Pennsylvania Water & Power Co. v. Federal Power Commission (Two Cases). Pennsylvania Power Utility Commission v. Federal Power Commission

n Before MILLER, BAZE- WILBUR K. FAHY, Judges. LON and Circuit BAZELON, Judge. Commission In the Federal Power Mayor petitions from the received two —one others, City and of Baltimore and Council Public Service Commis- the other from the in- Maryland requesting that sion of — justness and investigation of the stitute charges of of the rates and reasonableness Company Pennsylvania and Power Water Company Susquehanna Transmission Maryland1 regard of their to such energy as of electric sales or transmission Act, 16 subject Federal Power seq. By issued orders U.S.C.A. 791a et 1944, the September October began jurisdiction and Commission assumed LeBoeuf, City, Jr., Randall New York J. petitioners’ rates investigation of Leonard, Craigh with whom Wilkie Bush- requested by the charges. Intervention was City, Raymond Sparks, by, F. York New Commission, Pennsylvania Utility Public Daryal Await, King, Jr., C. G. Preston Commission, Maryland and Consolidat- C., were Myse, Washington, D. on A. Light and Power ed Electric Gas brief, petitioners Pennsylvania &Water Baltimore,2 permitted all were of whom Susquehanna Transmission Co. be- participate hearings and did Maryland. ofCo. hearings, Those the Commission. fore Counsel, Thomas, Pennsyl- 15, 1946, E. April Charles continu- began Commission, Harris- Utility 16, 1947, vania Public extensive July were ed until vice, special Pa., pro leave burg, hac produced voluminous record. nature and Kerrigan, Court, with M. whom Thomas January the Commission issued In Utility Counsel, Pennsylvania Public requiring Penn Water to reduce Asst. its order Harrisburg, Pa., was on charges in accordance with rates and Pennsylvania Public petitioner findings. sched- brief, The revised Utility attempt comply Commission. in an ules submitted order were consider- the Commission’s Wahrenbrock, Gen. E. Asst. Howard and, unsatisfactory on October ed Counsel, Commission, and Federal Power to . as Baltimore referred 2. Hereinafter petitioners referred to as Hereinafter Company. Penn. Water. tract, Harbor’s thirds prescribed its own sched- to receive Safe two the Commission output remaining part one Petitioners and such Penn services. ules for Water’s Water’s January third which is after Penn left review both seek turn, needs are orders, satisfied. In as does October Com- interven- is entitled to receive from Baltimore Utility Public addition, pany steam the extent ed the Commission. before Company’s aside re- parties to set is available after Baltimore have moved same quirements do appropriate alter- met. Nor the orders or obtain of Baltimore Com- contractual entitlements native relief. pany necessarily represent power by used Com- proceedings before the The various disposal hydro Its entitlement is at the it. petitioners’ picture present of a mission system permit the entire in order to of operations to an under- which is essential energy lowest incremental cost us. of now before standing the issues parts used as needed at the various there- operates a both Penn Water owns and granted rights of. In return un- plant hydroelectric generating steam and a Water, der its contract Penn Balti- Holtwood, Pennsylvania, on the at which is Company Water assures Penn of River, Susquehanna some nine miles north operat- revenues sufficient to cover all of its Pennsylvania-Maryland border. of the ing expenses specified and a return on its addition, Penn Water the Transmission and Similarly, both investment. Penn Water Company together constitute intercon- Company and Baltimore assure Safe Har- system interstate nected transmission —with payment bor of a combined annual part owning Penn operating Water yields specified operating return above system of located Penn- is expenses. The function of these con- sylvania Company, and Transmission tracts and of the interconnection of facili- affiliate, Mary- wholly-owned operating the they accomplish is, ties which in the words 1 company, A land facilities. third Safe operations to achieve Corporation, Harbor Water Power owns “closely integrated which are and coordi- hydroelectric operates development economy, efficiency, nated a matter of Harbor, at Pennsylvania, Safe trans- flexibility, hy- and maximum utilization of facilities which also interconnect ”4* * * capabilities dro river Water and Com- Transmission very has a variable flow.5 pany. Company The interest of Baltimore I sys- proceedings these stems from certain have, considering challeng- the various tem foundation