Jersey Central Power & Light Company v. Federal Energy Regulatory Commission, Allegheny Electric Cooperative, Inc., Intervenors

& JERSEY CENTRAL POWER LIGHT

COMPANY, Petitioner,

v.

FEDERAL ENERGY REGULATORY

COMMISSION, Respondent, Inc.,

Allegheny Cooperative, Electric et

al., Intervenors.

No. 82-2004. Appeals,

United States Court of

District of Columbia Circuit.

Argued Jan. 1986.

Decided Feb. 1987.

As Amended Feb.

Starr, Judge, concurring Circuit filed

opinion,

Mikva, Judge, dissenting Circuit filed

opinion Wald, Judge, in which Chief

Spottswood Robinson, III Harry W. T.

Edwards, Judges, joined. Circuit WALD, Judge,

Before Chief ROBINSON, MIKVA, EDWARDS, SCALIA,* GINSBURG, BORK, RUTH B. STARR, BUCKLEY, SILBERMAN and Judges. Circuit Opinion for the Court by filed Circuit Judge BORK.

Concurring opinion filed Circuit Judge STARR.

Dissenting opinion filed Circuit MIKVA, Judge Judge with whom Chief Judges WALD and Circuit ROBINSON, W. SPOTTSWOOD III and join. HARRY T. EDWARDS D.C., Liberman, Washington, B. James BORK, Judge: Circuit Jolles, City, with whom Ira H. New York Light Compa- Central Power and brief, Leonard W. and Belter were on ny petitions for Energy review of Federal Stenger Daniel F. and petitioner. for Scott Regulatory modifying Commission orders DuBoff, D.C., Washington, M. also entered utility’s proposed the electric rate sched- petitioner. for appearances, requiring ules and to file re- F.E.R.C., Feit, Sol., M. with Jerome charges duced rates. Satterfield, whom William H. General which, alleged proven, facts if show Counsel, Davies, Joseph Atty., S. F.E. rates are confiscatory reduced vio- R.C., Washington, D.C., brief, were on statutory rights late its and constitutional Weller, respondent. Deputy for Barbara J. Supreme as defined Court in FPC v. Sol., F.E.R.C., D.C., Washington, also en- Gas Natural appearance, respondent. tered L.Ed. 333 Though it is Gray, D. Rodg- Charles with Paul whom true, probable alleged, facts if ers, D.C., Washington, was on the brief for compa- would establish an invasion of the curiae, Regulatory amicus Nat. Ass’n of ny’s rights, the Commission refused Com’rs, Utility urging affirmance. company a and reduced its rates Weinberg, Robert with William I. whom summarily. Harkaway Reiter, Harvey Washington, Throughout proceedings extensive D.C., brief, intervenors, were on the court, before both Commission and this Co-op., Inc., Elec. Allegheny al. et steadfastly maintained Barasch, Pa., Harrisburg, M. David was summary that its dismissal of Cen- curiae, Pennsylvania on the brief for amici justified by prior tral’s was Commis- al., Advocate, urg- of Consumer et Office precedent. sion Faced with the claim that ing affirmance. rate order inconsistent with the Delaney, P. statutory Daniel John F. Povilaitis and responsibility Commission’s Hoffman, Pa., Harrisburg, provide F. just Charles were reasonable rates and curiae, Pennsylva- prohibition on the brief for against amicus the constitutional un- Com’n, Utility takings, Public affirm- urging compensated nia which, legal theory ance. briefs advance * (now Justice) Judge participate Scalia in this was a member decision. argued, Court at the time this case was but did court, adopted by rationale, would immunize vir- procedure intervenors’ that no tually type orders from this all rate could have been followed that would have challenge. theory The Commission’s flies guaranteed hearing sought. expla- every Supreme in the face of Court deci- place nation for what has taken in these subject, sion that addresses this and we are proceedings appears convoluted to be less reject it. bound to pro- Central followed incorrect cedures than that the Commission resists intervenors, Jersey customers of “end result” agency examination at the Central, quite advance different rationale level, deeply antagonistic and is to court affirming They the Commission. at- ratemaking review of guidelines under the tempt justify hearing denial of a by Hope. laid down argument Jersey with the Central fol- wrong procedures lowed the and therefore The decision of the Commission is vacat- opportunity lost the to have its substantive ed and the hearing case remanded for a Thus, said, claims heard. it is Jersey may finally Central have its fault, company’s Commission’s, claim addressed. hearing that no was held. reasoning provides That no basis for af- I. firming the Commission. It fails to come already prompted This case has opin two grips with the character of the Commis- court, ions from this both of which we have sion decision we review. That decision since Jersey vacated. See Central Power adjective does not rest on law. The Com- FERC, (D.C. Light & Co. v. 730 F.2d 816 mission fact reached and peremptorily Cir.1984) I”); (“Jersey Jersey decided the utility's merits of the claim. FERC, Light Central Power & Co. v. The substantive Natural issue Gas (D.C.Cir.1985) F.2d 1500 (“Jersey Central is, therefore, squarely before us and cannot II”). The case has now been reheard en by faulting be avoided for em- banc, and the court has had the benefit of ploying defective tactics. The Commission supplemental briefing argument and oral ruled allegations parties, intervenors, from the and sev proffered testimony support would not eral amici curiae.1 higher rate. That ruling substantive 31, 1982, Jersey On March Central filed hearing means that a would have been proposed rate schedules with the Commis- pointless. ruling is inconsistent with sion for wholesale service to six customers. Hope as well as controlling with other Central divided its precedent into two Supreme Court and of separate designated rate increases A court. Phase Reversal and remand for a gone and Phase B. Phase A required. into ef- thus fect, and B subject Phase is the of this Though the fact the Commission litigation. reached the merits renders irrelevant the procedural rationale, utility’s At issue is the proposed intervenors’ it should treat- procedural be noted ment of fault million $397 is to be investment lost assigned, suspended it should be laid at the when it Commis- construction of its nucle- doorstep. dealing generating River, sion’s ar station at Forked New filings, Central’s rate ap- Jersey. project Forked River was initi- plied arbitrarily. Moreover, unclear rules ated about a ago, decade and a half when plain, the Commission made contrary to the agencies federal and state encourag- were Supplemental by petitioner briefs were filed Regulatory al Association of Commissioners Light Company, by (“NARUC”), Central Power and Pennsylvania Office of Consum- FERC, respondent by Allegheny Advocate, intervenors er and the National Association of Cooperative, Electric Boroughs Inc. and the New Utility argu- State Consumer Advocates. Oral Butler, Lavallette, Pemberton, presented by parties ment was and inter- Heights, Seaside sylvania four amici: the Penn- venors, and NARUC. Commission, Utility Public the Nation- portion to commit substantial amounts seek a return on that utilities the unam- generating plants that capital to nuclear ortized investment allocable to its common required eight lead times of to twelve equity investors. prediction years. The consensus was of support proposal, Jersey of its steady in the de- substantial and increases submitted to the Commission the testimony electricity and mand for substantial Baldassari, of Dennis its Vice-President price in the of oil due continued increases and Treasurer. J.A. at 28-39. Baldassari operation of an international oil car- sought to demonstrate that the financial public Regulated utilities are under tel. problems by Jersey faced Central made obligations plan statutory and build the necessary earnings and revenues at the necessary projected facilities to meet the contemplated filing. level Baldassari See, e.g., needs of their customers. utility’s characterized the financial condi- (1982); 824a(g) U.S.C. N.J.Stat.Ann. § Testimony tion as “delicate.” of Dennis (West 1969). If 48:3-3 firms and house- Jersey Baldassari at J.A. at 36. Central catastrophic energy holds were not to face wholly dependent was for short-term cred- future, thought in essen- prices was it, explained, Revolving he on a Credit generating plants nuclear be tial that built. Agreement subject was to termi- parties agree Jersey All Central’s in- any nation at long-term time. The prudent at Forked River was vestment securities it was able to issue were them- when made. subject mandatory repurchase selves supply The forecasts of both demand and should the short-term credit then conservation, proved wrong. Due to de- available to it be for reason terminat- nearly expect- mand did not rise as much as Jersey standing was, ed. Central’s credit ed, and, collapse interna- therefore, predictably low. Standard & cartel, experienced the oil market has tional Corporation Poor’s rated its senior debt glut a world-wide and a dramatic decline in “BB-”, i.e., “regarded, securities on-bal- Furthermore, prices. protracted litiga- ance, predominantly speculative as with re- political controversy tion and which attend- spect to capacity pay repay interest and power ed the construction of nuclear principal in accordance with the terms of projects delays resulted extensive and obligation.” Moody’s Investors Service dramatic increases their ultimate cost. downgraded Jersey had also Central’s rat- Thus, many pru- investments which were “Ba”, ing, i.e., classifying its securities dent, essential, indeed considered when elements; “judged speculative to have their made, by necessity have now been can- future cannot considered as well-as- be one, celled. Forked River and protection sured. Often the of interest and it, having

Jersey Central abandoned con- moderate, principal payments may very be cluded “that it re- must devote whatever thereby safeguarded during and not well capital sources it had available to less ... good both and bad times over the future. politically acceptable intensive and more Uncertainty position characterizes bonds Testimony of Dennis Bal- alternatives.” in this class.” Id. at J.A. at 31. (“J.A.”) Appendix dassari at Joint at 34. Jersey long- Central’s lack of access to sought Jersey Central to recover the cost capital, precariousness term and the of its the Forked River investment amortiz- credit, placed short-term it in serious finan- fifteen-year million over a $397 difficulty. cial Baldassari described the period, proposal to which the Commission requested increase “the minimum agreed. Jersey requested, Central also necessary amount to restore the financial however, portions that the unamortized integrity Company thereby providing base, included the rate with a rate of Jersey the means which Central will be carrying return sufficient to cover the obligation provide able to meet its charges preferred on the debt and the safe portions dependable and service in the future.” stock of that unamortized invest- Jersey expressly Testimony ment. Central did not of Dennis Baldassari at J.A. it, testimony, supporting at 39. The focus of his there- the factual foundation could fore, necessary was on the overall rate argued be examined. Central preserve company’s capital his access to NEPCO did not control because the alloca- integrity. markets and its financial tion of risk in proposal from, was different and more favorable to responded by issuing The Commission than, proposed consumers the allocation summarily excluding order the unam rejected NEPCO. Central portion ortized of the investment from the argued as well that more recent Commis- Accepting Filing rate base. Order precedent sion on the treatment of aban- Rates, Suspending Granting Revised Inter doned gas pipeline investments in facilities ventions, Granting in Denying Part and provided support proposal. for its Finally, Summary Disposition, Part Motions for position Procedures, advanced a Establishing 19 F.E.R.C. (CCH) ¶ 61,208 28, 1982). became the central (May issue briefed and ar- No discus gued in analysis accompanied portion appeal. this It is sion axiomatic that simply the order. The Commission noted end result of Commission rate orders prece that “consistent with Commission “just must be and reasonable” to both con- dent investors, that, ... unamortized investment in can- sumers and in achiev- plants balance, celled must be excluded from rate ing this the Commission must con- 61,403 (footnote omitted). base.” Id. at impact sider the of its rate orders on the precedent to which the Commission integrity utility. referred England was New Power that, argued reasons, for these (CCH) ¶ 61,054 19, 1979), (July F.E.R.C. Commission not summarily exclude Municipal sub nom. NEPCO Rate an investment from the rate base when the aff'd FERC, (D.C.Cir. Comm. v. 668 F.2d 1327 utility alleged ability that its to attract 1981),cert. denied sub nom. New England capital seriously jeopardized will be as a FERC, Power Co. v. Jersey result. Central contended that (1982) (“NEP 73 L.Ed.2d 1329 hearing was entitled to a at which it would CO”). utility had NEPCO been opportunity prove have the to allega- its permitted to recover the costs its failed tions and demonstrate that the end result by amortizing investment it over a five- of the Commission’s orders violated the year period, request but was denied its to applicable statutory and constitutional portion include the unamortized in the rate standards, hearing that would create a base. through record which the Commission’s ef- fort to balance the relevant consumer proposal

NEPCO’s differed from that la- subject investor interests judi- would be to ter by Jersey made Central in several re- cial review. spects. requested NEPCO’s amortization period only long one-third as as that Alternatively, since Central’s con- proposed by Jersey Central; pro- NEPCO cern was with the end result of the rate posed a full return on the unamortized order, requested evidentiary hearing an investment, portion including justify which it could a rate of return to equity, opposed allocable common to higher than original included in its simply a return sufficient to cover the filing compensate for the rate base limi- carrying charges on preferred debt and agency tation that the claimed was necessi- n portions; stock alleged and NEPCO never precedent. tated Commission The rate integrity ability that its financial and (1) allowed a is the sum its cost of capital depend- maintain access to markets service, (2) multiplied by rate base upon requesting. ed the rate it was its rate of return. Since the Commission’s

Upon receiving order, the Commission’s order had excluded Forked River from the Application base, filed Central for Re- suggested Central 99-135, hearing, seeking J.A. at a full necessary evi- rate could be achieved dentiary hearing proposal, in which its through raising the rate of return.

H73 again grant path The Commission refused to in resolving we took this issue hearing. challenged by parties: was later both explained, cryptically: somewhat argues that, aas result of that, recognize We in accord with orders, the Commission’s its rate of re- supra, it is Natural Gas turn overall will be too low be charac- just “end result” which must and rea- be “just terized as and reasonable.” In de- Nonetheless, sonable. the reasonable- nying rehearing, however, the Commis- ness of that end result cannot be evaluat- responded sion that “the reasonableness regard ed without the individual com- of that end result cannot be evaluated rate____ ponents comprise which regard without to the individual compo- argument ... JCP & L’s that our deci- nents comprise a rate.” Commis- project sion to exclude cancelled costs 61,181. sion Order at This is a rather from rate is not base mandated Com- explanation terse and we wish that in the precedent mission is ... without merit. future the Commission would share its Furthermore, argument that a hear- expertise undoubted with us a bit more required implement in order to generously. We understand the Com- determination, policy is erroneous. Since however, mission to saying, be that the Opinion No. the Commission has con- judged end result is the rate of sistently through resolved this issue return allowed on items for which a rate summary disposition. allowable, of return is the Forked River Granting in Denying Order Part and expenditure item, is not such an and the Application Rehearing, Part 20 F.E. just rates are and reasonable as to those (CCH) ¶ 61,083, 61,181-82 (July R.C. properly cost items that are in the rate 1982) (footnote omitted). The Commission dispute base. The thus boils down to the request then denied the for a question of whether the end result test is proposal higher the alternative of a rate of applied to be to a overall or return, grounds modifying on the those assets which valid Commission stage unfairly present at that permit rules to be included in the rate the Commission and the intervenors with a base. “moving and, further, target,” Jersey I, Having 730 F.2d at 823. Central’s “case-in-chief no testi contain[ed] dispute, accepted thus defined the we what mony support or exhibits which would thought position we to be the Commission’s 61,182. higher return.” Id. at When the ap- and concluded that the end result test denied Appli Commission plied only “to those assets which valid Rehearing cation for and Reconsideration permit Commission rules to be included in well, appeal this was filed. the rate base.” panel A unanimous of this court affirmed petition rehearing for before this the Commission. The claimed that court, Jersey Central stated that we had prod- the Commission’sorders not the were mischaracterized the “end result” test decisionmaking uct of reasoned because focusing not on the result of the rate order they gas pipe- were inconsistent with the base, but on the determination of the rate application line cases and because only component which is one of that order. precedent NEPCO to the facts of this case response, asked the We Commission for a was irrational. The also claimed provided incomprehen- and it one we found evidentiary that it was entitled to an hear- sible: justify in which it could its alternative In the Commission’s char- view Court request higher for a rate of return. All acterized the “end result” test more nar- rejected. these claims were We then have; rowly than the turned to Commission would Central’s contention that and, required accordingly, there it it Natural Gas be a believes would be hearing appropriate to ensure that the “end result” of for the Court to amend this “just aspect Nevertheless, the rate order opinion. and reasonable.” of its properly Commission believes the Court response This meant that the “end re- affirmed the Commission’s orders applied sult” test to the overall situation case, since it is well-settled that the end- produced by the Commission’s action but only application result test to items that the Commission not refused to legitimately which are included in the hold a subject on that but also base as “used useful.” believed its virtually refusal to be immune Response Respondent judicial FERC to Petition Finding review. no support Rehearing response at 2. Since this arresting proposition for the that the Com- reject accept seemed both to our rea- mission was immune from challenges in soning, the Commission had still not of- court alleged over rate orders to violate any guidance fered us as to how it con- statutory guarantees constitutional ex- Hope’s strued result” “end test. Dissat- plicated by Supreme Court, panel— isfied, the court a further entered order now prior divided—vacated its decision. read, pertinent part: alleged Central had that “for four direct the Commission to elaborate [W]e years had been pay any unable to divi- [it] that, cryptic on its comment “[i]n stock”; dends on its part common that in Commission’s view the Court character- consequence as a of the Commission’s or- ized the ‘end result’ test narrowly more ders it “repeatedly had been edge on the have; and, than the Commission would being forced bankruptcy”; into and that accordingly, it appro- believes would be since 1979 it priate for the aspect Court to amend this has had no long-term access to the capi- opinion.” Response of its at 2. This tal wholly markets and has been depend- unhelpful. statement is The Commission upon ent a short-term revolving credit explain should why how and it believes agreement subject which was to termi- opinion that the should be amended. We nation at a moment’s notice. com- [The therefore order that the pro- pany] has been allowed sufficient cash explanation vide further position of its flow to enable bankruptcy avoid [it] the brief today we have directed it to file. (but provide not to earnings [sufficient] Throughout proceedings these the court capital enable to attract or main- [it] has found the Commission’s submissions credit). tain singularly terse and uninformative. Petition for Rehearing Suggestion July Order of 1984. The Commission Hearing En Banc at 14. Since the Commis- filed response a second in which it now hearing, sion had never held a there was no agreed Central that the end way knowing allegations whether these result only apply test does not to those true, were were, but we noted if they assets which permit valid Commission rules suggest “would that FERC’s actions to be included in the rate base. Brief for illegal were under the end result test of Respondent Response FERC in Hope Gas,” II, Natural Jersey Central 16, 1984, Court’s July Order of at 4. The 1502, 768 F.2d at because response second described the “end result” might well have failed to “simply test as achieve “a reason- expression an broadly balancing able gauging whether, investor and on consumer based all the facts it, keeping interests in requirement before Commission’s orders in a ‘reasonable, that particular just, rates be produce case a reasonable re- non-dis- ” criminatory.’ sult.” Id. at 5. The Id. at 1503. We therefore neverthe- suggested less that the end remanded the case to the result test was Commission for a not a standard under which at which a court was Central would authorized unjust opportunity to set aside an have the present end re- its evi- sult, designed but rather “was dence on the inadequacy accord of the rates al- the Commission broad discretion over all lowed it. Central II was vacated aspects rate-making methodology.” when majority Id. of the court voted to re- at 6. hear this case en banc.

