1. Petitioner power company owns a hydroelectric plant on a
navigable stream and holds a license from the Federal Power
Commission under Part I of the Federal Power Act. It also sells
power at wholesale in interstate commerce. The Commission found on
substantial evidence that the states involved were "unable to
agree" on services to be rendered and rates to be charged within
the meaning of § 20 of Part I of the Act.
Held:
(a) The fact that petitioner is a licensee and subject to
regulation as such under Part I does not preclude its regulation
under Part II as a public utility engaged in interstate commerce.
Pp.
343 U. S.
418-419.
(b) The Commission having found on substantial evidence that the
states were "unable to agree" on the services to be rendered and
rates to be charged, within the meaning of § 20, petitioner is also
subject to regulation under Part I. P.
343 U. S.
419.
2. Two power companies have hydroelectric plants on the
Susquehanna River and a third operates steam-electric plants in
Maryland. Under a contract between them, a complete integration and
pooling of power producing and transmitting facilities has been
achieved, and power flows from Maryland into Pennsylvania and vice
versa, depending upon the flow of water in the Susquehanna River.
The Federal Power Commission found that the combined operations of
the system are completely interstate in character, notwithstanding
the fact that, at some particular times, transactions may involve
energy never crossing a state boundary.
Held: The Federal Power Commission has complete
authority to regulate sales at wholesale of all of this commingled
power. Pp.
343 U. S.
419-420.
3. In private litigation, the entire contract was held
unenforceable because certain of its provisions violated the
federal antitrust laws and the corporation laws of Pennsylvania.
Subsequently,
Page 343 U. S. 415
the Federal Power Commission issued an order fixing petitioner's
rates, which had the effect of requiring a continuation of the
integration and pooling of the power producing and transmitting
facilities of the three companies.
Held: the order is
valid. Pp.
343 U. S.
421-424.
(a) Petitioner's duty to continue its coordinated operations
with the Maryland company springs from the Commission's statutory
authority, not from the law of private contracts. Pp.
343 U. S.
421-422.
(b) The Act gives the Commission ample authority to order these
companies to continue their long-existing operational "practice" of
integrating their power output, and, in so doing, the Commission
was furthering the expressly declared policy of the Act. Pp.
343 U. S.
422-424.
4. Petitioner has presented nothing to show that the end result
of the rate reduction ordered by the Commission is unjust or
unreasonable. P.
343 U. S.
424.
89 U.S.App.D.C. 235, 193 F.2d 230, affirmed.
The Federal Power Commission found the rates charged by
petitioner for the sale of electric power at wholesale in
interstate commerce unreasonable and ordered a reduction. The Court
of Appeals affirmed. 89 U.S.App.D.C. 235, 193 F.2d 230. This Court
granted certiorari. 342 U.S. 931.
Affirmed, p.
343 U. S.
424.
Page 343 U. S. 416
MR. JUSTICE BLACK delivered the 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) [
Footnote 1] 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." [
Footnote 2] The Commission
Page 343 U. S. 417
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 Water'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. [
Footnote 3] 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, [
Footnote
4] 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
Page 343 U. S. 418
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?"
I
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. [
Footnote 5]
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
Page 343 U. S. 419
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.
II
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
Page 343 U. S. 420
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. [
Footnote 6] The Commission's power does not vary
with the rise and fall of the Susquehanna River.
Page 343 U. S. 421
III
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. [
Footnote 7]
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
Page 343 U. S. 422
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 reexamined 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
Page 343 U. S. 423
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
Page 343 U. S. 424
. . . 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 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'n v. Hope Gas Co., 320 U.
S. 591,
320 U. S.
603.
Affirmed.
MR. JUSTICE FRANKFURTER, not having heard the argument, owing to
illness, took no part in the disposition of these cases.
* Together with No. 429,
Pennsylvania Public Utility
Commission v. Federal Power Commission, also on certiorari to
the same court.
[
Footnote 1]
Penn Water, as used in this opinion, refers to both Pennsylvania
Water & Power Company and its wholly owned affiliate,
Susquehanna Transmission Company of Maryland.