contracts which Before order, operations we years, will past-twenty tied its es to Commission’s petitioners’ petitioners motions Harbor. ourselves those Safe and of .address ;to contracts, re- and annul These these set aside order. Under quired provide us on December Baltimore filed with Company were shortly the United States Court of capacity all times with the avail- after hydro Circuit had plants, beyond Appeals at its and steam for the Fourth issued able phases of declaring certain part judgment of it which fulfill is needed to arrangements between Penn its own commitments Those to customers. contractual illegal must, however, Company Baltimore un- previ- customers Water laws and approved by antitrust the laws ously Company. Baltimore the federal der Pennsylvania.6 illegality The these entitled, by Baltimore also con- Commission, Appendix to Petitioners’ 3. referred to as Har- Hereinafter Safe company Brief, p. This 43. bor. affiliated with Penn Company, Baltimore each infra, discussion, 193 F.2d 241. See 5. fifty per voting cent which owns Co. Consoli W. & P. stock. Cir., 1950, 184 Co., G., & E. L. P. dated Opinion the Federal Power No. denied certiorari F.2d supervise every phase raised authorized to almost system first foundation contracts was company’s rehear- of regulated business.7 petitioners petition for in their order, charged utilities, nine- about Rates as well as ing January of the provisions de- the af- services and contractual teen before the Fourth months fecting them, “just The Commis- must be reasonable.” cision down. was handed rehearing, “just rul- And what is and reasonable” is not request for sion denied the pressures competi- alia, validity the determined ing, that the inter of. upon dependent adequacy tion but of the order is not service public, anti- the fairness the return al- legality contracts position is that lowed here investment in the com- trust laws. Petitioners’ pany, requires degree congres- us to which the decision the Fourth Circuit’s objective sional rate order. of efficient use na- the Commission’s to invalidate power tion’s resources is served. Nor was mo by the problem raised Congress problems unmindful of the of un- stat interrelation two is one of the tions field, due concentration of in this dif which reflects utory schemes—each by monopolies. characterized it as is local different pressures and ferent historical In Utility Holding the Public interest. The public conceptions of the Act, seq., provided 15 U.S.C.A. 79 et it § note, 1-7, 15 Act, 15 U.S.C.A. §§ Sherman in- antitrust-like remedies to assure that attempt represent an laws related tegration power companies of be limited competition free keep channels of scope to an efficient power confined determined are prices and services that so area.9 They market. workings of free by the objectives contrasting These great indi that the the conviction derive from cate be that the number can have greatest will antitrust laws good est application regulated monopoly, monopo limited to industries preventing by attained by specific though laws, statutes. Those restraint of combinations in lizing quite properly having viewed as been in is a statute such marked contrast trade. * * * * tended “to make of ours Act. a com the Federal Power II of as Part petitive economy”,10 business con recognition that are not congressional It evidences stitutional mandates which as protection freeze all competition can assure of system, pects of our economic set for all time only in an industrial public interest pattern into the “laissez-faire.” We to a free of is conducive market ting which they may it obvious that which think not be place in industries have no and can economy beyond part public extended grant, monopolies because are- Congress nature, legislative which intended to leave to exigencies pre “Certainly operation of the free market. particular way doing busi ference for a Congress what has forbidden the Sher place competition general as a ness. In * * * modify. man Act it can prices regulator of indirect [It] ized and impotent may not is deal with what it interstate transmis field of services in the wholesale, consequences Con consider of electric dire laissez sion 11 regulatory agency gress substituted a has faire.” ' seq. Century Fund, et 824 16 U.S.C.A. (cid:127)§ Twentieth Electric Pow- Policy (1948). and Government 45 er government relationship of “In competition private Utility is Trienens, businesses most The Act as a Solu 9. See prices upon Problems, in the inter- to control Act 44 relied tion to Sherman Ill.U. consumers, (1949)'; Comment, is but such not Section ests Rev. private Holding Company Act, (b) Com- electric utilities. Yale case of the implies petition (1950). two or more sellers offer- L.J. products ing same or services their South-Eastern States v. Under- 10. United electricity public, and two sellers Ass’n, 1944, 533, 559, writers duplication territory mean same 1162, 1176, 88 64 S.Ct. L.Ed. 1140. Regulation, investment. wasteful and therefore, Adkins, 1940, may general Coal Co. 11. Sunshine sense be said in a competition.” 