1175 Hope Natural Gas reaffirmed a doctri II. shift, begun in FPC v. Natural Gas nal A. Co., Pipeline 575, 736, 315 U.S. 62 S.Ct. 86 radically differing parties The offer (1942), L.Ed. away 1037 from the more obligations of the Commission’s un- views exacting judicial and detailed standard of Gas, a decision in Hope Natural der Ames, by Smyth exemplified v. review 169 Supreme applicable set Court forth 466, 418, (1898). U.S. 185 S.Ct. 42 L.Ed. 819 judicial rates standard of review when or- Ames, Under Smyth v. courts had metic agency challenged dered court ulously scrutinized rate orders to ensure failing statutory require- as to meet that investors received the “fair value” of they “just ment that be and reasonable.” property public dedicated to use. The Hope construing the Natu- Court was “fair required value” standard courts to 1938, 4(a), 5(a), 52 ral Gas Act of Stat. §§ estimate the current market value of the 821, (codified 822, 823-24 as amended at 15 property, provided and rates that anything 717c(a), 717d(a) (1982)). The Fed- U.S.C. §§ confiscatory. less were deemed gov Act, 824d(a) (1982), 16 eral Power U.S.C. § erning theory required pay that consumers case, the source of the claim this also the market value of property they were requires “just rates be reason- using because the property regarded was able,” rely interchangeably and courts on having as been Recovery taken. construing cases each of these Acts when required only property therefore “used Arkansas Louisi- interpreting other. public, and useful” to the property Hall, 571, 7, ana Gas Co. v. 577 n. 453 U.S. being was not used could not be considered 2925, 7, 101 2930 n. L.Ed.2d S.Ct. Supreme to have been taken. The Court (1981). previously had in- Since Court cases require 1940’s eliminated the Congressional dicated that “the standard ment that the market of the property value prescribed by this statute coincides with recovered, regulated industries now Constitution,” FPC v. Natural generate collect rates calculated to a rea Pipeline Gas original cost sonable return on the 736, 743, (1942), 86 L.Ed. 1037 companies gener investment. are still point test defines at which a rate ally permitted to include the rate base unconstitutionally confiscatory becomes useful, only property considered used and well. value,” the demise of but with “fair “used proceedings In these the Commission it- and useful” ceased to have constitu self has never stated what the “end result” significance, tional and the Commission has Natural Gas requires test of of it or departed at times from this standard. It is I reviewing of a court. simply permissible one of now several tools II, appellate the Commission’s counsel be, ratemaking, one that need not and is vague offered us statements of not, employed every instance. already quoted. the Commission’s duties Baker, Washington Light Gas Co. v. reviewing power As to the court’s under denied, (D.C.Cir.1950), cert. F.2d 11 Hope, panel pro- counsel told the in those 71 S.Ct. 95 L.Ed. 686 ceedings essentially reviewing setting rigorous judicial aside the little, any, perform. court had function to scrutiny previously that had characterized However, argument at oral before the orders, Supreme review of rate Court banc, court en finally counsel advanced the substituted a far more deferential standard proposition novel that the “end result” test of review: empowers a court to set a rate aside order utility’s petition only given, prop- on the if the order Once a fair has been bankruptcy. findings In put statutory would into er made and other re- satisfied, dramatically quirements order show how courts cannot odds is, position with the law that we review the intervene the absence of a clear show- history ing process of the doctrine at issue. limits of due 1176 overstepped. findings If the Commission’s

been detailed made order, applied to the facts before it concerning the Hope financial condition of entirety, produces in its and reviewed 603-05, Company. Natural Gas 320 U.S. at result, inquiry arbitrary our is at an end. examining 64 S.Ct. 288-89. After all of the figures, relevant the Commission had con- Pipeline FPC v. Natural Gas company’s cluded that efficient 586, “[t]he empha- 62 at 743. This new S.Ct. management, markets, established finan- the order sis—on whether “viewed record, affiliations, cial prospective and its product “proper entirety” was the find- place strong position business it in a ings” “arbitrary” and was not —evolved capital upon attract favorable terms when years later into the “end result” two test of required.” (N.S.) 1, it is 44 P.U.R. Hope Natural Gas. (1942), 605, quoted Hope, 320 U.S. at Hope Court made clear that when a at 289. summarizing After the Com- beyond “just rate was claimed to be findings mission’s and conclusions concern- boundaries, analy- reasonable” the focus of company’s health, financial sis the end result of was that order: Court held: the result reached is not the method [I]t In view of these various considerations employed controlling____ It is say we cannot that an annual return of theory impact but the of the rate $2,191,314 “just is not and reasonable” counts. If order which the total effect of meaning within the of the Act. Rates unjust the rate order cannot be said to be company which enable the operate unreasonable, judicial inquiry under end____ successfully, to maintain its in- the Act is at an And he who tegrity, capital, to attract compen- and to upset the rate order under the Act sate its investors for the risks assumed heavy making carries the burden certainly invalid, cannot be condemned as convincing showing that it is invalid be- though they might produce even only a unjust cause it is and unreasonable in its meager return on the so-called “fair consequences. val- ue” rate base. 602, (citations 320 U.S. at 64 S.Ct. at 287 omitted). Judging 605, a rate 320 U.S. at order’s conse- S.Ct. at 289. held, quences, the necessarily Court re- Gas, Natural the rate was chal quired “balancing of the investor and the lenged as too adequately low to account consumer interests.” Id. at 645 S.Ct. legitimate interests of the investor. legitimate interest, at 288. The investor Baker, Washington Light Gas Co. v. which is the interest Central claims (D.C.Cir.1950), denied, F.2d 11 cert. inadequate received pro- attention in the (1951), 71 S.Ct. 95 L.Ed. 686 ceedings Commission, before the de- challenge by this court heard a a consumer in Hope fined to include: who claimed that a rate approved increase integrity the financial by the Public Utilities Commission of the being regulated. whose rates are From District of high Columbia was too to ac company point the investor or of view it adequately legitimate count for the inter important enough that there be reve- purchaser. ests of the applied The court operating expenses nue not but analytical the same framework. Because capital also for the costs of the business. public the local utilities commission was These include service on the debt and governed by the same standard as the Fed dividends on the stock. Commission, eral Power 188 F.2d at return, therefore, Id. The “should be suf- Judge opinion Bazelon’s examined the rate ficient to assure confidence in the financial order under the rule set forth in integrity enterprise, so as to main- Natural Gas: tain its capital.” credit and to attract Id. long i.e., public So as the interest — Thus, reviewing the rate order chal- of investors and consumers—is safe- lenged Hope, guarded, Court considered the it seems that the Commission own standards. But the Court reviewed Commission orders set-

may formulate its statutory gas ting producers. limits inherent in the area-wide rates for there are “reasonable, just, Writing that rates be majority, mandate for the Justice Harlan Among nondiseriminatory.” those reviewing and stated that court rate orders requirements for the minimal limits are itself that “each of the must assure both investors outlined protection of supported by essential elements is order’s cases, And from the earliest Hope case. evidence” and that “the order substantial regulation public utility the end of reasonably expected to maintain protection of con- recognized to be been integrity, necessary capi- attract Thus, from exorbitant rates. sumers tal, fairly compensate and investors for the of reasonableness within there is a zone assumed, they yet provide risks and may properly fall. It rates appropriate protection pub- to the relevant by the investor inter- at one end bounded interests, existing lic and foreseea- both against confiscation and at the other est 792, ble.” Id. at 88 S.Ct. at 1373. In against interest exorbi- by the consumer examining order, the end result of the rate tant rates. clear, simply he made a court affirm cannot (footnotes omitted). The court at 15 Id. component each of the decisions of because the rate order and remanded then set aside order, isolation, permissi- taken in ground proceedings, on for further ble; they it must be the case “that do not sufficiently made had not together produce arbitrary or unreasonable concerning fi- findings of fact detailed consequences.” Id. at 88 S.Ct. at 1377 of the involved to nancial health added). (emphasis Court Permian in- of its rate support the reasonableness emphasized necessity for Com- Basin limits allowed “Despite crease. the broad findings, the mission existence which is Commission, imperative that it remains necessary predicate judicial deference: findings, under whatever formula responsibility sup- The court’s is not to adopted, upon substantial evi- be based plant the Commission’s balance these (footnote in the record.” Id. omit- dence nearly one to its interests with more ted). case, In that this court also indicated liking, instead to assure itself that but obligated was not given con- the Commission has reasoned property all exclude from the rate base pertinent to each of sideration useful,” presently but was free “used factors. Judicial review Commis- prudent but cancelled invest- to include orders therefore function accu- sion’s will ments. Id. at 19. efficaciously if rately the Com- Supreme repeatedly Court has re- carefully fully indicates mission affirmed the “end result” standard which, purposes and the methods See, Memphis e.g., Natural FPC v. Gas. act, which, it has chosen to as well as its Division, 411 Light, U.S. Gas & Water consequences assessment of the 458, 474, 1723, 1732, 36 L.Ed.2d 93 S.Ct. future de- orders for the character and (1973)(“under rates Natural Gas velopment industry. only if consumer ‘just and reasonable’ 792, 88 at 1373. And the Court Id. at protected interests are the financial findings again reviewed the below and once sys- pipeline health of the our economic upon concluding that “the record affirmed strong”); tem remains Colorado Interstate contained evidence before the Commission FPC, 581, 605, 65 S.Ct. Gas Co. v. rates, that these sufficient to establish (1945)(“end 829, 840, result” 89 L.Ed. 1206 industry’s credit adjusted, will maintain the vague and devoid test “is not a standard so Id, capital.” and continue to attract judicial meaning as to render review 88 S.Ct. at 1383. perfunctory process. It is a standard teaching facts.”). of these cases resting on finance stubborn reviewing order Cases, straightforward. a rate Area Rate Permian Basin (1968), or not the courts must determine whether 20 L.Ed.2d 312 88 S.Ct. order constitutes a rea- end result of that vice on the debt and dividends on the balancing, based on factual find- stock.” sonable 320 U.S. at 64 S.Ct. at 288. maintaining ings, of the interest investor Permian reaffirmed that Basin the re- integrity capital and access to viewing financial court “must determine” whether being markets and the consumer interest may Commission’s rate order reason- Moreover, charged non-exploitative rates. ably expected to “maintain in- financial justified simply by an order cannot be tegrity” necessary capital.” and “attract showing underly- of the choices that each 88 S.Ct. at 1373. reasonable; ing it was those choices must alleged paid it had no divi- up result. Be- still add to a reasonable dends years on its common stock for four language cause the of these cases is so prolonged and faced a further inability plain, applied and the standard in each is pay such dividends. Baldassari’s testimo- same, preceding lengthy account ny explained company that the was unable appeared unduly repetitious. securities; to sell senior only its guiding precedent compre- set out We have capital source of external was the Revolv- however, hensively, legal posi- because the Agreement, Credit subject which was by tion taken is at odds placed to termination and which the out- every requirements speci- one of the standing bank loans the was al- by fied these decisions. lowed maintain below the level neces- sary upcoming year; for the that the need Hope challenge, the face of a serious pay company’s interest on the debt and findings, per- Commission made no preferred dividends stock balancing, meant that formed no offered no reasoned equity common only investors not were allega- consideration of Central’s return, earning a zero but were also proffered testimony, tions and forced misstated pay by saying these interest costs and law that the reasonableness dividends and that “continued the end result cannot confiscation of earn- be evaluated with- ings regard equity out from the common components individual holder ... rate, go and, prolong recently, Company’s inability into most will to re- reviewing claimed that our recognized function was store itself to a level of credit worthiness”; ended if the rate order did not cast “inability that its to realize bankruptcy. Central into fully operating capital and costs so as to provide a fair rate of return on its invested performance This justify alone would re- capital pushed capability its financial versal and a Hope hearing. remand for a limits”; “[ajdequate prompt But there was more: necessary relief is in order to maintain the reached the merits and ruled that service”; past high quality of and that the allegations testimony Central’s did not requested rate increase was “the minimum Hope even raise a plain issue. That was necessary integrity to restore the financial legal error. Company.” Testimony of Dennis 5-6, 7, 10, 12, 32-33, Baldassari at J.A. at B. 34, 37, 39. allegations by Jersey made testimony and the Inexplicably, it offered track the Commission ruled that the standards of Hope and showing Permian Basin require did not exactly. Court stated that the there testimony because were “no ought return to be “sufficient to ensure support higher or exhibits which would confidence integrity ruling return.” flatly That at odds with enterprise, so as Moreover, to maintain its credit and Permian Basin. capital,” to attract important Commission, and that “it is having hearing, held no made enough that there be findings revenue not in support ruling of its operating expenses capital gave but also for the single not a reason If for it. costs of the business. These include ser- Commission and this court are bound are, by eliminating precedent, defining review but

Supreme and we Court cannot stand. its reach. The delineation marked ukase Commission’s simultaneously “end result” test thus au- ap- thorizes and constrains the courts that C. elementary ply jurisprudence. it. This is apparent under- The Commission’s apparently The Commission also locates Gas, adopted by standing of Natural support language Hope: set forth in “If II, is that the the dissent Central the total effect of the rate order cannot be limitation “end result” test acts as a unreasonable, judicial unjust said to be for, of, an and not at all as authorization inquiry Hope, under the Act is at an end.” of rate orders. While the judicial review 602, 64 320 U.S. at S.Ct. 288. See also “may also look to the criteria Commission II, (Mikva, 768 F.2d at 1511 determining rate Hope in whether its J., dissenting). litigat- The Commission’s make just is and reasonable and order appears interpret stance the Court’s per- adjustments based on pragmatic statement as if it were but one half of a and con- need to balance investor ceived larger proposition the Court meant to enun- interests,” Rehearing En Brief on sumer judicial ciate: is at end if review either (empha- Respondent for FERC at Banc just the end result is and reasonable or if it added), apparently considers a deci- sis it any thing, is not. Had he meant such completely or not to do so sion whether Douglas simply Justice would have said While the Commis- within its discretion. judicial that there is no more In- review. explicitly claimed sion’s briefs have never stead, he upset said that “he who would authority to set that courts without the rate order under the Act carries the unjust unrea- rate orders deemed aside making heavy convincing burden of consequences, in their sonable based showing it that it is invalid because is un- point in upon findings, insufficient at no just consequences.” in its unreasonable requests response to our numerous Hope, 320 U.S. at 64 S.Ct. at 288 briefing any has the Commission indicated added). (emphasis He then went on to proper play role it believes courts to compa- review the financial situation reviewing the reasonableness of rate or- ny, an exercise that would have been whol- ders, passively affirming save that them. ly superfluous just if he had announced the argument Only at oral before the en banc contrary judicial If the demise review. court Commission counsel concede that did apparently embraced the Commis- view might set order under a court aside rate adopted, the end result standard sion were company if the order would drive the vague “so and devoid of would become bankruptcy, into but that was the limit of meaning judicial per- as to render review judicial power acknowledged. functory process.” Colorado Interstate posi- rationale for Commission’s FPC, 581, 605, Co. v. Gas discern, for, is difficult to as noted in tion 829, 840, 89 L.Ed. 1206 IIA, position supra, Section can derive maintains that because support purports from the case law it The Commission no Commission, excluding portion of a can- embody. appears, it the unamortized plant celled investment from the base theory part rests its on the fact upheld permissible, represented previously had been Hope Natural a shift Gas review, judicial any rate order that rests on such a decision from strict to deferential and, unimpeachable. But that would turn our in the historical context in it decided, ju- from the end result to the method- constituted a limitation on focus was ology, question whether the compared to the stan- and evade dicial review when review, together produce just component decisions replacing. judicial But dard was eliminated, limited, consequences. reasonable We would and the while made in with the assertion result” standard —like standard be back “end end result test is to be judicial power I that “the judicial review—confines applied only to those assets which overall project ... valid return allowed on this is not permit reasonable, Commission rules included in puts to be and thus protection the rate base.” 730 F.2d at 823. need of phase That at this party one ratemaking statement was which neither en- at 1205- process. Dissent The fact dorsed. It was incorrect. that a dissent It is remarkable particular ratemaking generally legal standard affirm the on a Commission permissible legitimate per theory does not se that neither the nor produces. end result of the rate orders counsel ever advanced. The Commission just legal Justice Harlan said offered theory Permian and counsel offered unique Basin. bankruptcy-only theory. It is impossible to affirm on the basis presented on position behalf of Commission’ssilence or counsel’s rationale. Commission, observed, as we earlier equally impossible It should to suggest during shifted to minor a extent course legal theory affirmance on the basis of a proceedings. argument of these At oral Indeed, never until today. surfaced court, before the for en banc counsel only correspondence between the three dif- Commission indicated that the “end result” positions Commission, ferent taken test a aside did allow court to set a rate counsel, dissent, its aside from order company when the would otherwise hostility their Hope, common to is that go bankrupt and the Commission had re any none of any them has basis in decision fused to take that into account. The any previous court. The dissent's new source of this constricted standard is elu three-part flatly ignores barrier the factors sive, say Hope not to invisible. Natural that, according Supreme Court’s con- Gas talks not of an in avoiding interest trolling opinion Hope, would necessitate bankruptcy, an maintaining but interest hearing “end result” any into whether markets, capital ability access to pay necessary revision of order is in light a rate dividends, general integrity. financial company’s of a plight. financial Since Jer- go While companies bankrupt about sey figures Central submitted testimo- certainly see such interests threat ny support its claim rate that the order ened, companies imminently imperiled less distress, caused pro- its financial will sometimes be able to make that claim posed exploit consumers, rates would not as well. alleges Central that it is and that the overall rate of return allowed such company. a The contention that no reasonable, is just not can only one company is clearly headed for suppose proof the dissent demands bankruptcy judicially has a enforceable beyond of its doubt three criteria before right to have its financial status considered That, hearing is even held. most cer- when its rates are determined must be tainly, Hope requires. is not what rejected. joins dissent thus in reject- agrees The dissent with the Commission ing Supreme Court’s law. that Hope generally stands restriction judicial order, on review of a prohibiting rate but In addition to rates so erects its own constricted standard to de- low as confiscatory, holding to be a company may termine when obtain con- exploi Natural Gas makes clear that sideration of its illegal financial status tative review rates are as If well. dissent, of a According rate order. property currently inclusion of used get Hope could and useful in automatically the rate base only by making showing consumers, first a sufficient exploitation constituted as points: maintains, three critical “critical one of the amici then the Com nexus” exists between the rate order justified excluding and mission would be the utility’s plight; pro- that the property summarily such even cases posed pleads would not lead to where acute financial dis exploitation consumers; regulated utility and that tress. A has no constitu- case, exploit or whether consumers in this v. Natural profit, see FPC right to a

