Pp.
426 U. S.
276-277.
(b) Ratemaking is not an exact science, and there is no single
cost-recovering rate: one rate as related to another may be
discriminatory, although each rate, if considered independently,
might fall within the zone of reasonableness. When the intrazonal
relationship unduly favors one rate, the discrimination must be
removed. Pp.
426 U. S.
277-279.
(c) While the FPC lacks authority to fix retail rates, it may
take those rates into account when it fixes the rates for
interstate wholesale sales that are subject to its jurisdiction.
Cf. Panhandle Co. v. FPC, 324 U.
S. 635,
324 U. S. 646.
Pp.
426 U. S.
279-282.
167 U.S.App.D.C. 43, 510 F.2d 1264, affirmed.
WHITE, J., delivered the opinion for a unanimous Court.
MR. JUSTICE WHITE delivered the opinion of the Court.
The question in this case is this: when a power company that
sells electricity at both wholesale and retail seeks to raise its
wholesale rates, does the Federal Power Commission (Commission)
have jurisdiction to consider the allegations of the company's
wholesale customers
Page 426 U. S. 273
that the proposed wholesale rates, which are within the
Commission's jurisdiction, are discriminatory and noncompetitive
when considered in relation to the company's retail rates, which
are not within the jurisdiction of the Commission? We hold that it
does.
I
Arkansas Power & Light Co. (Company) is a public utility
engaged in the sale of electric energy at wholesale in interstate
commerce under the meaning of § 201 of the Federal Power Act (Act),
as added, 49 Stat. 847, 16 U.S.C. § 824. Its wholesale rates are
thus within reach of the Commission's powers under § 206(a) of the
Act to establish rates which are just, reasonable, and
nondiscriminatory. 16 U.S.C. § 824e(a). [
Footnote 1] The Company also sells at retail, and seeks
industrial sales in competition with some of its wholesale
customers. These wholesale customers include the seven municipally
owned
Page 426 U. S. 274
electric systems and the two electric power cooperatives which
are respondents here. [
Footnote
2] Each of these respondents (Customers) operates in the State
of Arkansas, and each borders on or is surrounded by the territory
served by the Company.
In June, 1973, the Company filed with the Commission a wholesale
rate increase pursuant to § 205(d). [
Footnote 3] The Customers sought to intervene before the
Commission, urging that the rate increase be rejected. Among other
grounds, it was asserted that the Customers and the Company were in
competition for industrial retail accounts, and that the rate
increase was
"an attempt to squeeze [the Customers] or some of them out of
competition, and to make them more susceptible to the persistent
attempts of the company to take over the public[ly] owned systems
in the State."
App. 6. It was alleged that the proposed wholesale rates would
make it
"impossible for the [Customers] to sell power to an industrial
load of any size at a competitive price with [the
Page 426 U. S. 275
Company], since, in many cases, the revenues therefrom would not
even cover the incremental power costs to [the Customers]."
Id. at 7. It was also asserted that the rate filing
was
"plainly discriminatory against the single class of customer
which [the Company] has historically attempted to drive out of
business, without justification on any ordinary cost of service
basis. . . ."
Id. at 19.
The Company opposed the petition. The Commission permitted the
Customers to intervene, but ruled that it would "limit Customers'
participation in this proceeding to matters other than the alleged
anti-competitive activities" because the Customers had failed to
demonstrate that the relief sought was "within this Commission's
authority to direct."
Id. at 35. The Commission also
denied the Customers' amended petition to intervene, again refusing
to consider the tendered anticompetitive and discrimination issues.
Inasmuch as the Commission's authority is limited to wholesale
rates and does not reach sales at retail, the Commission's opinion
was that "the relief sought by [the Customers] is beyond the
authority granted to us under the Federal Power Act."
Id.
at 53. In later denying the Customers' petition for rehearing, the
Commission stated that, in considering the Company's cost base for
its proposed wholesale rates, it would, of course, put aside those
costs properly allocable to the Company's retail business; but it
again ruled that the anticompetitive issue presented by the
Customers was
"beyond the scope of this Commission's jurisdiction, contrary to
the purposes of the Federal Power Act and inappropriate in this
proceeding, the purpose of which is to review the justness and
reasonableness of the [Company's] proposed wholesale rates."