84 L.Ed. U.S. as a substitute to act competitive consid given con That say effect to is Courts have not to pub components may above erations not be those siderations such outlined parti by a operation sought anti lic served interest to be confining the guide statute, not hence a regulatory to those matters are cular trust laws authority fall exercise of of state product action or commission’s it. question before properly vested in a when the outside the reach of Thus, Com regulatory agency. Congress Thus, or the has been the Federal said that seq., among Act, may arrangements states munications 47 U.S.C.A. 151 authorize et “recognizes broadcasting that the producers though action without field even competition. one free The deal governmental sections sanction and enforcement broadcasting Con ing with demonstrate Simi would violate the antitrust laws.12 scheme, gress not, regulatory has monopolies13 larly, may authorize states principle competition, free price abandoned may Congress susbstitute direct railroads, the case as has done in re by public agency competition.14 fixing spect regulation sup of which involves the practice complained But when pression practices of wasteful due com protected legislative sanction, either petition, regulation of rates charges, directly being a com committed to unnecessary and other measures empowered it, the anti deal competition if permitted.’’16 free is to be trust laws have been relied a mini povides compre But where a statute protecting mal means of interest. regulation par hensive and detailed of a already net effect of what we have industry, ticular as do the Interstate Com that, though regulated said is industries Act, merce seq., 49 et U.S.C.A. 1 and the per exempt are not se from the antitrust Act,17 Federal Power is, there as we have repeals by implication laws and are not indicated, only application area for favored, limited superseded the antitrust laws are of antitrust to Commission by specific considerations regulatory statutes to the of the decisions.18 repugnancy extent between them.15 869, 1037; Brown, 341, 1943,

12. L.Ed. Journal Parker v. Mansfield 317 U.S. Co. 350-352, Commission, 315; Federal 307, v. Communications 63 S.Ct. L.Ed. 87 U.S.App.D.C. Royal 1950, Co-op., 102, 1939, 86 United States v. F.2d Rock 180 28. Mackay cf. & 993, But Radio Tel. 307 U.S. Co. v. Fed 59 L.Ed. S.Ct. 83 Commission, 1939, 1446; App. Borden, eral Communications United 68 States v. 336, 188, 338, 641, (1938) 201-202, D.C. 182, F.2d 308 U.S. 97 643 60 S.Ct. 84 (“Though the for L.Ed. 181. Communications Act. licensing bids the of concerns which vio Smith, 1904, 332, 13. Olsen v. 195 U.S. laws, ap late anti-trust it does not 344-345, 52, 224; S.Ct. 25 49 L.Ed. ply radiotelegraph to the business Evans, C.C.S.C.1895, Lowenstein v. F. 69 policy competition, contrary of free but a 908, 911. competition policy. Free means all that Adkins, compete. 14. Sunshine Co. v. Coal 310 U.S. are free to The Communica 395-396, 907, competition by 60 S.Ct. 84 L.Ed. 1263. tions Act forbids all who prove entry cannot that their will serve Navigation 15. Co. U. S. v. Cunard S. S. ‘public interest, convenience or neces Co., 1932, 485, 474, 284 U.S. 52 S.Ct. sity.’ ”); Yankee Network v. Federal 408; 247, 76 L.Ed. Terminal Warehouse 1939, Communications 71 Pennsylvania Co., 1936, v. R. 297 U.S. App.D.C. 11, 22, 212, 107 F.2d 500, 546, 514, 827; 56 S.Ct. 80 L.Ed. Borden, plan v. 308 United States U.S. at 198- “The or scheme of the Federal 201, 182, 181; analogous 60 S.Ct. 84 L.Ed. State Power Act to that of the * * Pennsylvania Georgia Co., 1945, v. R. Interstate Commerce Act 439, 455-457, 716, U.S. 65 324 S.Ct. 89 Northwestern Pub. Serv. Co. v. Montana- 1051; Cir., 1950, Co., L.Ed. U. S. Alkali Ass’n v. United Dakota Util. 8 181 F.2d 1945, States, 196, 205-206, 22, 19, affirmed, U.S. 1951, 246, 325 341 U.S. 1120, L.Ed. S.Ct. S.Ct. 692. Trucking Federal Communications Commission v. 18. See McLean Co. v. United Station, 1940, States, 1944, 67, Radio 84-87, Sanders 309 U.S. 64 S.Ct. 474-475, 88 L.Ed. 544. general propositions proceedings. Applying merely- these It