tional exclusion, case, on the at 62 S.Ct. 315 U.S. Pipeline Gas facts of confiscation, findings of for no that is unable constitutes and a concerning made the conse- charging exploitative rates fact have been without survive Nor, for the quences such rates. Market of the rate order.3 has no entitlement Cal., reason, judgment can we make a v. Railroad Comm’n same Ry. Street higher 89 L.Ed. return the 65 S.Ct. about the rate of in- already held that sought an alternative to inclusion But we have in the rate cluding prudent investments of its unamortized investment. rate base exploitative, allegations of itself presented not in and has is base Baker, and Light true, v. which, suggest Gas Co. order Washington that the rate River that the Forked party require- has denied certainly does not meet the almost Indeed, when the prudent. Gas, investment was the com- Natural ments to earn a permitted regulated company long-term shut off pany been prop- value of the on the market return not for short-term capital, wholly dependent public, Smyth see v. by the erty used arrangement revolving capital on credit original cost of the Ames, on the rather time, but and has that can be cancelled investment, prudent investments placing pay dividends for four been unable a more sensible seem base would the rate addition, Jersey points years. and application of “used a strict policy than proposed filing in its the rates out that approach it is the useful,” under this neighbor- those of remain lower than would used, investment, property and not utilities, see, Rehear- e.g., Petition for by having taken as been is viewed Suggestion Hearing En Banc at ing and described interest public. The investor though suggests, least it does which at all, in return is an interest Hope, after demonstrate, proposed that the rates not Hope, 320 U.S. on investment. The Com- exploit consumers. would not at 288.2 allegations irrele- those as mission treated presented us with no and hence has vant however, is is this: it point, The central to affirm its rate order. on which basis say juncture at this for us to impossible findings simply not necessary portion including the unamortized whether to review. When the Commis- there for us rate in the base of Forked River possibility is a under which there by circumstance been reminded 2. We have by taking property virtue of ought investors’ of a of the amici that utilities and several utility regulation is in the sort of is when a play rate free of market from the be immunized Douglas’ difficulty in Justice described application principle is financial of this forces. Their state, utility opinion. that the Commis- If a is in oil peculiarly Had the international selective. re- inquire a reasonable pro- must whether collapsed, River sion and had Forked cartel not investment, been not on facilities—has energy turn —on unusually inexpensive in a time of vided investors, taking demand, into account afforded to scarcity high Central would and windfall, any higher would amount return simply whether but the stan- have received cir- exploitation Under those of consumers. original It seems investment. dard return on its odd, cumstances, may permissible prop- therefore, or even dispropor- be it must bear so that greater grant return on its prudent a er to loss when the a share of the tionate otherwise would statutory prudent than it pursuant investments to its it made investment deep sort of But absent have received. obligations fails. Hope, hardship there is described in financial obligation compen- taking, hence no no sate, and that a emphasize we do not hold We that prudent has just investment because prudent taking every investment occurs time even produced no return. And and failed We rate base. not included is made but hardship deep de- where the sort reject contention explicitly the dissent’s thus present, is entitled scribed in is guaran- holding is investor that under our “the hearing, is not only to an "end result” investment, prudent if his teed a return on greater return on its investments entitled 1212. Whether or when made." Dissent at hearing both that the it shows at the unless approach might as a matter be desired such an higher return and that was unreasonable Hope. holding simply Un- policy, follows our exploit consumers. would not repeatedly, Hope, as we have stated der requisite balancing sion conducts that advanced the Commission. interests, consumer and investor based urge Intervenors that we affirm the Com- upon findings, balancing factual that will ground mission on the sole that judicially reviewable will be af- wrong Central made the filing. The dis- supported firmed substantial evi- agrees. sent point dence. That is the at which defer- argument made the dissent and agency expertise ence to appropri- will be purely procedural. intervenors They where, here, necessary. ate and But assert that the Commission has a “rule” reached its determination against including the portion unamortized by flatly refusing to consider a factor of an abandoned investment in the rate undeniably required give which it base; that “ignored” weight, some its decision cannot stand. “rule” when it filing; made its Park, Citizens to Preserve Overton Inc. v. Central could have “received what it want- Volpe, 402, 416, 814, 823, 91 S.Ct. i.e., hearing before the Commission ed” — (1971).4 28 L.Ed.2d 136 The case should on its claim —had it filed instead a therefore be remanded to the Commission request higher for a rate of return or a for a at which the Commission can shorter period; amortization those fil- determine whether the rate order it issued ings, in made, contrast to the actually constituted a balancing reasonable would have been consistent with Commis- Supreme designat- interests Court has rules; sion Central has setting ed as just of a relevant therefore forfeited might whatever claim it reasonable rate.5 rate, had higher and, to a accordingly, summary ought dismissal to be

III. affirmed. Supplementary Brief Submitted intervenors, Allegheny Electric Co- by 9-11, Intervenors 14-15. operative boroughs and four of New Jer- sey, purchasers all of energy Jersey procedural from rationale, This it is worth not- Central, present argument ing, different was by never advanced the Commis- 4. This case thus raises completely Pennsylvania different ought is- court has said to be Pennsylvania sues from those weighed. decided in Elec. Pennsylvania Comm’n, Co. v. Pub. Util. 509 Pa. (1985). argues 5. inappropriate The dissent appeal 502 A.2d 130 that it is The that involving use decision was calculations dismissed for want the rate base to ad- of a substantial question. Co., problems dress Pennsylvania federal the financial suffered Elec. as utili- case, public utility in this ties. commission ordered Dissent at 1203-1204. But we do not hold adjust costs associated that the with an abandoned Commission nuclear must the rate base plant participating any excluded from the or ment, it compa- specific adjust- that must make form of However, nies’ rate compa- any adjustment bases. when those or even only at all. It is complaints alleging nies filed required hearing that the rates were to hold the "end result" dis- just seeking and reasonable Hope. and tariffs hearing cussed in After the it be increases, they given hearing were adjustments and a rate determined that be need to made to although large they order, not as a one as express Central rate but we increase— had requested. precise any view as to the manner in which adjustments made, such would have to be They so appealed. Pennsylvania therefore The long as satisfactory. whatever is affirmed, done is Supreme On a holding Hope Court Nat- front, different speculates the dissent that the require ural Gas did not that rates be set at may only Commission’s actions affect a guarantee levels minor integ- sufficient to the financial business, portion rity Central’s and that it "irrespective of a countervailing wrong interests,” would be grant for the Commission to consumer and that the investor inter- utility’s full relief for all weighed prob- balancing ests are "factors to be in the not, lems. analysis selves, Dissent at Hope, they under 1206-07. We but of course do in them- require controlling, Commission to take such broad other factors must be steps; only require Pennsylvania hearing taken into we it account.” to hold the Elec. mandated any 502 A.2d at and to consider whether has been adjustments, hearing, Metropolitan perhaps partial afforded no son, adjustments, unlike even Edi- ig- light and the Commission in this should be made case has of the factors discussed nored, balanced, rather than Hope. the factors that the review, facility. not at Salem The in the orders NEPCO’s Harbor Com-

sion: not under issues, this mission was faced with a number of hearing panel of original before a length peri- such as the of the amortization peti- court, response first not in its percentage od and the of costs rehearing, re- not in its second tion for permitted be to amortize. It would was the en sponse, not in its submission question faced with the of whether the also Moreover, that the point court. banc portion of those costs unamortized should to make and the seek dissent intervenors included in the rate The base. Commis- perceived of this case was not pivot simply quot- question by sion resolved that or first decision panel in its unanimous from, indicating agreement in the majority the dissent either the with, findings of the Administrative point was not panel’s decision. The second Judge, concluded Law who had rehearing granted en banc. the reason we precedent, “[tjhere jus- is no or reasonable entirely rehear the done That was proceeding, in the record this tification argu- procedural issue. “end result” require ratepayers pay a return on an stage. only raised at the en banc ment was expenditure pro- that has not resulted histo- aspect entire the oddest of this But plant ductive that is used or useful said ry the Commission has never is that NEPCO, (CCH) F.E.R.C. public service.” say: the intervenors and the dissent what 61,175 added). (emphasis Commis- hear- have had a Central could application had decided sion Hope “end test ing on the result” case, principle in that used and useful procedure. followed some other had presented, the basis of the facts relied on fact that the Commission never balancing compet- reasonable yield a enough might argument be reason not, It ing interests. was inter- And, event, it. because reject states, suggest and the dissent es- venors did rule that tablishing rigid rule. proffer inadequate, commit- and thus was challenged NEPCO the Commis When strictly under it is not legal Hope, ted error court, decision before this sion’s procedural necessary that we discuss the Municipal unsuccessful. NEPCO Rate and the point. The merits reached were (D.C.Cir. FERC, v. 668 F.2d Comm. wrongly dispatched without claims were England 1981), nom. New cert. denied sub any provision of “end result” FERC, 457 U.S. Co. v. Power Nonetheless, even required by Hope. 2928, 73 NEP- L.Ed.2d though makes no to the ulti- it difference application of the argued any that used CO case, of we think mate resolution this principle that led to denial useful procedural contention is well to show prudently-invested capital on return of a wrong. The intervenors’ characterization confiscatory. unconstitutionally We was interpretation utility's and its accepted argument, and that rejected that do procedures of the available Commission in its by the brief: advanced Commission analysis. not withstand Case, This “In The Circumstances Of Correctly Utility Allowed Commission A. Profit) (But For Costs No Can- To Recover as dissent Facilities,” Respondent The intervenors and the Brief for celled requesting Subheading 2) in treatment (Argument sert that rate-base I.B. FERC at portion costs of added). of the that for the unamortized did not hold (emphasis We plant, Jersey upheld violated cancelled in would be struck NEPCO balance proceeding established future to which was the “rule” was, however, sug regardless no the facts involved. applied, There NEPCO. hold, Instead, to gestion simply declined as in that case that the Commission we to a establishing any urged by utility, rule. that failure allow ironclad was capital prudently-invested was proceeding proper on subject that was the return unconstitutional, and we affirmed generating per a unit se treatment of cancelled employ weight prior the Commission’s decision such proceeding to a was re- finding principle, “used manded, and useful” that because compelling had NEPCO “set forth rea rudimentary a prerequisite to such an approach son for departing that application is that the composi- factual NEPCO, (em this case." F.2d at 1335 tion of the principle case which the added). phasis being applied something bear more than subsequent proceedings, a similarity at least four modicum of to the case from on principle the Commission relied NEPCO in sum- derives. This is not marily excluding the unamortized costs of patterns to say that factual must vir- plants cancelled from the rate base. While tually for principle control, identical a intervenors overstate matter point but rather there is a that where the referring precedent as NEPCO a patterns per are so diverse that a se rule, say application it is fair to of the application principle, of the without at precedent to routine cases like those was recognition least and accommodation of becoming practice. Jersey Central’s fil- distinctions, brings factual ques- into however, ing, anything but routine. It rationality tion the application. allegations presented suggesting material importance Id. Given the utility’s differences between its situation and those balancing condition to the re- presented line of NEPCO cases. quired Commission, Cen- First, the amount the loss was on an willingness accept tral’s smaller reve- entirely different scale. The Commission higher order earnings nues in to record so applied had never NEPCO to a loss at the integrity, to maintain that Jersey Cen- magnitude nearly order of million. $400 thought, do, tral must have as we that it (Ohio (CCH) Edison 18 F.E.R.C. presented allegations had required 1161,010(Jan. 8, 1982), example, in- examination, summary reasoned dis- $773,146.) Second, volved a loss of in none missal in precedent reliance dealing previous petitioner cases had vastly different facts. suggested facing that it was financial dis- Pipeline Co., Trailblazer 18 F.E.R.C. threatening tress of the sort Jersey Cen- (CCH) 1161,244(Mar. 12, 1982), presented Third, tral. filing pro- Jersey Central with some additional posed an period amortization three times grounds believing longer than established A NEPCO. a more approach. take flexible longer period amortization strikes a bal- procedural posture While the was differ- ance ratepayers, more favorable to and Jer- filing, ent—this was not a rate pro- but a sey Central was apparently willing to ac- brought ceeding to obtain Commission cer- cept lower in exchange revenues for the higher operate gas tification construct and earnings recorded which would have pipeline accompanied Commission discussed in its rate-base treatment of the —the opinion plant, cancelled what rate since it needed treatment would be ac- to record earnings regain gas projects in order to corded its access to the the event of aban- capital markets. prudent, donment. When conventionally-fi- projects cancelled, nanced were the Com- These factual distinguishing differences mission indicated that company the would NEPCO the case before us are sub- be able to recover debt service and a return In Michigan stantial. Pipe Wisconsin of, on, equity portion but not the FPC, v. (D.C.Cir. Line Co. F.2d 61,502-03. at investment. Id. The Com- 1975), explained we that “the Commission explained in mission a footnote: precedential, attach and even control- ling weight principles to The is developed companies rationale that while in one proceeding and apply then them should be able to ap- under recover the amount of propriate circumstances in a their in projects, stare decisis investment failed they case, manner.” Id. at 89. In profit that how- should not be allowed to from their ever, the Commission’s decision to attach Correlatively, failures. loss of the time (CCH) 61,501, equity projects plausibly in failed F.E.R.C. at led Jer of their value sharing sey with Central to believe that what the inter represents a reasonable of the as the losses a failed venors and dissent characterize ratepayers of open rule in fact well-established was to project. Indeed, further the evolution. Commis 61,511 application of 17. The Id. at n. question (published sion’s discussion of the sug- to electric utilities was principles these made Jersey Central its two weeks before gested by the statement that Commission’s filing) prompted by recognition was that why “[tjhere the treat- is obvious reason of treatment the issue of “Commission plant costs as between ment of abandoned proceedings plant has abandoned companies gas electric should differ.” fact, it has uncertain. been charac been 61,511 though And state- Id. n. 15. this at distressing degree terized a somewhat in a where electric ment made context was inconsistency. inconsistency is im That generously more companies are treated portant because it tends to leave both lend 61,511 n. gas companies, see at & than id. equity ers and investors with a sense of that implication clear was treatment uncertainty____” Id.7 every sense two should holding that same. Given Trailblazer’s The intervenors’ and the dissent’s charac- to gas companies be able recover terization of as an on, of, return but not debt service and a deviation from the intentional Commis- investment, portion of the id. equity sion’s “rules” an unreasonable one. 61,502-03, strongly sug- statement There was no reason for the gests would also con- that Commission adopt wrong and it suicidal course extending the same treatment to elec- sider impute an intent which there is no companies.6 tric particu- evidence. This characterization is since, larly analysis, unfair that proposed pipeline in was under one Trailblazer filing an through project financing. implied The must read into the waiver financed conventionally-financed rights. statutory and constitutional Jer- discussion not, however, mounting sey Central was not a frontal projects was dicta. contrary, firm To the presenting Co. assault on a rule. Commission was Trailblazer throughout proceedings argued below with a choice between conventional financing, practice the cases which the had project explaining the conse- developed enough not similar to what quences of each alternative. Commis- were applica- now issue to their offering to be bound the rule warrant sion was precedent, financing dispositive Tra- as and that re- laid for conventional if tion down policy cently proceed elected to in that fashion. articulated ilblazer Central’s situation to discussion of “Commission the threat Trailblazer’s Supreme plant,” policy respect to abandoned 18 the investor interests (not of) equity would constitute the 6. our discussion of Cen- common Trailblazer I, company's imposed by we tral 730 F.2d at stated "the treat- burden share here, pipelines, applied ment accorded cancellation. permit Jersey would not recover investment, debt, carrying equity lingering uncertainty This about what the in- debt, charges preferred and the stock confidently and the so label a tervenors dissent project-fi- We While costs.” were in error. "rule" is indicated also the fact that pipelines right were waive their nanced policy, Commission’s which we have shown investments, equity recover settled, is in a has never been clear or still state conventionally-financed distinguished expressly flux. initiated a The Commission now ground pipelines in its discussion on rulemaking proceeding order to consider the conventionally-financed pipelines involve time, establishment, genuine first of a loss, exposure higher thus risk shareholder respect rule with to the treatment of cancelled suggesting required that the latter will not 61,376 (June (CCH) (f plants. See 31 F.E.R.C. equity right their to recover the invest- waive 28, 1985); Regulation Electricity Sales-for-Re- of 61,503-04. (CCH) And ments. F.E.R.C. Service, 27,- Fed.Reg. sale and 604, Transmission recovery remaining of be al- costs would 27,612-14 theory on on the that loss of return lowed protected required Court had deemed some All right. COUNSEL: given consideration more than that detailed COURT: If that of showing kind were by summary dismissal.8 made, you do think that the Commission Hope responsi- under Natural had Gas B. to, bility despite it applied the fact that Essential to the intervenors’ and dis- general rules, some look at the situa- analysis sent’s the assertion that is gee, and say, tion the end results are getting Central had other means pretty scary maybe we had better do hearing sought. only by positing it It is fooling some around with— filings through alternative I yes, COUNSEL: think the is answer would have received on Honor, Your and it reminds us of the— integrity that the intervenors and Well, COURT: my question second place the responsibil- dissent able and, so, you, then is do if how? most ity Quite utility. what occurred on the close, cases that are a little closer than clearly, the Commission not maintain a that, you do do anything comparable at system provides opportuni- of rules that day you end applied after ty Hope allegations raised, at all for to be rules, the NEPCO and other to look back heard, considered, subject and made the your over say shoulder and is this findings. opportunity Yet precisely situation, ought tinkering we to do some us it routinely what Commission tells and, so, around you any do make such reason, too, denies. For this the inter- findings? argument venors’ and the dissent’s fails. ques- COUNSEL: answer earlier, supra p. As noted the Com- yes, tion is we do tinker around after we say mission in its brief will pursue ratemaking these policies. normal “may also look criteria of tinkering making And the around or determining just whether its rate order is pragmatic adjustments, those the nice prom- reasonable.” There is that no adjustments way is the Hope hearing ise of a any under circum- past has in the viewed its responsibility stances; only a declaration that one is not under end result test— required. know, COURT: Do we ever do we— following exchange from the en No, you long— COUNSEL: don’t. As argument banc oral further illuminates the you COURT: We don’t know whether Commission’s belief that it owes no one a did not? hearing on issues: COUNSEL: It essentially turns on Suppose everything COURT: else in return, tinkering the rate same, you case were the apply the rate return. rule, cetera, the NEPCO et but the showing came in with stronger even (emphasis added). Tr. at 28-30 The Com- they came in and showed that if this rate apparent practice taking mission’s these effect, God, they went into would be by “tinkering” issues into account history first of Ameri- making open, without findings factual fol- can go bankruptcy utilities to into actual quite naturally lows from its mistaken or— premise meaningful judicial review of I think COUNSEL: there is no— never, never, these decisions is or almost question. COURT: Let me finish the order. For us to hold now that notes, event, 8. As any the dissent it is clear that passim. Brief of Central did not structure its to conform to important point simply the more that Trail- rely Yet did Dissent Trailblazer. uncertainty offers further evidence blazer heavily argument in its for re- Trailblazer that surrounds this issue and belies charac- Commission, hearing before the aswell in its practice rig- terization of the Commission’s as a arguments panel, panel, before first second id rule. See, panel e.g., and en banc of this court. Initial Nothing con- true. Hope had its claim be the Commission has said could have Central filing any provides would such assurance. had it made a different To the con- sidered upon theory trary, Jersey suggested that the Commis- when to rest a Central a forward, indeed, a theo- put higher rate of return in its petition sion has never rejected. apparently has ry rehearing, the Commission the Commission dismissed the request presenting “moving target.” a proceedings in these constant particularly pointless That maneuver was hostili- the manifest has been Commission’s merely required it would have the since result” examination un- ty to serious “end company to come back with a new the alone can account for Hope. der That higher requesting same rate of return ruling on the peremptory Commission’s upon data. based the same The Commis- hostility, and not the Com- merits. That sion thus saved no effort its own but desire, only in this made clear mission’s company higher in the cost return its used-and-useful proceeding, to elevate (Of course, in the interval. same order the impregnable to status principle it clear fresh fil- Commission made that a barrier, appears the Commis- to underlie futile.) The ing would be Commission procedural abrupt uninformative sion’s company’s re- could have entertained Jersey rulings. At the time quest higher for a rate of Given return. filing, well have concluded counsel could here, very unusual circumstances a of thumb rule that used-and-useful to have amounted a denial when circumstances that would be modified rights, that constitutional course would if the Commission wished warranted. But “mov- jeopardized deployment have previous eliminate its circumstance- to target” ordinary case. doctrine to make rule and bound enunciation unyielding, it have it universal and should yet The Commission has to articulate get to the merits allowed Central approaching concep- anything a coherent Hope “end result” claim some hearings requires, Hope tion of what when Instead, met way. it each of other findings necessary, which facts are pro- a fresh efforts with Central’s renewed relevant, judicial or review of rate how gave never cedural rebuff and once It is proceed. should clear that orders slightest of how Central indication granted Jersey not have would get hearing sought. could Hope hearing had every anticipated and followed somehow suggest and the dissent intervenors freshly-invented pre- one of dissent’s requested could have and its scriptions. The Commission below period, perhaps shorter amortization is, here said as much. It counsel have NEPCO, and received period allowed therefore, preposterous to contend that higher through that method. That rates multiple respect failures Commission’s technique help, little would have been of caused, “end test were to the result” however, led to for while would have excused, alleged by Jersey Central’s hence revenues, quicker, higher Jersey Central intransigence. procedural earnings lay needed to record order issuance of securities foundation for the IV. regain capital markets. access through could done faster re-