Id. at 55.
The Customers sought review of the Commission's action in the
Court of Appeals for the District of Columbia Circuit. The Court of
Appeals, disagreeing with the Commission's view as to the reach of
its powers, held
Page 426 U. S. 276
that the Commission's jurisdiction over wholesale rates for
electricity sold in interstate commerce furnished the necessary
authority to consider the alleged discriminatory and
anticompetitive effects of the requested increase. The Company's
retail rates, the court held, "in a market in which it is competing
with its own customers are part of the factual context in which the
proposed wholesale rate will function . . . ," and should be
considered in determining whether or not the rate increase was just
and reasonable. 167 U.S.App.D.C. 43, 52, 510 F.2d 1264, 1273
(1975). The case was therefore remanded to the Commission for
further proceedings.
We granted the Commission's petition for certiorari to consider
the question whether the Court of Appeals had correctly construed
the statutes controlling the Commission's jurisdiction. 423 U.S.
945 (1975). We now affirm the judgment of the Court of Appeals.
II
Section 201(b) of the Act, 16 U.S.C. § 824(b), confers
jurisdiction on the Commission with respect to the sale of electric
energy at wholesale in interstate commerce. [
Footnote 4] The prohibition against discriminatory
or preferential rates or services imposed by § 205(b) and the
Commission's power to set just and reasonable rates under § 206(a)
are accordingly limited to sales "subject to the jurisdiction of
the Commission," that is,, to sales of electric energy at
wholesale. The Commission has no power to prescribe the rates for
retail sales of power companies. Nor, accordingly, would it have
power to remedy
Page 426 U. S. 277
an alleged discriminatory or anticompetitive relationship
between wholesale and retail rates by ordering the company to
increase its retail rates.
As the Commission is at great pains to establish, this is the
proper construction of the Act, the legislative history of § 205
indicating that the section was expressly limited to jurisdictional
sales to foreclose the possibility that the Commission would seek
to correct an alleged discriminatory relationship between wholesale
and retail rates by raising or otherwise regulating the
nonjurisdictional, retail price. [
Footnote 5] Insofar as we are advised, no party to this
case contends otherwise.
Building on this history, the Commission makes a skillful
argument that it may neither consider nor remedy any alleged
discrimination resting on a difference between jurisdictional and
nonjurisdictional rates. But the argument, in the end, is
untenable. Section 205(b) forbids the maintenance of any
"unreasonable difference in rates" or service "with respect to any
. . . sale subject to the jurisdiction of the Commission." A
jurisdictional sale is necessarily implicated in any charge that
the difference between wholesale and retail rates is unreasonable
or anticompetitive. If the undue preference or discrimination is in
any way traceable to the level of the jurisdictional rate, it is
plain enough that the section would, to that extent, apply, and, to
that extent, the Commission would have power to effect a remedy
under § 206 by an appropriate order directed to the jurisdictional
rate. This was the view of the Court of Appeals, and we agree with
it.
The Commission appears to insist that a just and reasonable
Page 426 U. S. 278
wholesale rate can never be a contributing factor to an undue
discrimination: once the jurisdictional rate is determined to be
just and reasonable, inquiry into discrimination is irrelevant for
§ 206(a) purposes, for, if the discrimination continues to exist,
it is traceable wholly to the nonjurisdictional, retail rate. This
argument assumes, however, that ratemaking is an exact science, and
that there is only one level at which a wholesale rate can be said
to be just and reasonable, and that any attempt to remedy a
discrimination by lowering the jurisdictional rate would always
result in an unjustly low rate that would fail to recover fully
allocated wholesale costs. As the Court of Appeals pointed out, and
as this Court has held, however, there is no single cost-recovering
rate, but a zone of reasonableness:
"Statutory reasonableness is an abstract quality represented by
an area, rather than a pinpoint. It allows a substantial spread
between what is unreasonable because too low and what is
unreasonable because too high."
Montana-Dakota Util. Co. v. Northwestern Pub. Serv.