would enable the us, that problem parties before we find their exercise initiative with re- decision,19 gard proceedings. like that to future Fourth Circuit’s Georgia Supreme Court in view, In our the Fourth Circuit’s Co.,20 utility assure com- R. seeks to opinion purported neither to nor did relieve private panies of their freedom exercise obligation Water from its under the rates, services promulgating initiative Federal Power Act to continue the then- changes therein. This limited freedom existing services and rates. is those important pre- of action an condition rates, services and reflecting op underlying proper operation the rate- cedent erations, subject which were the making process. it, pro- Without the rates Commission’sorder. “A rate is not neces posed approved may them- tend to find sarily illegal beoause it is the result of a upper selves reaches of zone conspiracy in restraint of trade in violation may within of reasonableness which rates Anti-Trust Act. What rates are le properly fall. The antitrust laws gal by” determined regulatory statu been means of initia- assuring validity te.22 The of Commission action conspiracies by tive remains unchecked proceeding this must determined illegal arrangements which the light of the criteria furnished the Fed regulatory powerless commission is Act, applied operations eral Power say, however, That deal. is not arrangements scrutiny. juris under If per- illegal arrangements otherwise if are properly diction was assumed the Com required by statute, they mitted a valid mission, if “just its rate order is and rea are shorn illegality their ex- meaning sonable” within the tent. Act,23 if its findings support We construe Fourth Circuit’s deci- evidence,24 substantial ed having done no more than de- sion. complaint can have no and our review is at illegal clare cer- antitrust laws petitioners, end. If as a result of the tain restraints exercised Baltimore Com- decision, Fourth Circuit’s wish to make pany requir- Penn Water —such as changes operations, contracts, arrange in approval ing its before could take on ments, etc., jurisdiction- within the customers, expand new generating or fa- Commission, they Federal Power must do Those cilities. private- restraints had been inso accordance with Power ly agreed upon parties by the and sub- thereof, 205(d) Act.25 “Unless Under § mitted to the Commission as an accom- orders, change Commission no otherwise plished fact. The court was careful any public utility shall be made any in using might avoid which language inter- be rate, classification, charge, service, such or preted in such any fashion to affect rate any rule, regulation, or or contract re proceeding process. approach then in This except lating thereto, thirty days’ after no Supreme followed lead of the Court in 26 public.” tice to Commission Georgia Pennsylvania State of v. Co.,324 R. section, petitioners may Pursuant 461-462, 716, at 65 U.S. S.Ct. 89 1051. L.Ed. arrangements new rates submit based pointed Georgia It was out in the case that Commission. And Com thereon injunction issuance of an under the anti- upon complaint upon against conspiracy laws mission “either trust there way charged complaint” may would in no own without “en- affect initiative rate Act, 205(a), 19. 184 F.2d at 560. 16 U.S. 23. Federal Power § (a). § C.A. 824d 459-462, 716, 20. 324 U.S. at 65 S.Ct. 89 313(b), 8251(b). 1051. § L.Ed. 24. Section 16 U.S.C.A. Georgia Michigan Co., v. R. 324 Gas v. Pan- 21. Cf. Consol. Co. U. 25. 455, Pipe Co., Cir., 1949, at 460. L. S. handle Eastern 6 784, F.2d 173 788-789. Keogh Chicago Ry. Co., & N. W. 1922, 47, 156, 162, 824d(d). 43 S.Ct. 16 U.S.C.A. § L.Ed. position only upon rely their hearing concerning the lawful- Petitioners ter a upon classification, rate, charge, effect of the antitrust laws ness of such * * regulated upon also the fact industry If Penn feels but service Water, aggrieved proposed that Penn a licensee under Part itself after Act,30 subject changes upon by is Com- I of the have been acted Federal Power incorporate mission, pe- Sher- may bring 10(h) that time new at said § short, Federal Power tition for In man Act into the review. “rate estab- standards virtually prescribed be Act.31 does indeed 10(h) lished the mode should Section legal rate, obligatory restate the Act. But it found alike Sherman deemed Act, I Power upon shipper changed in in Part the Federal carrier and until licensees, provided” water-power the manner the statute.28 which deals II, grant petitioners’ dealing To motions not in utilities and set Part selling would be electric in interstate com- aside