That not be precluded The Commission is covery of costs. useful,” employing “used and other en- rate-setting formula. It must specific and the dissent also intervenors sure, however, resulting re- that the Central could have state and, return, A afford just rate of had it and reasonable. remand will quested higher find the so, opportunity done have received the a determination of excerpt necessary we facts it wanted. Given the require- argument, im- meets the quoted it is whether rate order from oral and, Gas, if it why they ments Natural possible know believe not, the finds that does Commission has This is illustrated its treatment of “con (CWIP), in flexibility progress” part to determine how the rate struction the work which, of recently the Commission order should deter be modified—whether mined, base, utility’s can be in a the included rate through enlarging increasing See return, Corporation base. Mid-Tex Electric or the rate of a combination of FERC, (D.C.Cir.1985). v. 773 F.2d 327 obligations both. That will fulfill its under proceeding, that recog the Commission the law. practice nized that its of own admits “wide Ordered. So recognized ly exceptions departures” rule, from “particu the “used and useful” STARR, Judge, concurring: Circuit larly countervailing public when there are Although agree my dissenting I col- Fed.Reg. interest considerations.” See leagues Central has mounted 24,335 (June 24,323, 1983) (CWIP final overly an ill-conceivedand broad attack on rule). In setting, financial difficulties principle, the “used and useful” Dis- see in electric utility industry played sig a senting 1197,1 Opinion at am satisfied that nificant role in the Commission’s decision presented under circumstances this 24,332; to bend the rule. id. at See be returned case must to the Commission. also, F.2d at 332-34. e.g., Tennessee follow, I in For reasons concur FERC, Pipeline Gas Co. v. 606 F.2d opinion of court and in the decision to (D.C.Cir.1979) 1109-10 (departure vacate and remand the Commission’s or- permit “used and useful” to rate base ders. gas prepayment treatment of natural is justified develop as means of encouraging gas reserves), ment of additional cert. de I nied, 100 S.Ct. cavalierly Commission has acted L.Ed.2d 605 opinion per- case. As the court’s policy me, flexibility, This of it seems to suasively demonstrates, practical reality reflects electric seriously failed to take allegations utility industry, namely that investments plight severe confronting financial plant equipment enormously costly. Its plight Central. discussion of that Rigid adherence to “used useful” doc- intolerably terse. In its on order reconsid- imperil viability trines would doubtless eration, the Commission stated that tes- utilities; thus, of some while not articulat- timony proffered or exhibits had been terms, “takings” in Hope results or justify higher allega- a return. Yet the the Commission—whether as a matter of plight highly tions financial were de- policy perceived constitutional obli- specific, indicating tailed and that the utili- gation the past taken these reali- —has ty skating edge was on the of bankruptcy. ties provided into account and relief for justification Commission’s stated utilities various forms. dismissing summarily allegations these What Commission now confronts weight prior of its “used and use- Central’s rate is an invest- precedent. opinion ful” asBut the court’s ment, prudent made, when in a nuclear shows, body precedent did not con- power facility that was doomed failure. stitute as ironclad a rule as the Commission project prior The cost of that to abandon- certainly us believe. It not ment was million. Under $397 enormous— precedents evident from those that the rule circumstances, Commission, these in or- applied in summarily could be the face of engage decisionmaking, der to in reasoned regulated the financial demise enti- duty has a to consider the entire financial ty. confronting utility, circumstances as it Indeed, the Commission as a context, blindly matter did in rely the CWIP not to departed policy years over precedents from the do not involve similar- ly facing strictures of “used and useful” rule. situated utilities the most dire represents compact consequences. Should Com- business sorts; partic- monopoly to adhere to the on service nonetheless choose mission in these circum- principle useful” geographical (coupled area with state- “used ular provide expla- reasoned stances, it must rights of eminent domain or con- conferred “Judicial review for that decision. nation demnation) granted utility to the in ex- is will ... func- Commission’sorder of the [ ] change regime regula- of for a intensive only efficaciously if the accurately and tion tion, regulation, including price quite alien carefully fully and indicates Basin, to the free market. Permian Cf which, purposes methods and 756-57, 390 88 S.Ct. at 1354-55 U.S. at act, which, as as it has chosen to well for utilities, (unlike public producers of natural consequences of of its its assessment gas “enjoy guaranteed no franchises or and future devel- for character order [ ] “intensely of and are com- areas service” Permian industry.” Basin opment party compact gets petitive”). Each 747, 792, Cases, 390 U.S. 88 Rate Area bargain. general something in the As a (1968). 1344, 1373, 312 It 20 L.Ed.2d rule, provided investors a level decisionmaking scarcely to dis- reasoned is earnings likely stability of in value less go allegations hand to the out of miss unregulated in the moder- to be attained or utility’s viability. heart sector; turn, ately ratepayers in regulated universal, non-discriminatory are afforded II protection monopolistic service and arbitrary capri- The Commission’s profits through political an control over presented by of treatment the issues cious regime enterprise. economic Whether of necessitates the return is, say, needless is wise or not before spe- proceedings. for this case further Posner, Mo- generally us. See Natural questions on will be whether cific remand nopoly Regulation, Its Stan.L.Rev. treatment of Cen- the Commission’s Demsetz, (1969); Why Regulate Utili- request prior prece- is tral’s consistent ties?, Econ. 55 J. Law & in whether the rate order entered dent and setting regulation, In the of rate when Hope’s “end result” this instance violates It occur? taking does from investors question, To address the latter it will test. me that it occurs when seems to necessary to account the con- be take into is a regulated confiscatory, is which stake, namely stitutional considerations saying that an unreason- way short-hand of any agency the rate other whether order or regula- in the able balance has been struck preceded order worked a action which unreasonably process as to favor tion so “taking” compass of Fifth within the ex- ratepayer at the substantial interests Takings Clause. Those Amendment’s Thus, my pense of interests. investor appear to be issues a Com- would novel view, finan- taking does occur when mission that seems determined avoid an are committed to the enter- cial resources such, inquiry result” while at “end utility’s prise. especially is so since a That making adjustments to same time various capital simply is made not investment parts of the electric bring relief to-troubled legal obligations provide satisfaction of utility industry. these circumstanc- Under public anticipation service to the but why es, is in order as to a comment two profits on the investment. that, notwithstanding I concluded state; for-profit it is a not a servant to agnosticism, Commission’s enterprise legal obligations incurs which constitutional de- complaint “sounds” in the A exchange benefits. for state-conferred the Fifth Amendment. Whether mands of capital is scarce- profit-seeking investment out a would make constitu- the facts indeed deprivation possession, us, ly the sort obviously not before violation tional use, property enjoyment, ownership Majority Opinion and must await taking. conceptually be deemed a must which can -mandated Epstein, Takings 63-92 generally R. held. now (1985). Indeed, is, seem course, odd to con- Prudence relevant pro taking government’s sider as a disavowal striking cess of a reasonable balance property interest which remains rate-setting public utilities. Requiring unregulated profit- and which reflects prudent investment to be when made is seeking investment. safeguard imposed one by regulatory au upon regulated thorities business for significance

It is also of to the constitu- of ratepayers. it, benefit As I see inquiry regulators tional whether the for- “used and rule useful” is but another completion of such bade construction. In re Cf safeguard. prudence rule Public Service 122 N.H. looks to the investment, (1982) (holding A.2d 435 that under time of whereas the “used and constitution, Hampshire New State can- useful” rule looks toward a later time. completion prevent not construction of principles designed The two are to assure facility power the nuclear Seabrook with- ratepayers, that the property might whose providing just compensation). out But see otherwise of be by regula course “taken” Transportation Penn Central v. City Co. tory authorities, necessarily will not sad be 104, York, 438 2646, 98 New U.S. dled management’s of with the results of de (1978) (New City 57 L.Ed.2d 631 York his- mistakes, falcations or or as a matter of preservation employed toric law to forbid simple justice, required pay be for that development building). of office It would provides ratepayers the with no dis that, conceptually, taking seem at least a of cernible benefit.1 in investment the Forked funds River provide principles two thus assur- project government would if have occurred ill-guided management ances that or regulated prevent property, so the as in management simply proves in hind- part, or in being employed whole from in sight wrong to have been will not automati- the manner desired the owner. But as cally bailed from be out conditions which know, we these conditions did not occur. government upon is, did force it. not That tanto) taking (pro Nor would a automat- government upon utility forced the an obli- ically regulation occur when itself takes gation provide service, but that obli- place, for part original that was gation, seen, we quid pro is the compact between investors the state. quo protected (and for area of service regulaton is, Rate theory, the substitute authority). eminent domain What is funda- competition. for state stands the government mental is that did not force shoes, were, competitors, as it keeping of upon utility specific the course of action utility the within bounds that would be achieving goal. the mandated drawn market in a non-monopo- forces economically listic market. Whether sound Indeed, it be curious the Consti- not, regulation rate in itself raises tution protected utility entirely investors no constitutional concerns. dangers from experienced daily business market, danger managers the free the analysis, Under one line of inclusion of prove overly will prudent sanguine have been investments in the rate base is not prospects danger of about business exploitative. itself or the See Wash ington Baker, particular capital that a Light Gas Co. v. investment 188 F.2d 11 will not (D.C.Cir.1950), denied, prove 952, cert. anticipa- successful. the face of U.S. 571, demand, 71 S.Ct. 95 L.Ed. ted may acquire I am not an airline addi- aircraft, so sure that such an easy rule can tional unhappy automat face conse- ically properly quences employed consistent with when passenger traffic does not the of demands the Fifth expectations, perhaps Amendment. meet due to economic danger examining pacity. The obvious in not operates both The "used and useful” rule as a prudence restraining reminding ends the the principle, utility manag- continuum —both they the investment and whether end result of ers that must assume the risk of economic the investment was working against used and useful—is to build forces an investment which is pressures building generating prudent excess ca- at the it is time made. requirements Takings entirely beyond management’s ings, con- factors compa- exempt regulatory from Utilities are satisfied trol. Clause repeated- done, As cases have say forces.2 that is setting justice rable when held, Fifth Amendment does ly striking of a reasonable balance be- utility investors with a haven provide competing interests. tween See, e.g., operation of market forces. taking it is occurs not Thus when Pipeline Gas FPC v. Natural (even one investment is made under 86 L.Ed. 62 S.Ct. legal obligation), but when the balance be- (1942) (“[R]egulation does not insure ratepayer interests— tween investor revenues.”). produce net shall the business regulation very function —is rule, Yet, in full prudent investment unjustly. Although agency struck virtually accomplish that state vigor, would balance, striking the latitude in broad insulation, guise preventing inall requires that the Constitution nonetheless effecting taking with- government from balancing end result reflect a reasonable just compensation. out ratepayers. interests of investors and is, me, rule prudent For investment seen, As we have both investors and rate- alone, weighted for too constitutional taken payers were the intended beneficiaries of utility. It lacks analysis in favor investment; Forked both should River too, “used and useful” But so balance. to in presumptively have share the loss.4 alone, rule, heavily is in fa- skewed taken Filling making spe- in the of the gaps, the ratepayers.3 of It also lacks balance. vor judgments that constitutes the diffi- cific regime, neither me- setting, In the modern belongs part enterprise, in the cult of this rigor, likely applied with full will chanically politically first instance to the accountable competing inter- justice among the achieve branches, experts to specifically the in the to ratepayers of so as ests investor agency, generalist judges. not to utility’s property of avoid confiscation the Hope’s result” test It is here that “end property ratepayers the of taking or a of is play. judiciary into not to comes rates. through unjustifiably exorbitant process, micromanage regulation the rate however, provides impor- approach, Each reviewing in as we to be restrained just are object of insights tant about the ultimate agencies. other work of administrative the regulatory process, is achieve the which to impose procedures that we is We are not to regulation. in rate And that just result methodologies that we Fifth think are wise or by the mission commanded that tak- strike a better balance than garden-variety Unlike think Amendment. is, course, upon the imperfect of value of comparison since a reasonable rate return 2. The of used, used, enjoy being property full fruits is to the airline will of at the time it acquisition program A succeeds. success if its it is not entitled to render the services. But return, contrast, by utility’s of is limited rate any property used have and use- included hand, regulation. is not On the other airline purpose. ful for protection regulatory provided with the of a 475, (citations omitted) S.Ct. at Id. 58 994 body’s preserving in enterprise. the financial interest added). (emphasis But to me it seems of the soundness language meant state an absolute and was not to unchanging regardless constitutional rule of supports recognize authority I that venerable impact of investment and the of the nature precepts. firm to "used and useful" adherence subsequent teaching in rate order. The Court’s States, Union Stock Yard Co. v. United Denver specific Hope makes it clear that no method- 990, 470, (1938), L.Ed. 58 S.Ct. 82 1469 inherently ology infirm sacrosanct. either (in Supreme opinion example, Court Brandéis, leading propo- joined by Justice manner, regulatory requiring order 4. Inlike prudent approach) em- investment nent monopolistic prices ratepayers pay would fail to "used and useful” rule in the follow- braced the constitutionally required balance achieve the ing language: would work a of interests. That sort of order by right safeguarded base. As of taking assuming ratepayers’ property, process Amend- the due ment, clause of Fifth Takings requirement public purpose rates, per se appellant is entitled Clause had been met. extortionate, yield sufficient to excessive and 1192 regulators. PruneYard, by Our limited

struck but 447 U.S. at 100 S.Ct. at vital role is ensure that the end result contrary, Jersey 2041. To the rep- reasonably a rate order balances investor perilously resents that it is close to the ratepayer interests. edge bankruptcy, long- unable to secure credit, term capital and unable to attract are, fortunately, completely We not left enterprise. making subjectivity a web these sure, judgments. Takings To be Clause The second consideration—the extent to analytical law not been marked con- agency’s action interferes with sistency, Epstein as Professor has brilliant- expectations investment-backed mixed. —is ly demonstrated in his recent book. Nor rule, As general appear it would characterized, has it been as much as we purchase utility investors stocks as a mech- them, might bright-line care rules. conservative, anism for safe investments. then-justice Rehnquist the words of Drobak, Turnpike From to Nuclear Pow- speaking for the Court Kaiser Aetna v. er: The Constitutional Limit Utility on States, United Regulation, Rate 65 B.U.L.Rev. 106- 383, 390, (1979), 62 L.Ed.2d inquiry high Potentially rewards are “essentially ... ad hoe factual” in [and] stability safety. foresworn favor Nonetheless, taught nature. we been And now situation of Central’s worthy that several factors are of consider- grim. investors is no prospect, There is we determining regulation ation in whether told, for those investors to earn a re- taking, including works a “the economic Thus, turn their investment. holding impact regulation, the extent taking over strenuous dissents that no which it interferes with investment-backed City’s occasioned New York interfer- expectations, gov- and the character ence Penn plans erect an ernmental action.” Loretto v. Tele- atop building Station, office Grand Central prompter Corp., Manhattan CATV the Supreme emphasized Court 419, 432, 3164, 3174, U.S. 102 S.Ct. 73 property owner could earn still a reason- (1982); L.Ed.2d 868 see also PruneYard able the return on investment notwith- Robins, Shopping 74, Center v. 447 U.S. standing the restrictive effects of the his- 83, 2041, 2035, 100 S.Ct. 64 L.Ed.2d 741 preservation toric law.5 (1980); Aetna, 175, Kaiser 444 U.S. at 100 nothing days investors have but bleak S.Ct. 390. ahead, told, regulatory we are unless relief premature While it pass ultimate forthcoming.6 judgment question, prelimi- on the some hand, On the other FERC already has nary observations are in order. The first moved in somewhat the direction of bal- of the three considerations enumerated in ancing competing by permitting interests Supreme points powerfully Court decisions recovery building plant of the costs of in favor of Central. Forked River in the cost of service. Investor interests represents loss, an the very enormous not, therefore, entirely ignored. have been enormity weigh heavily of it must in the addition, above, as I indicated utilities balance. No one maintains that exclusion are not plant of the shielded abandoned from the rate Constitution base minimis, affecting competition is de not the forces of the return on and the uncertain- property. Loretto, 445, life, 458 ties of purchas- U.S. at 102 economic and investors Cf (Blackmun, J., S.Ct. at dissenting); 3181. common stock are all engaged after in say, analysis authorities, respond 5. regulatory Needless to this does not state whose orders have objection partial taking, opposed that a considerably greater as effect economic complete deprivation property, to a directives, be- than federal have been inhos- ing effected. pitable to efforts include the Forked River plant state-regulated in rate base. If that is goes saying 6. It also without Cen- so, regulation relief from Draconian in Trenton tral’s rate woes be cannot event laid Washington, cannot come from D.C. entirely appears feet of FERC. It