Co., 341 U. S. 246,
341 U. S. 251
(1951). The Commission itself explained the matter in
In re
Otter Tail Power Co., 2 F.P.C. 134, 149 (1940):
"It occurs to us that one rate in its relation to another rate
may be discriminatory, although each rate,
per se, if
considered independently, might fall within the zone of
reasonableness. There is considerable latitude within the zone of
reasonableness insofar as the level of a particular rate is
concerned. The relationship of rates within such a zone, however,
may result in an undue advantage in favor of one rate and be
discriminatory insofar as another rate is concerned. When such a
situation exists, the discrimination found to exist must be
removed."
The Commission thus cannot so easily satisfy its obligation to
eliminate unreasonable discriminations or put aside its duty to
consider whether a proposed rate will
Page 426 U. S. 279
have anticompetitive effects. The exercise by the Commission of
powers otherwise within its jurisdiction
"clearly carries with it the responsibility to consider, in
appropriate circumstances, the anticompetitive effects of regulated
aspects of interstate utility operations pursuant to . . .
directives contained in §§ 205, 206. . . ."
Gulf States Util. Co. v. FPC, 411 U.
S. 747,
411 U. S.
758-759 (1973). The Commission must arrive at a rate
level deemed by it to be just and reasonable, but, in doing so, it
must consider the tendered allegations that the proposed rates are
discriminatory and anticompetitive in effect.
We think the Court of Appeals was quite correct in
concluding:
"When costs are fully allocated, both the retail rate and the
proposed wholesale rate may fall within a zone of reasonableness,
yet create a price squeeze between themselves. There would, at the
very least, be latitude in the FPC to put wholesale rates in the
lower range of the zone of reasonableness, without concern that
overall results would be impaired, in view of the utility's own
decision to depress certain retail revenues in order to curb the
retail competition of its wholesale customers."
167 U.S.App.D.C. at 53, 510 F.2d at 1274. (Footnote omitted.)
Because the Commission had raised a jurisdictional barrier and
refused to consider or hear evidence concerning the Customers'
allegations, the Court of Appeals could not determine whether a
wholesale rate, if set low enough partially or wholly to abolish
any discriminatory effects found to exist, would fail to recover
wholesale costs. The case was therefore remanded to the Commission
for further proceedings.
We agree with this disposition. It does not invade a
nonjurisdictional area. The remedy if any, would operate only
against the rate for jurisdictional sales. Whether
Page 426 U. S. 280
that rate would be affected at all would involve, as the Court
of Appeals indicated, an examination of the entire "factual context
in which the proposed wholesale rate will function."
Id.
at 52, 510 F.2d at 1273. These facts will naturally include those
related to nonjurisdictional transactions, but consideration of
such facts would appear to be an everyday affair. As the Commission
concedes, in determining whether the proposed wholesale rates are
just and reasonable, it would, in any event, be necessary to
determine which of the Company's costs are allocable to its
nonjurisdictional, retail sales, and which to its jurisdictional,
wholesale sales -- this in order to insure that the wholesale rate
is paying its way, but no more. In this sense, consideration of the
relationship between jurisdictional and nonjurisdictional rate
structures is commonplace, and is nothing more than is required by
Colorado Interstate Co. v. FPC, 324 U.
S. 581 (1945), [
Footnote
6] and by
Panhandle Co. v. FPC, 324 U.
S. 635 (1945). [
Footnote
7]
Page 426 U. S. 281
Furthermore, § 206(a) provides that, whenever the Commission
finds 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."
(Emphasis added.) The rules, practices, or contracts "affecting"
the jurisdictional rate are not themselves limited to the
jurisdictional context. In the
Panhandle case,
supra, decided under the almost identical provision of the
Natural Gas Act, 15 U.S.C. § 717d(a), the Court emphasized the same
aspect of the section, and went on to hold that, because it was
"clear" that a gas company's "contracts covering direct industrial
sales" are contracts "affecting" jurisdictional rates,
"[t]he Commission, while it lacks authority to fix rates for
direct industrial sales, may take those rates into consideration
when it fixes the rates for interstate
Page 426 U. S. 282
wholesale sales which are subject to its jurisdiction."
324 U.S. at
324 U. S. 646.
[
Footnote 8]
The Court of Appeals' construction of the Act is sound, and its
judgment is affirmed.
So ordered.
[
Footnote 1]
Section 206(a) provides:
"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(a).