[
Footnote 2]
There was evidence before the Commission that, from 1936 through
1945, Penn Water's dividends on its common stock had never been
less than 25% of the cash paid in on the stock.
[
Footnote 3]
342 U.S. 931.
[
Footnote 4]
41 Stat. 1063, 49 Stat. 838, 16 U.S.C. § 791a
et
seq.
[
Footnote 5]
Section 20 of Part I provides that "the rates charged and the
service rendered . . . shall be reasonable, nondiscriminatory, and
just to the customer. . . ." Section 205(a) of Part II provides
that "All rates and charges . . . shall be just and reasonable. . .
."
[
Footnote 6]
See also Safe Harbor Water Power Corp. v. Federal Power
Commission, 179 F.2d 179,
aff'g 5 F.P.C. 221.
[
Footnote 7]
Pennsylvania W. & P. Co. v. Consolidated G., E.L. &
P. Co., 184 F.2d 552.
See also Consolidated Gas E.L. &
P. Co. v. Pennsylvania W. & P. Co., 194 F.2d 89.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE REED concurs,
dissenting.
There is more to these cases than meets the eye. On the surface,
they seem to be only an illustration of the exploitation of the
public by a utility through the charging of excessive rates. But
far greater issues lurk in the record. There is lawless conduct
that overshadows the evils of extortionate rates. It is lawless
conduct that violates the Sherman Act. It implicates not only the
utilities, but the regulatory agency as well. The desire to reduce
excessive rates should not blind us to the greater evil. It is far
better that one public utility win one more legal skirmish in its
struggle against regulation than that we abandon legal standards
and let the regulatory agency run riot.
We start here with the exploitation of the public through an
unholy alliance between two public utility companies -- Penn Water
and Consolidated. That alliance
Page 343 U. S. 425
has been condemned by the Court of Appeals for the Fourth
Circuit.
See 184 F.2d 552; 194 F.2d 89. The alliance was
illegal because it violated the Sherman Act. It was an arrangement
that permitted Penn Water to be operated as though it were a
department of Consolidated. All competition between the two
companies was destroyed, as evidenced by the fact that, in 1948,
Consolidated vetoed a steam electric generating plant to be built
by Penn Water at Holtwood, Pennsylvania. What Penn Water may do,
the revenues it receives, the costs it will incur, are largely
determined by Consolidated under these illegal contracts.
The Commission, in its opinion on rehearing, said,
"If there are questions as to the 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. In our opinion and order, we
took care to leave the continuation of the operation of the
integrated and interconnected system
in full effect,
merely changing the rates. . . ."
(Italics added.) 8 F.P.C. 170, 175. The Commission has
accordingly approved the unholy alliance. It has allowed
Consolidated to continue to manage Penn Water as though the latter
were its alter ego. It is therefore disingenuous for the Court to
say that, hereafter, Penn Water is subject to control by the
Commission, not by Consolidated, and that the Commission did not
premise any of its findings on the assumed existence and
continuation of the illegal contracts.* No matter how vehement our
denial, the truth is that the Commission has laced Penn Water to
Consolidated under a management
Page 343 U. S. 426
contract that leaves Penn Water no initiative of private
management.
Of course, the Commission has authority under § 202 of the
Federal Power Act to promote, and at times compel, interconnection
and coordination of the facilities of public utility companies. But
I know of no power in the Commission that authorizes it to place
one company on the back of another company, to merge and
consolidate companies as it chooses, or to give the management of
one company a veto power over the management of a competitor. Those
are practices which the Sherman Act condemns, and which nothing in
the Federal Power Act sanctions.
These cases should be reversed and remanded to the Commission
with directions that the Commission build its rate order on the
powers that it has under the Federal Power Act, not on the unholy
alliance that these utilities created and that the Commission has
sought to perpetuate.
* The Commission entered its final order in the cases prior to
the decision of the Court of Appeals in the Sherman Act litigation.
The Commission opinion on rehearing hearing was dated February 26,
1949, while the first decision of the Court of Appeals was on
September 30, 1950.