1193 addition, willfully surrendering risk-taking. surely teaches that one of economic property rights may for an investor to be reasonable the “bundle” result cannot every expenditure by greater, state-protected assume each intrusion out- by regulatory au- will be allowed property than the siders owner intended. regulation very existence thorities. Specifically, shopping may center owner every fact that with the hard carries permitted, find that individuals be granted, every increase will be objection, over his to exercise certain non- Yet, “rea- expenditure will allowed. be rights shopping commercial on the center investor interests consideration” of soned PruneYard, 83,100 447 property.7 atU.S. applica- more the mechanical requires than Thus, at 2041. in contrast to S.Ct. Kaiser rules to the loss of a everyday $397 tion of Aetna, Shop- the owner of the PruneYard plant. power in a Per- million investment ping found that he Center had lost 792, Basin, 88 U.S. at S.Ct. at mian right issuing exclude some visitors public generally invitation to the to visit government Finally, the character purposes.8 center for commercial weighs takings analysis in favor action government nature action taking agency. The classic is when obviously seems case unintrusive possesses proper- government invades and typical takings contrast to more cases. partly entirely. physical or Permanent ty, invasion, temporary There has been provides example. clearest occupation permanent. I previously As indi- 445, 468- Lynah, States v. United cated, regulatory entity has not forbid- 356-57, L.Ed. 539 project proceed. den the Forked River can, course, (1903). par- Occupation be government done What is to forbid the tial, taking consequence can return, gamer a investment thus bal- accomplished private under of a invasion ancing regu- competing principles Loretto, auspices. state’s Forbidding profit lation. on an invest- A 102 S.Ct. 73 L.Ed.2d me, gone conceptually, ment sour strikes taking government imposes can occur when recreating part marketplace envi- as private property, at right of access on ronment; indeed, permitting FERC’s recov- reasonably had least when landowner through itself ery of the investment cost government making consent relied on an interference what service works purportedly improvements opened unregulated occur in would otherwise property Kai- to uninvited outsiders. setting, the investors risk takers since Aetna, 164, 383, 100 S.Ct. 62 ser U.S. obviously the entire risk that bear (1979). The latter case L.Ed.2d 332 teaches pan not out. In addi- the investment would the elimination of a basic incident of tion, obligation to consum- FERC’s consider ownership right to exclude unwanted —the expectations er needs must evaluat- property from constitute a visitors —can determining in order arbi- ed whether its And, taking. sharply the issue was while trarily to Per- limited the return investors. the disputed resolution the Court 769, Basin, at mian 390 U.S. 88 S.Ct. Aetna, seemingly in conflict with Kaiser (“[Ijnvestors’ provide only interests case that the appears the PruneYard in the one of the variables constitutional of the is of conduct landowner relevance reasonableness.”). analysis. calculus constitutional That case of the Central, analysis Surely ers. the commercial invitation of the Like Penn this does argument squarely pro permit that a address the tanto owner a PruneYard center’s would not occurred, which, taking as up has Kaiser Aetna political campaign opera- to set candidate taught, compensation Tak- areas, demands under the tions in the mall’s common or for the ings Clause. mall to serve as a makeshift lecture hall foreign policy practice or a field for the local analytical strengths, 8. Whatever its the Prune- rainy days. marching band on opinion emphasize pains to limit- Yard took by petition-seek- ed nature of intrusion finally it is not for us to rate-reducing But resolve holding action without first first questions these instance. That making findings pursuant to job, said, I belongs regulators, as have the test formulated in Federal Power Com- Basin, judges. See Permian 390 U.S. Hope mission v. Natural Gas view, my 88 S.Ct. at 1373. In this (1944). 88 L.Ed. 333 by case resolved must now be the Commis- majority authorizing reads sion, facing up question hard of FERC, court to direct when faced with whether, circumstances, under all the a vio- allegations, such its abandon otherwise been by lation of has worked this permissible summary disposition proce- determination, it rate order. That seems to holding dures. This constitutes a blatant me, can be made a careful bal- ratemaking proce- interference with the ancing competing of considerations that adopted by dures the Commission. Such inevitably present setting in the of utili- intrusion into the authority Commission’s ty regulation. I Id. While am unable to would have been outrageous deemed even pass judgment on the ultimate issue this in the days before Vermont Yankee Nucle- case, amI convinced that FERC has com- ar Corp. Power v. Natural De- Resources pletely grips failed to come to with the Council, Inc., 98 S.Ct. fense question question and that is now 1197, 55 L.Ed.2d 460 We cannot squarely before it for resolution. unobjectionable age believe that it is this judicial Therefore, deference. we re- MIKVA, Judge, Circuit with whom Chief spectfully dissent. WALD, Judge Judges and Circuit SPOTTS- ROBINSON, WOOD W. III and HARRY T. join, dissenting: EDWARDS Background I. prior opinions, After two confounded A appreciation full impact of to- position, ever-shifting Commission’s day’s requires understanding decision is small wonder is having court posture in which this case comes to us. seeing difficulty the forest trees. stage At an intermediate of the rate-mak- attempt path its to beat clear to reso- ing proceeding, summarily issues, however, lution the majority rejected non-conforming portion heavy treads over foot some well-held filing pursuant Central’s to longstanding regarding takings, doctrines unreasonable- policy procedure. Jersey loud- return, ness obligation and the ly complained and go refused to further Energy Regulatory Federal Commission ratemaking process. with the rushing (the FERC) guarantee Commission or issue, headlong into the Hope majority solvency

the financial of a utility. Perhaps sight of loses what we greatest here— damage is rendered attempting Central is convert implications majority opinion for the rulemaking case proceeding. into scope judicial review of Commission majority allows to succeed. It ratemaking procedures. Although we be- responds complaints by lieve the been less than directing FERC to agency abandon rules as action, forthright defending we can- applied the utility implement to and to the join colleagues the our havoc utility’s according procedures rates to the slap wreaked order to its hands. normally Commission would not follow. today’s ramifications decision are 31,1982, Jersey On March inescapably broad. Central Power Whenever a files Central) Light (Jersey and proposed alleges Company a rate filed schedule and proposed two-phase the earnings contemplated and increase in its revenues rate produce the for six necessary “minimum amount” schedules wholesale customers. capital gone for it to to have access markets Phase A has effect is not into and at B, to maintain its In integrity, utility pro- the Com- issue here. the Phase posed mission is constrained to take no interim to years amortize over 15 a $397 held utilities could the full lost when abandoned amortize million investment power plant of a nuclear suffered from construction investment loss abandoned Jersey. River, That at Forked New project projects, could not include the unam but sought the is, Jersey Central recover portion ortized of these the investments ratepayers expenditure from its project projects rate base the abandoned because sought to time. include over It also costs following By were not “used useful.” carrying current in its rate base the NEPCO, the Commission allowed 5.2%) (computed on the charges at debt its Central to recover total investment portions the un- preferred stock on cancellation, project point of but plant. in the investment amortized utility any capital denied the return on the is, captures public utility return total plant. cancelled invested in the permitted put, product of its simply concluding, the Commission ordered Thus, of return. rate base file B Central to revised Phase rates items the rate inclusion of desired support reflecting summary and cost generate on a return them over base would disposition. The revision ordered would ratepay- current period; amortization presumably Notably, be- be downward. The exclusion of ers bear the cost. would preliminary cause its review “indicate[d] rate base would re- these items may produce B Phase [the increase] in- equity Central’s common quire revenues,” substantially excessive burden; they to bear a financial vestors suspended implementation of Commission not obtain return on invest- would B public Phase ordered that a charges. pay current ment and “concerning justness held be and rea- Jersey Central’s wholesale customers [Jersey rates.” sonableness of Central’s] for protested increased rates tendered 1161,208, 61,404. (CCH) at FERC petitioned in filing and the Commission to did not file the revised ratemaking proceedings. in the tervene Instead, material ordered. on June Among requests, other the wholesalers rehearing, requesting applied partial rejection of the moved for a second disposition summary reconsideration Adhering filing. the rate its phase of or, alternative, higher rate of re- investments, regarding policy abandoned originally proposed in order turn than that granted the wholesalers’ compensate for its diminished rate base. summary disposition motion for the rate rehearing denied as to ex- Commission inclusion the unamortized invest base cancelled clusion of the investment in the plant. in the Under settled ment cancelled facility nuclear from the It not- expenditure rate base. policy, FERC item since had re- utility’s in a ed that its decisions NEPCO public included rate base charges the item is “used and useful” in of current when affirmed the exclusion rendering ratepayers. service Ac on investments. Cen- unamortized cordingly, (CCH) the Commission’s interim order Light tral 20 FERC Power & allowed amortization of the Forked River ¶ 61,083, 61,181 23, 1982). (July In re requested, required investment as but Jer pro jecting Jersey Central’s alternative sey to exclude the unamortized posed ruled that approach, Commission (CCH) from its 19 FERC items rate base. support revenue could ¶ 61,208 (May 1982). request rehearing “by inflating simply equal the rate return to dollars recover exclusion, ordering relied FERC impermissible to those attributable Co., 8 England on New Power FERC 61,182. Id. Pursu rate base inclusion.” ¶ 61,054 19, 1979), (CCH) (July sub aff'd re policy, ant settled Municipal Rate nom. NEPCO Committee increasing fused the rate to consider Energy Regulatory Federal v. Commis raised return when that alternative was sion, (D.C.Cir.1981), F.2d 668 1327 cert. application for review denied, the first instance on (“NEPCO ”). id. (1982) supporting without documentation. See L.Ed.2d NEPCO rehearing, Jersey After the denial of and “wrongly dispatched” “reached” Jer- again filings. Central failed to revise its sey Hope Majority Central’s claim. Opin- so, Had done an Administrative Law it (Maj. Op.) ion 1183; at see also id. at 1170. Judge (AU) hearing, a have held would reasoning Its runs as follows: “The Com- order, pursuant to initial the Commission’s mission ruled that allega- Central’s “justness on of reasonableness” proffered testimony tions and would not hearing, At this the rates. the wholesalers support higher a rate. That substantive presented could have intervened and their ruling hearing means that a have would rates, arguments although reduced pointless.” Although been Id. at 1170. originally proposed, from were those none- implica- Commission’s interim order has (CCH) theless excessive. See 19 FERC utility’s claim, tions for the this con- 1161,208, 61,404. Similarly, Jersey Cen- Furthermore, struction is unfounded. it tral could as to have testified its belief that makes mockery a the Commission’s or- too the reduced rates were low. hearing very der hold a on the issue Furthermore, justness had two addi- and reasonableness of the re- open First, Jersey tional avenues it. vised rates. proposed Central could have refiled for a Contrary majority’s postulation, it application