the order at this time to sub- those at fact alone would stitute antitrust criteria for of the merce wholesale. This Act, Congress Federal” intend to substitution indicate did not cross-purposes would be II with the intent make licensees which are also Part com- Congress. panies, Water,32 subject reopen- It would result such as Penn to § ing proceeding begun 10(h). of a in 1944 be- for the cause of an issue first time on raised But there is a more fundamental rehearing in 1949 and a decision handed inapplicable reason for holding 10(h) private parties down ain suit between un- companies. very thing II Part non-controlling der a statute prohibits, that section combination chronology, we think Su-

view this output licensees with to limit the others preme Court’s statement in Interstate Com- energy, electrical pri is made one of the City, Jersey merce Commission v. objectives mary of Part II. Section U.S. 88 L.Ed. 202(a) imposes duty thereof especially pertinent: “If upon the encourage public Commission to utilities to coming litigants might down of the order combine for the interconnection of facili rehearings demand as a matter of be- law circumstances, Under ties. certain arisen, cause some new circumstance has may order even such intercon observed, new some trend has or some regulate nections and the rates con discovered, fact new there be little arrangements tractual involved therein.34 hope process that the administrative could and, achieved sought The end thus ever be order consummated that would pres view, served subject reopening.” not be The effect arrangement between Water and ent petitioners’ motions granting would be Consolidated, the most efficient use disrupt pattern regulation to a pub consistent with nation’s resources problems carefully to meet the drawn complex cheap power and lic interest in in Conserva- industry. of a Appendix 8243(e). Commission, 205(e), to § 27. Section 16 U.S.C.A. 58, Brief n. 21. Petitioners’ P. R., & Robinson v. Baltimore Ohio R. 1912, 114, 510, 506, 32 222 S.Ct. U.S. section, (b), pro- § That 16 U.S.C.A. 115, 56 L.Ed. 288. “Combinations, agreements, : ar- vides express rangements, understandings, or Auto 29. See United States v. Pierce Lines output implied, limit of elec- or to 1946, 535-536, U.S. S.Ct. trade, fix, energy, restrain or to trical to 687, 90 L.Ed. 821. prices maintain, or increase electrical apply to 30. Penn Water ordered energy hereby prohibited.” or are service a in 1939. license under Part I See Discussion, infra, 32. See 193 F.2d Water & P. Co. v. Feder- App.D.C. al Power According 351, 123 F.2d 155. to 824a(a). 33. 16 U.S.C.A. § here, opinion no license has (b). Opinion yet Id. 824a § been issued.. See No. regulation Commission of the inter- accept proposi- Power to tion. We are unable operations upon dependent (1) state either 10(h) Congress to have tion that intended § regulatory non-existence of state com- contemplated Part prevent which is that state, in (2) the licensee’s or the in- (cid:127)II, more later in time and a statute which is ability sup- of the involved in the licen- specific states application. view is Our in agree.36 see’s interstate activities to Part ported found 10(h) that fact § qualified. II not so lim- It confers broad au- part establishes a Act which that thority upon regulate the Commission regulatory federal scheme —one ited rates, services, etc., all utilities (1) the state play not come into unless does operate engaged reg- own and facilities located has no in which the licensee is energy “transmission of electric in in- commission, com- ulatory the state (2) terstate commerce” and in “the of elec- agree sale involved are unable to missions energy tric in interstate com- entire- wholesale It'seems rates interstate sales.35 that, the merce”.37 Congress ly likely that believed regulation absence of detailed federal If the Commission is in its view correct II, be re- as in Part licensees should that petitioners’ present operations that in- to antitrust standards. quired adhere terstate nature and involve the transmis- effect, saying more than what is, no This sion and sale of electric at whole- the antitrust already said about we have sale, question we will discuss then infra>38 pro- regulated industries. The laws and express are drawn language within the a li- apply to 10(h) would hibitions II Part unless the existence of Part I under Part regulated censee which is also requires implied that we excep- read an prior statute only II the extent that tion for into Part II. Such a con- licensees repugnancy be- repealed clear by the is not appear might plausible struction if § later tween it and the statute. 