Section 205(b) forbids rates that are preferential or
discriminatory:
"No public utility shall, with respect to any transmission or
sale subject to the jurisdiction of the Commission, (1) make or
grant any undue preference or advantage to any person or subject
any person to any undue prejudice or disadvantage, or (2) maintain
any unreasonable difference in rates, charges, service, facilities,
or in any other respect, either as between localities or as between
classes of service."
49 Stat. 851, 16 U.S.C. § 824d(b).
[
Footnote 2]
The respondent customers are Conway Corp. (Conway, Ark.); Benton
Municipal Light & Water Works; Hope Water & Light
Commission; city of North Little Rock; city of Osceola; city of
Prescott; city of West Memphis; Farmers Electric Cooperative Corp.;
and Mississippi County Electric Cooperative, Inc.
[
Footnote 3]
Section 205(d) provides:
"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."
49 Stat. 851, 16 U.S.C. § 824d(d).
[
Footnote 4]
Section 201(b) provides in relevant part:
"The provisions of this Part shall apply to the transmission of
electric energy in interstate commerce and to the sale of electric
energy at wholesale in interstate commerce, but shall not apply to
any other sale of electric energy or deprive a State or State
commission of its lawful authority now exercised over the
exportation of hydroelectric energy which is transmitted across a
State line."
[
Footnote 5]
Under the Act to Regulate Commerce of 1887, it was held that the
Interstate Commerce Commission was empowered to order that a
nonjurisdictional, intrastate freight rate be raised to eliminate a
discrimination.
Houston & Texas R. Co. v. United
States, 234 U. S. 342,
234 U. S.
356-359 (1914).
[
Footnote 6]
"The function which an allocation of costs (including return) is
designed to perform in a rate case of this character is clear. The
amount of gross revenue from each class of business is known. Some
of those revenues are derived from sales at rates which the
Commission has no power to fix. The other part of the gross
revenues comes from the interstate wholesale rates which are under
the Commission's jurisdiction. The problem is to allocate to each
class of the business its fair share of the costs. It is, of
course, immaterial that the revenues from the intrastate sales to
the direct industrial sales may exceed their costs, since the
authority to regulate those phases of the business is lacking. To
the extent, however, that the revenues from the interstate
wholesale business exceed the costs allocable to that phase of the
business, the interstate wholesale rates are excessive."
324 U.S. at
324 U. S.
588.
[
Footnote 7]
"We agree that the Commission must make a separation of the
regulated and unregulated business when it fixes the interstate
wholesale rates of a company whose activities embrace both.
Otherwise the profits or losses, as the case may be, of the
unregulated business would be assigned to the regulated business
and the Commission would transgress the jurisdictional lines which
Congress wrote into the Act. The Commission recognizes this
necessity. As it stated in
Re Cities Service Gas Co., 50
P.U.R.(N.S.) 65, 89:"
"The company's facilities and operations are devoted in part to
natural gas service which is not subject to our jurisdiction. This
service consists principally of gas sales made directly to large
industrial consumers. The necessity arises, therefore, for making
an allocation of costs as between the jurisdictional and
nonjurisdictional sales."
"The question is whether a formal allocation was necessary under
the exceptional circumstances of this case."
324 U.S. at
324 U. S.
641-642. (Footnote omitted.)
[
Footnote 8]
For the proposition that there is no room within the Act to
consider any discriminatory or anticompetitive relationship between
a jurisdictional and a nonjurisdictional rate, the Commission
relies upon the statement in the concurring opinion of Mr. Justice
Jackson in
Colorado Interstate Co. v. FPC, 324 U.S. at
324 U. S.
615:
"It is true that the Natural Gas Act forbids discrimination only
as between regulated rates, and does not forbid discriminations
between the regulated and unregulated ones."
But the Justice went on to make clear that a nonjurisdictional
price could be used in determining what is the "just and
reasonable" jurisdictional rate.
"By use of the unregulated price as a basis for comparison, I
think a reduction in the wholesale rates for resale to the public
is in order. If this makes low price industrial business less
desirable, it will be in the long-range public interest for reasons
more fully stated by me in [
FPC v. Hope Gas Co.,
320 U. S.
591 (1944)]."
Ibid.