rate increase after its re- for position is not the Commission’s hearing operation was denied of law. need not make an “end result” examina- 385.714(f)(1986). point- See C.F.R. § Throughout briefings tion. See id. inadequacies out the Cen- arguments court, before this the Commis- filing, clearly tral’s initial sion has allowed that it must a construct way open proceed- left the for a new rate rate within the confines the “zone of ing that would include testimony and exhib- reasonableness” Hope. informed Rath- supporting higher return, a rate of as er, the Commission maintains need required by the rules. Commission’s See hearing a inquiry not hold to make that (1986). request id. 35.13 In such a § non-conforming before it excludes a ele- proposed could have a shorter amor- ment a proposed rate base—at least period initially tization than that it had alleged the facts here. The “end requested or offered evidence cost inquiry result” is made at the end of the justifying service higher elements overall ratemaking process, intermediate, not at an return remaining on the assets the rate Thus, summary disposition stage. a hear- Second, Jersey base. could Central ing on portion inclusion of the unamortized petitioned the Commission for a rulemak- plant of the cancelled base ing concerning validity the continued “pointless.” hearing would be A on the applied “used and useful” principle when fact, resultant rates be. would not plants generally. generally cancelled See explained counsel argu- for FERC at oral Act, Administrative Procedure 5 U.S.C. ment, post-appeal it was the settlement ad- 553(e) (1982). At proposed rulemak- § justing Jersey Central’s rate of return that ing proceeding, Jersey Central could have obviated the rate hearing need or- presented testimony support posi- of its dered the Commission. tion that present Commission’s used policy penalizes and useful unnecessarily disputes Jersey right No one utility investors. See 18 C.F.R. 385.505 § ratemaking pro- have the end result of the either, both, pursuing Instead of ceeding subjected inquiry. alternatives, of these administrative timing. provided issue is one of FERC appealed to this court. hearing adequacy on the of the rates majority allowed sight seems to have the Commis- lost after juncture sion’s reduction. The final rate which we stand order that review- ing the Commission’sorders. It is too from that anx- emanated ious to reach subject judicial the end of the road. event be review. majority contends Hope, supra. Central demands now, inflated rate of return. The Commis- not at on an hearing reduction — before sepa- majority agency rules and sion followed established the end. No wonder having a complain Jersey cannot com- opinions procedures Central rate examine the Com- through which to record when FERC is plain. There be times in- the relevant effort to balance mission’s summarily apply settled doc- not free to 1178; 1172, Separate Maj.Op. at terests. during ratemaking process, but trine Jersey Opinion (Sep.Op.) at 1188-89. presented such a Jersey has not Central hearing forego a elected to Central case. clamor chose to rates and instead reduced of the Commis- this court for review Application II. The Commission’s final bal- actions taken before sion’s and Useful Rule Used It is an interim ancing performed. Jersey Cen- rate-reducing of which order Jersey com- At the heart of Central’s review, rate-setting not a final seeks tral used and useful plaint is its dislike of the yield majority’s The decision order. in NEP- principle, especially as elaborated impli- directly demands Jersey Central’s CO, attempt supra. In its ratemaking author- cates the Commission’s doctrine, Jersey reconsider the Commission valid, its capacity to exercise ity and not, argues precedent does Central that the im- judicial free of procedures established not, apply the ma- should to it. Unlike or provements. that, jority, find in NEPCO and subse- we is the question this court addresses cases, firmly quent the Commission estab- reserved its Jersey Central question that rule for the calculation of lished valid agree- settlement appeal under the right to filings. in electric utilities’ rate rate base prop- acted the Commission ment: whether by Jersey endeavors to Unmoved Central’s limiting base to used and erly in the rate itself, distinguish we conclude that recounts, majority As the property. useful summary rejection in this Commission’s challenge Maj.Op. Jersey Central’s precedent. precisely case follows that three orders takes to the Commission’s is, course, widely accepted that the It utility first claims tacks. The principal may develop principles one has not established that the Commission precedential then attach or proceeding and pro- applicable to its used and useful rule controlling weight to them later even Second, filing. claims posed See, proceedings. e.g., Michigan Wiscon rule, that, appli- such a even there were Power Com Pipe Line Co. v. Federal sin the circum- of the doctrine under cation (D.C.Cir.1975). mission, 520 F.2d unconstitutionally would lead to stances contends, properly imple therefore, the Commission can rates; it And confiscatory protect in order to con summarily apply policy, cannot ment sumers, stage evidentiary summary judgment provide rule and must at the complains hearing. Municipal Light Finally, proceedings. Central alternative, that, Commission, it is entitled to a in the Power Boards v. Federal of return on hearing (D.C.Cir.1971), denied, on an increased rate F.2d 1341 cert. filing. its initial L.Ed.2d 455 92 S.Ct. majority seems to have is no iron- majority finds that there premise. Like quarrel with this regarding rate treatment of clad rule base however, Central, disputes that the Com holds utility plants and cancelled electric developed principle or rule had mission automatically enti- portion including the unamortized against proposed filing. on its tled to in the rate investment of an abandoned the firm conclusion inquiry leads us to Our Although ground on which base. reasonably acted that the Commission majority im proceeding, remands to a is not entitled application of the used and that the plies the un- treatment of hearing on rate base doctrine items of its rate schedule useful amortized cost any practice properties schedule inconsistent with that are not “used and useful” established the Commission. See serving ratepayers. in See Denver Un- majority’s at 1185-86. The rea Maj.Op. States, ion Yard Co. v. United Stock soning precedent distorts the NEPCO es 990, 994, 58 S.Ct. 82 L.Ed. Commission, by the tablished contradicts Thus, in NEPCO the Commis- doctrine, interpretation court’s the this of utility the sion allowed to recover mon- the manipulates inapposite de ey partially on a owed constructed and cisions. generating plant, then cancelled not but to return on receive a that over investment Approach A. The NEPCO period. the amortization Abandoned majority asserts rather than that projects are neither used nor useful and establishing general NEPCO, a in policy properly therefore can be excluded from engaging the Commission was in a case- Only the rate base. as a of that result specific balancing of Id. interests. at 1183. did standard the that Commission note majority thus the conceives crucial balance reasonable had been attained. underlying factor the reason- NEPCO as decision The AU’s and the Commission’s balance that the able was struck Com- adoption itof were based clearly ex- —and compromise mission’s between the NEPCO clusively the used principle. and useful —on view, rate-payers and investors. In its selectively In cribbing from the Commis- dependent NEPCO decision was as much quote opinion, sion’s majori- AU length period, on the of the amortization to ty impression create the strives that percentage utility of costs the would be decision was fact-based. Maj.Op. amortize, permitted to size and the Nothing 1184. could be from farther question investment as it was on the reaching conclusion, truth. In his the AU portion whether unamortized of those equitable indicated method of “[t]he costs should be in rate included base. handling requires issue balancing this Therefore, pro- Id. because of ratepayers security the interest posed period, a different amortization NEPCO, in holders.” J.A. 668 F.2d at presented larger a much investment and interests, balancing In 1332. these distress, alleged faced not fact AU made mention of the amortization NEPCO, utility substantially had period, investment, any or the size of the distinguished itself from NEPCO. Id. at specific other fact. Nor did the Commis- interpreta- Under majority’s adopt- sion make mention of such facts in tion, the Commission must a new strike findings. the AU’s In rejecting NEP- ratepayers reasonable balance between argument ratepayers CO’s should be investors this case and cannot do so required pay a return on the expenditure through summary adjudication. The ma- project, related an aborted the Commis- interpretation jority’s jibes neither quoted (and simply thereby sion indi- Commission’s nor this decision. court’s with) agreement cated its deter- AU’s Moreover, it virtually destroys any useful- minations: ness as rule NEPCO a substantive policy. are Ratepayers required not to insure utility that a receive a return on all mo- concerned the used and useful NEPCO enterprise; ratepay- nies invested principle general, applied just required pay ers are a return on NEPCO, plant. ap- one cancelled we properties those investments in proved the policy against Commission’s used useful public service. permitting a utility reap a return on the portion argument that the security unamortized of its in an holders investment generating fully policy abandoned station. This should be insulated from risk in all principle ratemaking up- rejected. regulat- is based this matter While a long ago Supreme utility may held degree Court: a ed have a lesser unregulated include base risk companies than markets, believe we found compete differently for their this is would have must had its factual situation been before public in the us. say that it is interest not to security holders from all to shield time Significantly, at one risks, including manage- the risk that very point. appealing conceded projects may initiate that do not ment decision of the Board of New Public This is a productive. risk of become (BPU) recovery Utilities disallow business. carrying charges River on the Forked in- vestment, Jersey acknowledged that investors in utilities Central While it is clear that the decision was consistent with ratepayers BPU prefer to have absorb Excerpts this court’s decision NEPCO. resulting projects, from aborted losses Appellant Jersey from Brief of on Behalf justi- preference does constitute such Light Company, Central Power and before casting the entire for burden fication Appel- Superior Jersey, of New Court ratepayers. upon such losses Division, late Ex- J.A. at [hereinafter to afford treat- proposal NEP’s rate base cerpts Jersey Central that Brief]. portion of this ment for the unrecovered proceeding, Jersey expended its Central en- rejected. expenditure ergies reasoning in attacking the of our 61,- (CCH) 61.054, NEPCO, 1Í at 8 FERC attempting decision and in to convince the Nothing in the decision 175-76. NEPCO encourage court that should BPU to act indicates that the Commission would employ “prudent investment” rate base factually differently in a case. different Jersey was formulation. Central motivat- decision in Similarly, this court’s NEPCO that, ed its belief unlike the used and reason gave Jersey question Central formulation, prudent useful investment veracity of the Commission’s NEPCO recovery approach would afford it the establishing a rule decision as substantive Id., sought. J.A. at 22-26. Unsuccessful only question ratemaking. before court, the state undertaking its before us “whether FERC’s refusal to include was rethought apparently Central base, project expenditures in the rate while application of our decision its NEPCO time, recovery as allowing their costs over up. Its does not hold case. reconstruction allocating approach is a the risks of valid B. The Commission’s Generalization of project 668 F.2d at 1333. cancellation.” Rule NEPCO ground that complained sole NEPCO “[t]he Commission’s decision NEPCO] [the admits, least majority As the at four facili- expenditures was that the those subsequent laid down same decisions operation in the ties did not result filed rates. rule before Central plant.” Brief at used and useful NEPCO Maj.Op. at 1184. In NEPCO’s second at in turn defended The Commission tempt “to in rate base unam include ruling justification of the used and in a generat ortized investment in abandoned Brief in rule. FERC NEPCO useful ing projects,” the admonished Commission approach FERC’s held that 13-20. We previously “clearly had stated” that that it valid, specific reference without “improper.” such were New inclusions case, solely the Com- based on Co., (CCH) facts of 16 FERC England Power application 29, 1981) of the used 1161,249, 61,538 mission’s consistent (Sept. (citing F.2d doctrine. 668 at 1333-35. disposing and useful summarily and non NEPCO takings rejecting NEPCO’s conforming portion filing). In Northern 1161,196 arguments upholding (CCH) Co., Commission’s Power 17 FERC States treatment, ratepayers (Dec. 3, 1981), we held that current sub nom. South Dako aff'd legitimate only the costs of v. should bear ta Public Commission Federal Utilities them; Commission, “used providing Energy Regulatory service to items not F.2d again (8th Cir.1982), could not be included the Commission useful” not obtain Nothing at 1333. in held that could utility’s rate base. Id. The case return on its investment. left our lead lost opinion could Central ambiguity; Jersey policy, inviting no room for Central it or indeed was a utility to States, self request conceded Northern treatment “FERC made clear that its intention was sought, Jersey fact Central cites several that the receive their investors back entire gas pipeline cases. The maintains investment be denied all return on but reasonably that it read sug- the cases as during peri investment the amortization gesting by the away a shift Commission od.” Brief of Jersey Initial Central at 19. from the NEPCO rule. The majority applied The Commission the NEPCO rule agrees. Despite distinguished such rat- rejecting filings summarily, tariff ification misreading sought a return investments not “used precedents gas regarding pipe- Co., and useful.” In both Ohio Edison 18 lines, nothing we find in those cases to 1116,010 (CCH) (Jan. 1982), FERC any waivering by indicate (CCH) Power Maine 18 FERC long-standing in its policy toward can- 61,126 (Feb. 1982), agency H cited celled projects construction electric of utili- authority as its the summary NEPCO for ties. dispositions. These clearly decisions thus Pipeline Company, Trailblazer general summary established a rule of de (CCH) 61,244 (Mar. 1982), FERC If non-conforming filings by nial of the time upon Jersey case which Central relies Jersey Central made its initial heavily majority exclusively, and the relies March 1982. See Black Hills Power and fails to Jersey validate Central's non-con- (CCH) 1161,302, Light 19 FERC at forming filing. rate Trailblazer involved 61,592 (June 24, 1982) (referring to rate filing, not preconstruction a rate but a pro- base treatment of plants cancelled as “con ceeding brought to obtain Commission cer- trary precedent”); to well-established see tification the appropriateness of FERC, also Violet v. 800 F.2d 281 n. 2 pipeline’s financing. The al- (1st Cir.1986) (referring to NEPCO’s 1982 pipeline lowed the to recover debt service agreement request not to reimbursement project an abandoned because it was portion of the unamortized its cancelled paid project financing, for through in which plant as poli “consistent with Commission generated by stream of income cy”) NEPCO). (citing project primary security was the for the majority The import belittles the of these loan. See also Ozark Gas Transmission by brushing cases them off as “routine” (CCH) System, 1116,099 (July 16 FERC and comparing Jersey them to Central’s 1981) (approving recovery of actual debt filing, the majority characterizes as project paid interest project for for fi- “anything but Maj.Op. routine.” at 1184. nancing). approval It conditioned of inclu- supposed This distinction misses the mark. sion of appli- debt service rate base “on The Commission had firm rate- established right apply cants’ their waiver of for the making procedure summary disposal of — recovery equity of their investment this plants unamortized costs of in- cancelled project 61,244, should fail.” 18 FERC 11 cluded in filings. electric utilities’ rate base 61,503. at procedure The vary did not with “factual differences,” no matter how substantial. majority declares that Trailblazer fact, As to the critical Central stood “presented Jersey Central some addi- in exactly position the same as each other grounds believing tional for that the Com- wanted rate base treatment of mission take ap- would a more flexible —it abandoned investment. proach” in its case because had no reason to think it receive signalled had its frustration with the dis- identical summary refusal.. parate given gas treatment treatment — electric companies. Maj.Op. Yet the ma- at 1184. C. Pipeline Gas Natural Cases jority grounds fails to substantiate the attempt a laborious this permutations, to show that the belief. In its many begun Commission had waiver in majority opinion has been unable come observation, added). however, This Trailblazer interpretation phasis up with an posi- supports bearing Central’s had no on the policy that both Commission’s scrutiny. excluding tion and withstands a current return on an aban- base. plant from the. doned There is Trailblazer does not even announce a suggestion should allowing recovery of ser- debt blanket rule addition receive a return on equity of, on, but not an invest- vice and a return 61,- the investment. See id. at portion gas company. cer- natural It ment Indeed, n. 503 & 17. the Commission ex- hold that such a rule should tainly does not pressed allowing concern even a re- could be extended to electric utilities. great turn investment creates too Trailblazer important, were o/that More even imprudent an incentive for investments. filing, the to control read 61,503 (stating id. that FERC’s rate- the relief it seeks. utility would not recover “not promote making procedures should fact, disparity between treatment projects simply investment undertaken cases identified in Trail- gas and electric passed can because the bill on to the blazer treatment of cancelled elec- ratepayers”). was more plants generous than treat- tric gas ma- facilities. The ment cancelled majority misunderstands the ramifi Id. much. jority admits as cations the Commission’s assertion that why “is there no obvious reason the treat panel’s first pointed As was out in the plant ment of costs as abandoned between case, gas compa- opinion the rule differ,” companies gas and electric should permit nies would 61,511 id. saying at n. 15. It in was that investment, debt, the the equity its recover case, appropriate gas natural one debt, pre- on the carrying charges and by project financing, paid amortization costs, attempted all it ferred stock of which plant costs should be of abandoned allowed by including the invest- to do Forked River already in it was allowed the elec because Arguing rate base. that this ment its id. NEP- context. See (citing erroneous, tric of Trailblazer understanding is CO, supra, and Northern States Power majority maintains that Commis- Company, supra); Pipe Natural Gas conventionally-fi- “suggest[ed]” sion that cf. Energy Regulatory v. Federal line Co. pipelines not have to waive nanced (D.C.Cir.1985) Commission, F.2d 1155 765 right equity to recover the investment their a pipeline (establishing on its that facts Id. at 1185 in order n. to recover return. its out-of-pock to amortize was entitled suggestion 6. We cannot locate such its expenses, say nothing of or Indeed, et to debt anything the Commission said. carrying charges, projects), for abandoned any suggestion quite is to found to — U.S.-, denied, cert. contrary. (1968). Jersey has 88 L.Ed.2d 771 dicta, Trailblazer discussed the tariff already investment-fos benefited this if the that the would consider gas tering approach. compa liberal Unlike than pipeline opted for conventional rather nies, Jersey Central was allowed to recover financing. indi- project The Commission expenditure made its con on failed permit applicant it cated that would project. struction recovery “apply for total investment o/the project majority inexplicably 18 FERC seems to ele- should it fail.” added). 61,244, 61,504 Jersey Trailblaz- (CCH) (emphasis on at vate Central’s reliance II supposed er’s policy indication of the The Commission observed Commis- “flexibility” point to a of encouraging independent of investment sion’s consideration yet possibly risky projects pointed prudent Maj.Op. 1185 & significance. See at legal Regardless of of more of the reasonableness “in the direction a consistent and n. plant expectation, company’s query of costs one must liberal allowance abandoned 61,502 (referring in cost service.” Id. just Jersey at how much Central “relied” (em- making Trailblazer upon filing. projects) to amortization of abandoned review, to this requirements its initial brief court for sale electric service. The utility sup- cited Trailblazer as additional agency focus, particular, intends port argument that for its pricing policies,” and “the risk allocation permit should full amortization a re- and including policy. plant cancelled preferred portions turn on the debt and (CCH) 61,376 (June 28,1985); Reg- FERC H amount. Brief the unamortized Initial Electricity ulation Sales-for-Resale However, at 20. Jersey Central charac- Service, Fed.Reg. and Transmission opinion having terized the Trailblazer 27,604, 67,612-14. 5, 1985). (July That “shortly Jersey’s been issued Jersey after is where Central should make its added), filing,” (emphasis id. at even stand. should not be allowed to notes, though, majority opinion as the a rate convert case into an involuntary published filing, was two weeks before the rulemaking manipulate this court into Maj.Op. at 1185. procedures approving rejected. FERC has intent, belief, Whatever Central’s majority puts Notice of Inquiry expectation, carry Trailblazer cannot preposterous Although use. it buries its desperately where wants to footnote, point majority in a makes the go, majority willing where all too remarkable assertion the fact that the questions to usher Trailblazer it. never Commission has this rulemaking initiated continuing validity used and proceeding the agency “indicate[s]” principle, useful which it would have to do “genuine respect had no rule with raise a reasonable doubt in Cen- plants.” Maj.Op. treatment cancelled continuing validity tral’s mind 1185 n. 7. The fact that the Commission’s open question. NEPCO was there- We regulatory policy regard to electric fore summary conclude that disposition of evolving absolutely sup- utilities lends initial ap- Central’s port the majority’s propriate under settled used NEPCO contention that the had agency not estab- useful doctrine. See 18 C.F.R. 385.217 § lished firm rule in proge- and its NEPCO (1986) (summary disposition procedure). ny. agency right, An every and indeed At the pro- time Central filed its responsibility, the to reconsider and re- revision, posed requirement the its policies structure rules and when the the rate base exclude certain unallowable change. Regula- circumstances warrant upheld court; items had been this tory policies always are “a state of practice ap- Commission had stated its flux.” See id. This evolution does not plying requirement; agency this and the promulgated any render rules less au- position. had not from deviated this Under Indeed, Congress thoritative. has chosen circumstances, these prop- regulate through agencies to in order to erly rejected non-conforming portion cumbersome, legislative process avoid the filing pursuant to its stan- agencies’ take advantage to ability policy. dard respond everchanging industry prac- to to argument Petitioner stated at oral tices and economic environments. its proceeding before Commission it set Notice of Inquiry issued the Com- out to test Everyone the NEPCO doctrine. majority’s mission cannot excuse the will- appreciate Jersey can Central’s frustration ingness second-guess to agency’s poli- with what it believed to be an unwise and place cies. Courts have substituting ill-conceived But proper rule. forum agencies. for Congress themselves Had for challenging agency regu- rule is in a as supreme intended courts to act latory rulemaking proceeding, not in a regulatory bodies, they ratemaking proceeding. would have made generally See 1 Davis, strictures, beyond Treatise, subject III, K. us Administrative Article Law now, seq. pursu- preclude 6:1 freewheeling et is that would ap- FERC § Inquiry, ant to re-evaluating proach a Notice of its taken majority opinion its approach regulation entire today. of whole- addition, approach Using majority’s Rate cre- Inappropriateness

D. The a utility disincentives for to operate ates Utilities’ to Address Base Calculation efficiently. observed, As the Commission Financial Concerns likely firm is more to work minimize “[a] majority’s decision infirmity of the if its financial health its costs is at disregard its for NEPCO beyond extends stake____ Thus, signifi- firms that bear policy regarding rate base a rule of likely pro- business risk are more cant pro- Ratemaking complex is a calculation. than efficiently duce those are shel- [who] involving myriad consideration of cess 27,- Fed.Reg. from risk.” tered Regulation generally factors. Yet, majority’s under rationale and Trans- Electricity Sales-for-Resale producers are to shift risk able 27,604 Service, Fed.Reg. (July mission ratepayers, they onto their but of loss are 1985) (discussing alloca- pricing risk likely so if the loss is more to be able do require- policies utility electric tion toward they under great are otherwise finan- service). systematic the The more healthy ments get A does not cial strain. and more efficient practice, prudently the easier incurred but cancelled ex- base, penditure included its rate process be for both but can sickly does. utility. See, e.g., and the individual (1986) (outlin- seq. 35 and 290 et C.F.R. §§ expressed The Commission has con- procedures for of rate ing rules and allowing recovery expendi- cern of cost service collection schedules and through in- amortization reduce ture information). is majority’s If the rationale embarking centives utilities “avoid followed, such nuclear items as cancelled questionable projects, construction upon stop partially will be included or excluded work on constructed ones power plants dependent after their economic value become un- utility rate on bases clear,” or minimize “to construction costs.” utility. Ad hoc condition of the Fed.Reg. 27,614. If the is composition invite rules for rate base likely only its to recover not out-of- more regulatory in a chaotic state of the law also a return those pocket costs but predictability certainty and arena where decline, if it in financial then the costs just rates help ensure that and reasonable re- production incentives for efficient are established. And, even further. as the concur- duced Furthermore, calculation rate base out, points dealing we are not rence adjusting total clumsy a much too tool Sep.Op. at 1188. The change. See small return to accommodate state Thus, large ones. the ma- disincentives are Generally, utility’s finances. the rate base treating method of rate base calcu- jority’s in capital comprised is total invested goal of lation frustrates the Commission’s plus cash depreciation facilities minus “achiev[ing] most efficient allocation of the return, rate of on the working capital. The possible.” resources See Northern Natu- hand, average weighted of differ- other is a FPC, F.2d v. 399 959 ral Gas Co. debt, applied preferred to stock ent rates (D.C.Cir.1968). Thus, re- stock. the rate of and common majority it is not The asserts that insist- is normal most suitable ve- turn the and the ing Jersey receive finan- that Central given taking utility’s of a hicle for account through relief it seeks a rate base cial surpris- fluctuating financial needs. Not n. The 1182 5. Maj.Op. at adjustment. See ingly, explained at oral as the Commission protests too much. Rate base majority most argument, it is here that FERC does Jersey cancelled treatment of Central’s Maj.Op. 1186- “tinkering.” its at is, course, See very thing at issue. plant Indeed, through adjusting 87. it utility, as stated in its and as The Jersey and Cen- by majority, presented rate of return that FERC has credited provide rate it package alleges their differences in this will tral settled rate necessary non- amount to avoid filing. minimum confiscatory rates; each regulation capable element of the devise methods of equitably reconciling In- proposed rate structure is essential. diverse and conflict- FPC, deed, argues, Corp. interests.” majority response to Mobil Oil v. 283, 331, 2328, 2356, 417 U.S. 94 S.Ct. point that Central had other our (1974)(quoting L.Ed.2d 72 (other Permian to Basin open forms of relief than inclu- Cases, 747, 767, Area Rate plant base), of its cancelled in the rate sion 1344, 1360, (1968)). 20 L.Ed.2d that other alternatives would meet the The broad en- discretion Commission utility’s specific financial needs. determinations, joys ratemaking its how- can- majority Maj.Op. 1186-87. at ever, be must bridled accordance with ways, its not have it both and refusal to statutory resulting mandate that accept opinion of its the ramifications “just rates be In Hope, reasonable.” regard to which it this reveals the extent is Supreme Court articulated the standard blind to Central’s real motivation— reviewing which a court examines nullification the NEPCO doctrine. challenged statutory rate. “Under the ‘just standard of and reasonable’ it is the Utility’s Right III. to an result reached not the employed method Evidentiary Hearing controlling____ If the total effect may There be times when Commis- of the order cannot be said be to sion cannot issue an interim dis- summary unreasonable, unjust judicial inquiry position long- order even when based under the Act is at an end.” established settled rule. ar- (citations omitted). 64 S.Ct. at 288 gues is such a time. It claims Thus, Hope judicial scrutiny, a limit on policies procedural that the substantive probing anot device for courts restless filing requirements that fray enter between utilities and the recovery pow- established of abandoned ap- Commission on the actual rates to be projects, er whatever their merit for utili- proved. facing straits, ties less dire financial were Remarkably, majority invokes applied invalid as partic- Central’s direct may the methods Commission filing. ular rate contends employ fashioning Jersey Central’s requirements the Commission’s rate base colleagues accept Jersey rates. Our Cen- jeopardized Jersey so in- tral’s contention that “the Commission tegrity long-term ability capi- to attract summarily exclude an investment tal that the Commission’s order threatened rate base when the capital to confiscate the its owners had alleged ability capital that its to attract will invested, in the Hope contravention of end jeopardized seriously as a result.” Accordingly, result test. asserts that the Maj.Op. They therefore conclude summarily apply cannot that the is entitled rule; rather, NEPCO it must hold evi- prove opportunity order have the dentiary hearing concerning proper treat- allegations and demonstrate that the end ment utility’s proposed rate base result of the Commission’s order —were it acknowledging items. While electric carried out—would violate the stan- utility industry’s investors, need to attract Regardless propriety dards. presents we find that policy, Commission’s used and useful why valid reason these justify concerns that, majority given Jersey holds Central’s exemption from the Commission’s re- clear allegations regarding status, its financial a quirements. majority obviously The dis- required hearing is implement order to agrees. is majority It here opinion that policy. To contrary, find we noth- may caprice. cause the and most confusion ing in Jersey filing Central’s initial and its Ratemaking “pragmatic calls for adjust- rehearing application for that demonstrates clearly province ments” within the of the hearing stage a need for a at this Commission, which “must free to proceeding. ...