201(f) of Part II did not specify those to remand the aside or The motions set apply. whom Part that was not intended to basis on the Commission’s orders That conspicuously section makes no ref- decision and the Fourth Circuit’s erence to Part I licensees. It seems unlike- are denied. points to above referred ly Congress not have so included important group water-power federal II among specific licensees exceptions Part II actually except if it had intended assumed Power Commission The Federal them. petitioners’ serv- rates and jurisdiction of I II pursuant both Parts only cited to us judicial ices utterances “ 'assumption challenge this Petitioners Act. ‘Part are to the effect that regard in this licensees ground on the jurisdiction II, gives added in only I Part and that may regulated and sale over the transmission jurisdiction in- finding the states the Commission’s electricity at wholesale in interstate ”40 agree, which is a con- licensees,’ unáble commerce, volved are whether not jurisdiction un- precedent to federal dition Harbor “is the Safe and that I, supported by the evidence. Part is not der I it is licensee under Part but Nei public utility under Part II”.41 a also water-power federal applies I all Part Federal Power Power Co. v. ther Alabama operating in intra- or licensees, whether Niagara Falls Power Co. nor Commission42 Federal It makes interstate commerce. Corp. v. 20, Water Power 19, 40. Safe Harbor Act, 16 U.S.C. Power §§ 35. Federal 1941, Cir., Commission, Power 812, 813. §§A. 800, 804 n. 4. F.2d 20, § 813. 16 U.S.C.A. 36. Section Corp. 41. Safe Harbor Water Power 824(b). 201(b), § 16 U.S.C.A. 37. Section Commission, Cir., 1949, Federal Power supplied.) (Emphasis 185, 1950, 179, 179 F.2d certiorari denied 240, 957, 980, F.2d 38. See 193 94 L.Ed. 1368. 339 U.S. 824(f). 328, 1942, U.S.App.D.C. 315, § 39. 16 U.S.C.A. 128 F. 280, 293. 2d the Federal since Commission,43 years of ed in the fifteen both v. Federal Power drafted had been be Water Act might which language which contain that Congress apparent It was jurisdic II to Part thought run counter regula application of later scheme Nei this licensee, case. tion was ov.er rates of tion to the wholesale interstate possibility of Part II and ther involved created have non-licensees alone would II Parts I and conflict between licensees disparate regulatory treatment discussed. ac in similar engaged and non-licensees directly on bearing Legislative history conflicted would have tivities. Since this application Part point supports also places objective I, Part with example, Representa- II to For licensees. emphasis regulation primary upon state Rayburn, the House Com- tive Chairman licensees as order to make treatment bill, pointed that reporting mittee out public ordinary state like much prohibi- there make certain was no need to companies possible, Congress service 305(a), tions 16 U.S.C.A. contained § Federal Pow authority conferred applicable to licensees 825d(a), specifically entire field occupy er Commission to already applic- because had been made rates, regulation of interstate wholesale “public generally. able to He utilities” non-licensees. whether those of licensees n said, “The Senate bill includes licensees licensees, en All other whether rates of section, provisions within the this but solely or in gaged activities in intrastate inasmuch as such licensees when interstate interstate left selling, retail were companies operating public-utility will be regulatory provided scheme in Part I. subject provisions of the section Thus, even if intended con Part I was any event, licensees have been omitted jurisdiction upon fer the states reported, from the bill as because of the regulate Federal Power in public companies lack of in those interest rates, terstate it was to that ex wholesale public which are not utilities.”44 repealed by tent Part II. occupied consider We Part II to only problem The suggested to us which regard field interstate wholesale may that, arise from such construction is companies. gap rates of electric filled a recapture by in the event of the United companies in state electric regulation of licensee, States of the site awarded to Supreme which had been created utility, payment public also a Court’s decision in the case.45 Attleboro pursuant would have to be made to a valua- That case made it clear that I, interstate tion formula contained in Part rates, distinguished wholesale in is said to differ from that used rate- rates,46 beyond terstate were retail hardly making in Part II. think We regulatory reach of state Commissions.47 Congress intention to reach all required legislation bring new such utilities, whether licensees or non- control, II, rates under federal licensees, Part ignored can be under Part II eye drawn peculiar in 1935 with an possibility order to eliminate the that there problems companies electric day of wholesale may some occasion valuation light experience and in considerable property in a manner different from companies glean which had provided applic- for in Part II. The Cir., 1943, 43. 