1205 Act, 16 allegations 205 the Federal Power Based on Section 824d(e) (1982), provides Commission, “the that U.S.C. the evidence before the we § authority to en shall have ... Commission find this conclusion reasonable. hearing” legality on the of a upon a ter authorizes, provision This rate increase. Necessary Showing The a A. to Obtain not require, does Commission

but Hope Hearing evidentiary hearings; the full-scale conduct dispose of summar issues Commission a In order for Central to raise hearing. there is need for a ily if See Hope challenge, allegations, if serious Energy Regu Federal Batavia v. Cities true, suggest must that the Commission’s (D.C. Commission, 64, 672 F.2d 91 latory interim order—the exclusion of unam- Cir.1982). In a particular, utility is costs rate plant abandoned from the ortized hearing to a before the non-con entitled unjust base—would result and unreason- filing reject forming portion of its rate is According majority, rates. Jer- able ed, v. see Southern Edison Co. showing sey California Central has made the neces- Commission, Energy Regulatory Federal hearing. sary Maj.Op. at Hope obtain a 43, (D.C.Cir.1982), F.2d 47 or when 686 by majority 1169. convinced challenges policy. an Pa established See allegation “the utility’s payo Utility Authority Tribal v. Federal long-term capital, off been shut Commission, F.2d Energy Regulatory 628 wholly dependent capital for short-term 235, (D.C.Cir.), denied, 242 cert. 449 U.S. revolving arrangement credit that can be a 1061, 784, (1980); 101 66 L.Ed.2d 604 S.Ct. time, any at cancelled has been unable FPC, Municipal v. 450 F.2d Light Boards years.” pay for four Id. at dividends 1341, (D.C.Cir.1971); 1345-46 3 K. see also simply the inves- proffer echoes This 1181. Davis, Administrative Law Treatise Hope. interest tor described See (“When (1980) utility’s 14.5 at 26-27 § 603,64 288, Maj.Op.at 1171- at at S.Ct. legal challenge of a entire consists recite utility must do more than A72. there policy, well-entrenched is no need frustration its stockholders’ inter- grant challenger the Commission to hearing. Hope in order to obtain a ests hearing.”). under an The Commission is Thus, agree majority we cannot with the obligation grant hearing only made Cen- allegations that “[t]he adjudicative raises “issue of an testimony it and the offered track tral v. fact.” See United States Broad Storer Hope and Permian Basin standards casting at exactly.” Maj.Op. 1178. (1956); 771, L.Ed. Citizens for FPC, 414 F.2d Allegan County, Inc. v. adopt majority We need what (D.C.Cir.1969). relentlessly interpre- maintains is FERC’s required showing order tation Had raised a “serious —“the put into bankruptcy” would challenge,” majority believes —in reject showing presented order to did, Maj.Op. there an at would be 1175,1177,1179, id. Jersey Central. See adjudicative fact issue of which necessi- alle- precise decide what Nor need we dispo- summary tates a rather than ultimately com- and evidence gations sition. issue would be whether showing. court necessary prise the taken the Commission to reduce action do, Jersey Cen- find, as we need permitted Jersey the rates Central would are There showing not suffice. does tral’s produce unjust end unreasonable which, in showings types three result; least is, had. whether ob- any attempt to view, are crucial non-confiscatory our proposed “minimum” hearing at this intermediate excluding possible. summarily tain rates base, proceeding stage non-conforming from the rate costs opinion majority’s in the impliedly largely determined overlooked filing. Jersey Central’s utility no issue of fact. had raised absent 1206

1. The level worthiness”); Nexus Between Rate Order of credit compare Per- Utility’s Plight Basin, 812,

and the Financial mian 390 U.S. at 88 S.Ct. at (noting 1384 proposed that the rates guar- It is FERC is axiomatic that not industry’s “maintain the credit and con- Jersey antor of Central’s financial health capital”) (emphasis added). tinue to attract utility go bankrupt and that a even for problems appear Central’s to stem regulator’s beyond reasons control. largely operations from the of the free See, e.g., Hope, 320 atU.S. 64 S.Ct. at market, perhaps by exacerbated the actions 288. The Act and its constitutional limits regulators. of other FERC cannot be governmental ratemaking ensure that the responsible curing made those ills. process “produce arbitrary does not or un- consequences.” reasonable Permian Ba- Supreme Court has this enunciated sin, 390 They U.S. at 88 S.Ct. at 1377. quite principle frankly: protect utility do from market process The due applied clause has been forces. Railway Market Street Co. v. prevent governmental to destruction of California, Railroad Commission 324 existing economicvalues. It has not and 548, 567, 770, 779, S.Ct. L.Ed. applied cannot be to insure values toor (1945). Establishing a link between a restore values that have been lost utility’s bad health actions operation of economic forces. regulator raising is thus essential to a via- Street, Market 324 U.S. at 65 S.Ct. at ble claim. Jersey Central has not established this The entire utility industry electric faces simply complains critical It nexus. that the Excerpts “financial crisis.” See from Jer- government’s ratemaking actions sey Brief, J.A. at 26 n. 19. As problems; colleagues source of its our nev- remarked, Baldassari the October 1973 oil question er this assumed causal connection. embargo impact and the of inflation are An examination of the evidence laid before problems generic industry. to the Testimo- FERC, however, leads us to doubt va- Baldassari, ny of Dennis at 33. J.A. Those lidity of assumption. heavily utilities that invested in nuclear present circumstances, In its financial particularly hit, were facilities hard greater Central bears resemblance public political least adverse failing Railway Market Street Com- power attitudes nuclear attend- pany than it does to the Natural Gas dangers. ant Any See id. at 33-34. fair Company, advantage “which had of an eco- reading testimony Baldassari’s before position promised nomic yield FERC leads to the conclusion that econom- what was held be an excessive return on forces, ic part rather than action on the its investment and on its securities.” Mar- FERC, strapped Jersey Street, ket 324 U.S. at into straightjacket. the financial (finding investor considerations advanced Hope “inapplicable a company whose It should be noted that integrity already hopelessly portfolio places un- investment in a uniquely dermined”). Jersey tight predicament. Central had not been Central is a sub- pay able to years sidiary dividends for the four of the General Public Utilities Cor- prior filing; to its capital poration, its access to had among electric that has hampered been as long. “prudent” about Essen- Metropolitan investments tially, asking the Commission Edison Company and the infamous Three to relieve its by approv- (TMI) economic miseries Mile generating plant. Island nuclear ing dramatically increased rates. See Tes- Central intimates that the horren- timony Baldassari, of Dennis J.A. 34 dous financial burden caused the TMI-2 (testifying that continuation accident was pivotal suspend- force in present prolong rate “will Company’s construction River. of Forked id. inability to recognized restore Presumably itself heavy also landed a blow

1207 ratemaking procedures in its worthiness and fi- abandon ev- credit Jersey Central’s experienced integrity. ery industry which financial nancial regardless principal hardship, of causes poten- only is force not the The market Neither nor the of those conditions. tially against Jersey Central. at work requires much. process due clause as See influence Many regulatory bodies have 567, Street, at 65 S.Ct. at Market destiny; Jersey Central’s economic over 779. therefore, effectively link utility must This to FERC. show- its financial distress 2. The Effect on Consumers ing important, since the fed- particularly is responsible ultimately is government eral burden Cen- The —on only about ten of allowed whole—for value tral to establish that return in the electricity constitutionally inadequate; sales United percent part of FERC is major part regulate the showing necessary States. The states an raise issue earlier, noted utility business. As of fact must include attention to con- historically re- Jersey BPU has the New important form sumer interests which unproduc- a return on fused part Hope balancing test. Under Excerpts from tive facilities. See taking only Hope, agen- occurs when Brief, (blaming the J.A. at 17 com- cy misbalaneed the interests of has inves- lack of pany’s financial on BPU’s woes tors consumers. As the Court stated addition, relief). federal there are other Basin, in Permian agencies regulatory control with who share Commission cannot confine its in- [t]he Regulatory Commis- FERC. Nuclear quiries criteria]; Hope investor [to sion, example, prohibited company obliged step at each instead starting up gen- TMI-1 from the unharmed process require- regulatory to assess the severing erator, thereby company’s ac- public interests ments of broad en- prime desperately cess source of Congress. protection by to its trusted service and revenues. needed Accordingly, the “end result” Commission’s orders must be measured problems If Central’s derive from they as much the success with forces or from the actions oth- economic protect by the effec- those interests as bodies, then regulatory er even FERC’s they “maintain tiveness with which ... at full rate base treatment the amounts capital.” and ... attract credit inability company’s issue will alter long-term or obtain credit. pay dividends at 390 at 88 S.Ct. U.S. minimum, claiming an At a un- interest The consumer essential taking should to show constitutional is that of not just and reasonable balance caused or substantial- that FERC’s actions subjected exploitative rates. The being alleged to ly to the conditions contributed watchdog provid Commission stands as the taking. Jersey Central result of the be the complete, permanent and “a effective fact, showing. has made such rates and protection bond of excessive appears if the Commission’s interim at Id. 1374 charges.” at S.Ct. rate-reducing factor in the order is small (quoting Refining Co. v. Public Atlantic utility’s contributing to the forces 378, 388, Commission, 360 U.S. Service dilemma. (1959)). 1246, 1253, 3 L.Ed.2d 1312 Thus, con majority posi- the remarkable this court described takes “prime agency’s constituen alter its sumers as tion that must cy.” Maryland People’s v. ratemaking procedures even if the Counsel (D.C.Cir.1985) (cit FERC, F.2d only can show that the Commission’saction 296). ing Hope, 320 64 S.Ct. portion minor affects “a of an exorbitant rate exact boundaries Maj.Op. at 1182 n. 5. business.” however, Ultimately, From this are indeterminate. position is untenable. Such a service, obliged they must relate to the cost see agency perspective, Exchange, ing Jersey Farmers Central Inc. v. more than that Central Union has ac- FERC, (D.C.Cir.) (cit 734 F.2d 1502 cheaper power, cess to sources of or 602-03, ing Hope, 320 U.S. at 64 S.Ct. at legitimate some other reasons has fewer 287-88), nom., denied cert. sub Williams (Mikva, J., costs.” 768 F.2d at 1512 dis- Pipe Line v. Farmers Co. Union Central senting). certainly It does not show that Inc., 1034, 105 Exchange, Jersey proposed not rates would (1984), 83 L.Ed.2d 298 and the distribu exploit its customers. risk, Washington tion of associated see majority “it impossible admits that Baker, Light v. 188 F.2d Gas Co. say juncture for us to at this in- whether (D.C.Cir.1950). the cluding portion unamortized of Forked Jersey argues agency that exploit River in the rate base would con- against has discriminated its investors’ in- Maj.Op. sumers this case.” at 1181. terests, but does not address how the Jersey alleges pro- Since that its weighed balance Commission’s the consum- posed rate yield schedule would the lowest significantly, er interests. More it does not nonconfiscatory possible, how can paying show that more attention to its in- majority say then that company has exploit vestors’ interests would not the con- Hope showing? made a Without a show- 35.13(e)(3)(1986) sumer. See C.F.R. § ing filing exploit that its would not con- (stating that the burden of sumers, Jersey presented Central has not “establishing just that the rate increase is allegations suggesting rate order unduly and reasonable discrimina- requirements does Hope. not meet the of tory preferential”). allega- id. at Absent such Contra majority seeming is in confusion as tions, is not entitled to a showing to the made with hearing. regard protection of consumer interests. states, support,

It without “Jersey 3. The Reasonableness Overall figures testimony Central submitted Return Allowed on the Forked River support claim proposed its ... Project exploit consumers,” rates fact, Maj.Op. Yet, at 1180. Cen- Regardless employed, of the formulation “claim”; tral itself never this made rates fixed the Commission may not never majority broached the issue. The shift risk of loss onto the consumer and unpersuasive resurrects an argument in then practice exact the loss him support of its namely, contention— in the event it occurs. Such double tax- proposed “the rates in its would re- ing clearly “would violate consumer neighboring main lower than those utili- against interest ‘exorbitant’ rates.” Wash- 1181; ties.” Id. at see Central Pow- ington Light, Gas F.2d 20. Before FERC, Light er & Co. v. 768 F.2d questioning the application used and (D.C.Cir.1985). Perhaps point rule, therefore, useful important it is support would lend majority’s asser- discover if the investors in Forked River competitive tion were there a market for already compensated been for the risk electricity service. But of course there is project that the would be cancelled before competition market; no in this electric utili- entirely the investment in it was recovered. are monopolies subject ties natural to rate See id. at 19-20. regulation. ‘just “What rates rea- by utility The total return received is a general depend sonable’ will in on a utili- function of both the ty’s legitimate costs, rate base and the rate and those costs can of return, vary widely neighbor- any given course and the total return on among even utilities____ some investment is a function of the That utilities with allowable monopoly adjacent period markets return over a Cen- of time. Cen- charge tral’s are allowed to than more Jer- tral has focused on the “used and sey presumably signifies Central thus noth- useful” method of rate base calculation return, ceedings compen- attention to the rate were never intended to that re- especially to the manner which exposure sate the investor for the risk of already compen- arguably have TMI-2.”). turn decontaminating the costs of If investors for the exclusion sated compensated Central has been investment from rate base. cancelled plant along all because its rate of re- company’s explanation Without historically turn has been set in a world return, impossible allowed it is historic being utility where one of risks of Commis- judge the reasonableness of the having an investment declared not to be plant. of the sion’s treatment Forked River useful,” proba- “used and then FERC has obligations its bly fulfilled Washington Light, Hope. In Gas the case so under upon relied heavily by majority, the this sum, order in to obtain a hear- Hope upheld departure a the “used court ing, that, Jersey Central must show due calculation and useful” method rate base actions, the Commission’s it is in need of “prudent approach. to the investment” protection phase ratemaking at However, approving application before the process. showing conspicuously That is plant of that formulation to the abandoned it, missing. the Without court has no busi- case, pro- in we remanded for further that calling upon the ness alter Contrary ceedings the Commission. ratemaking procedures provide its a majority’s explanation, did not re- the we stage. again, at this interim Once findings concerning quire the “financial protective a Hope device—the end result company. Maj.Op. at health” See being test —is used as a weap- first strike necessary because was remand A 1177. on. Judge possible Bazelon realized that it was investors had com- already that the been plant for the that at issue pensated risk the of a B. Limits “Just and Reasonable” Judge As Bazelon would be abandoned. Rate observed, ..., in likely seems view of “[i]t Central that is not entitled past in prevalence the the of the doctrine hearing, normally would in- property would not be abandoned thought unnecessary to consider what (regardless the rate base cluded prove, utility granted would were it in com- whether had resulted [rate orders] hearing, in order to establish recovery investor), plete that inves- confiscatory. Commission’s rates are compensated been tors had for the risk of attempt analyze evi- concurrence’s Thus, 188 F.2d obsolescence.” at 20. presented, thoughtful, pre- dence while possible the rate of return al- majori- mature. Because of breadth of the company years lowed earlier —if however, ty’s opinion today, we are com- properly calculated to risks of reflect the pelled the issue. to discuss utility compen- business—would have the risk

sated the in advance for today’s real mischief of lies decision not obtain full rate treat- that it would base majority’s not in the belief that the its investment later on. If the rate ment of necessitating has an issue of fact raised compensa- of return had served that risk hearing, in its but determination that Jer- function, allowing recovery tion additional sey actually Central made out a case of switching mid- rate base formulations constitutional confiscation. As Justice overcompensate stream remarked, upset Douglas “he who would exploit at 19-20. consumers. Id. the rate order under the Act carries heavy making convincing burden allegations has made no showing it is invalid un- because it is regarding prior treatment just consequences.” and unreasonable plant approved River Forked Compare Hope, 320 Testimony return. of Dennis U.S. S.Ct. Baldassari, (“[T]he majority of re- that J.A. at 35 rates believes Central can previous pro- turn regulatory simply allowed meet this burden. We swal- cannot Allard, majority’s assertion that “it is claim.” low the Andrus v. alleged

probable [by 318, 327, that the facts L.Ed.2d 210 true, Central], if would establish an inva- Basin, In Permian the Court restated company's rights.” Maj.Op. sion of the doctrine as follows: view, it beyond at 1169. In our cavil that Price control is “unconstitutional if ... presented allega- has not arbitrary, discriminatory, or demonstra- which, true, tions would establish that bly policy legislature irrelevant to the unjust the Commission’s orders result Nonetheless, adopt____” is free to and unreasonable rates. just and reasonable standard of the Nat- Despite majority’s seeming confi appli- ural Gas Act “coincides” dence, precise required contours of this standards, cable constitutional just showing are unclear. The and reason rate selected the Commission from statutory imprecise. able standard is As zone of broad reasonableness cannot explained, once “the words them this court as confiscatory. be attacked meaning applicable selves have no intrinsic Accordingly, there can be no constitu- City Chicago alike to all situations.” v. of Commission, if objection tional the in its 731, FPC, (D.C.Cir.1971) 458 F.2d 750 rates, fully calculation of takes into ac- (quoting FPC, City Detroit v. 230 F.2d of count the various interests which Con- 810, (D.C.Cir.1955)), denied, 815 cert. 405 gress required it to reconcile. 1074, 1495, U.S. 92 S.Ct. 31 L.Ed.2d 808 (1972). Congress provided itself has 769-70, (cita- 390 U.S. at 88 S.Ct. at 1361 for determining unjust formula and un omitted). tions 600, Hope, reasonable rate. 320 U.S. at 64 Permian Basin teaches that if the Com- subsequent at 286. Hope S.Ct. Cases to reasonably mission balances consumer and loosely “deliberately defined this interests, resulting investor then the rate is drawing broad” standard as a “zone of 770, confiscatory. at 88 Id. S.Ct. 1361. may proper in which rates reasonableness separate opinion ably translates this ly by fall. It is bounded at one end working confiscatory into a definition of a against investor interest confiscation and it exists rate: when “an unreasonable bal- by at other the consumer interest ance regulation pro- has been struck See, against exorbitant e.g., rates.” Wash unreasonably ratepayer cess so as to favor ington Thus, Light, Gas 188 F.2d at 15. expense interests at the in- substantial of only way that a rate fall outside Sep.Op. vestor interests.” at 1189. The reasonableness, of the zone from the utili majority appears agree teaching to with the view, ty’s point is if it is so low that Maj.Op. Permian Basin. See at 1177- taking amounts a unconstitutional under however, gleans, in- 78. The lesson it the fifth amendment. v. See FPC Natural congruous. According majority, bal- 575, 586, Pipeline Gas ancing competing enough; interests is not 736, 743, S.Ct. 86 L.Ed. 1037 confiscatory rate if it does not satisfy Ascertaining taking what constitutes a “legitimate investor interest” outlined difficult, regulatory context is 1177-78, Hope. Maj.Op. at the Court part deprivation typi- because there is no 3, 1180, (insisting 1181 n. 1181-82 that the interests, property conceptual cal cor- Hope factors outlined in taking). describe a takings Supreme nerstone of law. The interpretation This Hope and Permian repeatedly price Court has stressed implausible. Basin is fixing uncompensated does not effect an majority’s assessment of taking Cen- merely because investors are denied showing Indeed, tral’s evinces a expected their fundamental mis- return. even in tra- industries, understanding ditionally competitive context in which “loss of profits unaccompanied by any Hope future Court discussed investor interests. — physical property specified It provides a the interests at issue but did restrictions — upon slender reed takings require which to rest a that rates fulfill them in order capital non-confiscatory. Hope, the Court but also for the costs of the to be busi- includpng] an assertion that the ness faced ... service on the debt and fixed were so low Hope, rates dividends on the stock.” See unjust 603, as to be unreasonable. test- at U.S. S.Ct. at 288. challenge, essentially ing this Court The Court abundantly made this clear in utility’s sharehold- questioned whether Market Street. The Commission rate or- anything complain about. The ers had der Market was claimed to Street be “important” what was Court examined 562, confiscatory. 324 U.S. at 65 S.Ct. at company point investor or “from the Central, complaining 777. Like fully and found that the rate at issue view” company asserted that “entitled [it] any legitimate investor interest. satisfied to a return ‘sufficient assure confidence 603, at 288. Accord- 64 S.Ct. at integrity enterprise, in the financial ingly, held that the rate could not the Court so as to maintain its credit and to attract viewpoint. condemned from the investor capital’ company oper- and to ‘enable the 288, later, year at 64 Id. One successfully, ate to maintain its financial Jackson, speaking for Justice a unanimous integrity, capital, compen- to attract and to Court, majority’s interpretation refuted ” sate its investors for the risks assumed.’ holding in Hope: “All that Court’s (quoting 65 S.Ct. Hope, Id. at 779 company was held was that a could not 288, 289). 320 U.S. at 64 S.Ct. at complain the return which was allowed argument The Court dismissed the out of possible company operate for the made In approving concededly hand. a rate that Street, successfully.” Market 324 U.S. at consigned operating at a 65 S.Ct. at 779. The Court did loss, the Court made just clear that a unreasonable”; “unjust not define or nor might satisfy reasonable rate not the inves- it did articulate when a rate would be con- expounded tor “considerations” in Hope. fiscatory. certainly It did not hold that the least, very At the the Court revealed that end result could condemned if the inves- guarantee test does not rates tor criteria defined in the case were not provide that are fixed to return “on an Indeed, expressly fulfilled. noted that vanished, investment after it has even if holding suggestion made no that more made, prudently once to maintain the might or less not be allowed. 320 U.S. at already credit of a concern securities whose 603, 288; Street, 64 S.Ct. at see Market 567, impaired.” Id. at at 780. S.Ct. 566, 324 U.S. at 65 S.Ct. at 779. regulatory process Neither the nor the understanding This only is the utility fifth amendment shelter a from mar- way to reconcile the Court’s recitation Thus, contrary ket forces. See id. investor interests with its avowal intimations, majority’s rates do not fall out- “regulation does not insure busi- merely side the zone of reasonableness be- produce ness shall net revenues.” See they cause do not enable

Hope, 320 U.S. at 64 S.Ct. at 288 operate profit permit at a or do not inves- (quoting Pipeline, Natural Gas 315 U.S. at tors to recover all their losses. 745). at S.Ct. Investor interests are The zone of reasonableness can be only one in the factor assessment of consti- circumscribing appropriate viewed as reasonable, tutionally therefore non-confis- regu- allocation of costs and benefits Basin, catory, rates. Permian 390 U.S. at latory unregulated context. an environ- instance, any 88 S.Ct. at 1361. In ment, the customer be deemed a “provide appropriate protec- rate must also interests, capital risk-taker. He invests no in the public tion to the relevant both enterprise existing and therefore bears neither the and foreseeable.” at Id. upside nor just A the downside risk. The inves- and reasonable rate balancing price regu- tors are the which results from these conflict- risk-takers. Under lations, ing might provide “enough utility interests which affords the a “natural service, operating expenses monopoly” revenue not on some of the risk at spectrum is shifted enterprises having either end of onto investments in other transfer, however, risks”). ratepayer. corresponding The is as to relieve the stockhold- not so dramatic event, this court should not ordain the entire risk of loss. er of shifting the drastic risk filing. proper advocates The alloca- principle Application readily of this is tion of risk between shareholders and rate- apparent in the Commission’scurrent treat- payers ongoing question. a serious is utility plants, ment of electric investments supra page cross-cutting 1202. It raises prudent made but sometimes when frus- single issues too broad to be ventilated in a If the trated in investment fruition. proceeding. importance “The of this successful, the customer benefits from con- impact single issue ... transcends the on a provided. trolled for the service But rates jurisdictional utility.” England New Pow- ratepayer also shares the costs if the (CCH) 62,042 61,453, er 32 FERC fails; pay he must investment for the ex- 30, 1985). (Sept. majority’s conclusion penditure unproductive facility made that the allocation reached the Commis- from which he obtains service. From sion be unconstitutional on the facts viewpoint, price regulation the investor’s alleged troubling implica- serious and upside cabins his and downside risk. both tions, especially twenty-five for the states He cannot collect the windfall if benefits currently facility exclude cancelled ex- boon; project is a he does not all bear penses from a utility’s rate base. project if costs is a bust. Electric equity stockholders do not lose Hearing Filing IV. Rate on the Altered facility, they might non-serviceable marketplace. They in the simply do not indicated, As we procure return on the investment. reasonably applied its settled rate base fil- according rule to to its majority quibbles with this risk allo- summary disposition proce- established cation; prefer it would a world in which the Nothing allega- dures. guaranteed investor is a return on his in- automatically tions hearing. entitled to a vestment, prudent when made. See to, was entitled and was afford- 1180-81 & n. 2. Its Maj.Op. at resultant ed, hearing proposed on its rate of return holding today directly at odds with fun- conforming on the in items its rate base. principles damental in Hope laid out and its Jersey Central nevertheless makes one ad- progeny. majority’s Adherence to the in- complaint against ditional the Commission. prudent sistance on the inclusion of invest- challenge, Jersey In its final Central ob- ments in virtually the rate base would insu- jects to the Commission’srefusal to enter- public late investors utilities from the utility’s attempt tain the to inflate the rate risks involved free market business. proffered filing. of return initial its This drastically Sep.Op. at 1190. This would See yet by Jersey another move Central de- protection public diminish interest signed to convince this court to endorse its thrusting the entire risk of a failed invest- skirting agency procedures. of valid ment ratepayers. onto the See id. at 1190. rejecting Central and the majority plea, Central’s utility convert long-standing stockholders from risk- Commission invoked its rule takers annuity into that present ‘moving holders. Ex- “utilities a See cerpts Brief, target’ by offering J.A. at 18 justifica- alternative (analogizing suggested “cost-sharing” its previously tions for filed rates.” 20 FERC (CCH) mortgage annuity). 1161,108, 61,182. to a levelized Nei- at As this court takings ther nor the fifth original amendment noted in opinion, its this rule is not clause sanctions such radical results. arbitrary. justified by It is the “adminis- Cf. Hope, 320 at necessity 64 S.Ct. at 288 trative of closing the at a books (stating certain,” equity that the “return own- time as well as the for a need er prevent should be commensurate with returns on “mechanism to delay- utilities from by offering observed, refund orders alternative the Commission company’s “the justifications [they rate increases case-in-chief for the did not include testi- [initial] mony seeking support filed. FPC staff and intervenors can- a return other have] moving target.” any than based on expected not be to follow a 19% alternative scenario events, including FPC, summary disposition v. No. 75- England New Power Co. (CCH) 1161,- (1st 13, 1975), rate base items.” 20 FERC slip op. Nov. at 3 Cir. 61,182. In (CCH) 61,108, 61,182. high- at order to recover a cited in 20 FERC return, petitioner required er would be majority questions the never Com- offer cost and market at the data time of implement authority mission’s this rule. filing support their that would rate of that Rather, questions appropriateness 35.13(e) (1986) return. 18 C.F.R. See § application Central’s case. (testimony supporting filing and exhibits majority seems to believe schedules). changes in rate grant hearing Commission’srefusal majority Where the “in reads the [re- higher stripped petition- rate of return order denial] [that] plead any er of chance to its case and filing made it clear a fresh would be futile” Despite the rates it desired. obtain escapes comprehension. Maj.Op. majority’s protestations contrary, 1187. The utility certainly get did not opportunities Jersey Central had sufficient message. following exchange from en requested. to seek the revenues it We are argument amplifies Jersey banc oral Cen- unpersuaded by utility’s con- therefore recognition tral’s that it was free to submit hearing. tention that it was denied a fair thereby new rate obtain a outset, As at the had at noted hearing: separate opportunities least two to raise its you put But could COURT: in- request concerns and to the full rate filing, you? new couldn’t anticipated by rejected filing. crease have, sir, COUNSEL: We could but approach would have raised an issue Either fact, precluding summary disposition. time, COURT: At even now? First, Jersey Central could have filed ini- COUNSEL: could but we be- [W]e higher tially for rate of return on its today lieved then and we believe property, used and useful or for a shorter precedent wrong and we would period amortization on its Forked River opportunity not have had an to— investment. Because a shorter amortiza- really That is I COURT: what wanted period tion would allow the to recov- you up. to clear Your concern sooner, really( er its investment it would have had strongly disagree with the NEPCO increasing the same effect of total return precedent— flatly attempt, as did con- do, Yes, COUNSEL: we sir. precedent tradicted the clear NEPCO that, —I understand COURT: but as cases, and increase the size of the later you far as are concerned the use of the Indeed, Jersey concedes rate base. applied useful rule as is a NEPCO bad point. If had followed NEP- you idea and would like this Court CO, proposed rate in- supported and its change its mind. filing in- crease for amortization of its Yes, sir, question COUNSEL: no projects vestment in cancelled over five fifteen, about it. years higher instead of rates than initially proposed

those would have been Tr. at 8. justified. submitting As an a differ- alternative to

Second, Jersey have made filing, Central could ent rate Central could have rates, requests by refiling exemption the same its asked for an individualized using proper filing, filing rate base. This new the NEPCO rule. Commission’s course, provide any filing could not have with- requirements stood alone that “[i]f supporting any applicable out stat- comply exhibits and affidavits. As does not rule, order, ute, filing may reject- begin be was reexamining able NEPCO “as ed, filing accompanied by unless legal well as the economic underpin requesting applica- motion waiver nings for plant policy” a cancelled in the requirement ble of a rule or order and the rulemaking 62,042; context. Id. at see also granted.” motion is 18 C.F.R. 385.- § Co., Pennsylvania Electric 34 FERC 2001(b)(1)(1986). By providing this waiver ¶ (CCH) 61,141, 61,244 (Feb. 4, 1986) n. 8 process, the Commission exercises its in- (“[A]ny change in policy would relax, power modify, herent or waive its prospective only, and utilities are re filing requirements. Papago Tribal quired precedent to adhere to the estab 247; Authority, 628 F.2d at Utility Munic- pending lished in reconsideration [.NEPCO] ipal Utility Electric Association v. Feder- policy.”); Co., of our England New Power Commission, al Power 485 F.2d n. (CCH) 1161,353(June 18, 1986) 35 FERC (D.C.Cir.1973). Jersey Central did not (denying generic scope motion limit exemption. move for such an hearing). NEPCO II Phase responses argument As oral illus- light opportunities, of these deliber- trate, Jersey Central declined these multi- avoided, ately question we cannot the rea- ple opportunities because it wanted to chal- sonableness of the applica- Commission’s lenge directly, the NEPCO rule and none against tion presenting of its rule a “mov- permissible options allowed it to do course, target.” suggest Of we do not so. The it would have obtained agency may implement any that an policy filing had it made a new would not have through any procedure, no matter how un- doctrine; enabled it to address NEPCO reasonable, compel applicant to ad- filing nor complying would of a tariff preserve right here to them order to the first instance provided that van- to seek relief from the agency. We find tage. Similarly, merely asking for an ex- only that the validly Commission acted emption in way threaten the via- requiring Jersey Central to follow reason- bility of the majority doctrine. The demon- policy filing able requirements. The strates that such a “characterization” of measure of their reasonableness is that utility’s filings would be “an unreason- they ample oppor- afforded one,” Maj.Op. able no charac- but tunity that, taking to contend its balance necessary. terization is Jersey Central history sheet and troubled of investments plainly purpose upon stated its and acted it. account, requested into the total return it sought Central could have review just They provid- and reasonable. also perceives of what it as an unsound rule platform ed the with a for advo- trampling without on the Commission’sfil- cating the application discontinued ing policies procedures and without used and useful doctrine to cancelled elec- asking this court to become involved. It tric opportu- facilities. Given these petitioned could have the Commission for a nities, Jersey Central seek cannot from this rulemaking. approach NEPCO took this court the relief and the individualized at- its 1985 proposed submission for of a tention to plight its financial that it could rate increase. England See New Power have obtained from the Commission. (CCH) ¶ 61,454 FERC (Sept. 1985) (Phase II). “requested] NEPCO

that the policy Commission reexamine its Conclusion regarding the treatment of the costs of proportions This is a case of modest plant.” 62,042 cancelled (citing Id. at NEPCO). segment about sweeping one rate- Jersey Central, Unlike how ever, making responsibilities Congress suggested NEPCO did not factor its plants treatment of entrusted to the abandoned into the Commission. Like all proposed; rather, rates it sought government, arms of only agency a must prospective change policy. in the at abide its statutes and Id. constitu- 62,043 n. 5. In way, prohibition against taking property Commission tional By granting hearing 2. the due & n. of law. But process due without stage long at this and com- regulated utility are not Central of a process claims ratemaking plex process, majority pro- exchanged for a can be coupons which argue a forum which to vides time, and manner of the hearing place, aat But it also interferes with the its causes. choosing. approach would utility’s Such implementing discretion Commission’s agency’s ability to havoc with wreak ratemaking procedures. policies and It regulation sys- complex rate administer thereby threatens the well-held maxim that filings many rate must assess tem that is “not bound to use annually. single formula or combination of formulae times when the may There indeed be determining Hope, rates.” See employ the used not free to Commission is at 287. 64 S.Ct. summary fashion. principle and useful heightened In an deference to era of However, has not made the Jersey Central procedures, decisions and administrative allegations do exception. Its case for its especially ought this court to be sensitive sufficient to question of fact not raise a legitimate judicial line re between hearing application trigger Hope before judicial agency substitutions for view well-settled, court-approved ratemaking processes. See Chevron U.S.A. Inc. v. policy. The concerns about procedure and Council, Inc., Resources Natural integrity and investor return that Defense 837, 104 81 L.Ed.2d hearing held in reserve for a Jersey Central (1984); Yankee, supra. The ma Vermont rule should have challenging the NEPCO jority very filing proce has reordered the by following the Commission’s been raised may prescribe, that FERC has redi dures ex- procedures. rules and We established hearings in rected the kinds of re- no view on substantive rate-base press may changes policies FERC consider may come before this quirements that and, all, has thrust the courts worst of case; only we find that on court in another very complicated into the forest of back was not obli- these facts regulated making the rates that industries hearing entering its gated hold a before charge. ignore peril at our We rate-reducing order. The Commis- interim expressed lessons of restraint hard-learned processes offered am- sion’s administrative Supreme by the Court Natural Gas to re- opportunities Central ple Hope. majority Pipeline and supporting evidence for quest present painful period. have us relive rate of return and amortization whichever necessary pre- period deemed integrity, and to seek its financial

serve doctrine. of the NEPCO

review itself of these chose not to avail

Central cries foul.

opportunities, and now is, end, only one reason that There in the STATES of America UNITED wants its before in- portion unproductive of its unamortized v. from the rate base. is excluded vestment HOLLAND, Appellant. Rufus perceives timing is the means That 86-3027. No. enabling it to launch its frontal both Appeals, United States Court of NEPCO doc- attack on Commission’s Circuit. District Columbia immediately reap the rewards trine and to majority’s any victory in the battle. Argued Oct. appears driv- sympathy for 6, 1987. Decided Feb. used and agreement en and should be useful doctrine is outdated pure prudent investment

replaced with a

approach. Maj.Op. 1180-81

Case Details

Case Name: Jersey Central Power & Light Company v. Federal Energy Regulatory Commission, Allegheny Electric Cooperative, Inc., Intervenors

Court Name: Court of Appeals for the D.C. Circuit

Date Published: Feb 3, 1987

Citation: 810 F.2d 1168

Docket Number: 82-2004

Court Abbreviation: D.C. Cir.