2 137 F.2d 792-793. Co. v. Public Serv Gas ice 40 S. Rep. Cong., 44. H. R. No. 74th 1st 279, 64 Ct. L.Ed. 434. Sess., (June 1935). p. 31 47. See discussions in Illinois Natural Gas 45. Commission v. Utilities Attle- Public Co., v. Illinois Public Co. Central Service Co., 1927, 83, 294, boro 273 U.S. 47 S.Ct. 498, 1942, 384, 504-505, 62 S.Ct. Jersey 71 L.Ed. 549. See Co. Central Pipe 371; 86 L.Ed. Panhandle Line Co. Commission, 1943, Power Federal U. Commission, 1947, v. Federal Power 67-68, 953, S. 1258; S.Ct. L.Ed. 514-515, U.S. 92 L.Ed. Light Hartford Electric Co. v. 128. Commission, Cir., 1942, Power 131 F.2d 964. 2áO in energy of electric create the transmission

ability Part licensees would II to sale pre- interstate commerce and the usual greater no effect than would electric at in interstate situation, energy state com- wholesale Part II under which commerce, apply reg- shall ordinarily but mission have deprive a energy its sale State under of electric or ulating activities the licensee’s authority recapture.48 or lawful prior State commission of its regulatory own statute exportation of note, however, now exercised over the the Third Circuit We hydroelectric energy is transmitted pointed has out essential sameness shall I and II.49 across State line. The Commission the valuation of Parts formulas jurisdiction have facilities for such position re over all our view of energy, II, sale but is transmission or of electric gard applicability Part spe- jurisdiction, except as shall not have unnecessary the suffi for us examine cifically provided 824-825r sections ciency record of the evidence title, gen- this used for support over facilities finding under the Commission’s energy or Pennsylvania eration of electric over facilities I Maryland Part that the only for the used in local distribution agree. But commissions are unable to energy transmission electric in intrastate question the event that the I should Part commerce, decision, or over facilities for the trans- appeal arise on our we note energy wholly electric consumed find that we examined the record and by the transmitter.” support substantial evidence Commis point. finding sion’s on this We examination are from an convinced the voluminous materials submitted to properly found us the Commission Ill part “integrated be of an Penn Water to Rejection petitioners’ view that Part sys- and coordinated interstate electric I furnishes the authority sole for federal generated tem.”51 at Harbor Energy Safe regulation operations brings of their tous and Holtwood flows south to Baltimore the contention that all or almost all their and, times, energy Baltimore-generated at sales are intrastate nature and hence along north moves the same line to Safe may regulated not be Part II. it, together Harbor Holtwood where (1) is said that sales Water’s there, energy generated is delivered Pennsylvania customers for resale are sales Pennsylvania to Penn Water’s customers. energy produced electric and sold in This movement to and fro is made neces- Pennsylvania; (2) the "back-feed sary by varying electric loads which generated Baltimore to Penn supplied at must various times and sold it to Water day. Susquehanna River, flow the customers its interstate character loses hydro of Penn Water’s source when is received Penn Water and power, irregular is too to carry unaided comingled Pennsylvania-produced with the large utility up- loads it is often called energy. Even if these sales of back-feed Thus, during on to handle. the river’s low are considered interstate, it is suggested periods, hydro power is scarce Balti- they negligible portion constitute so Company’s generators steam are used of Penn Water’s total Pennsyl- sales to up” keep output to “firm constant the vania customers that cannot furnish times, hydro- hydro plants. At such regulation, the basis of federal or that operated only generators electric at the regulation may federal extend to an peak and, off-peak hours, during load portion allocable of interstate sales. impounded plant the river flow is res- 201(b) subsequent peak périods. Section of the Federal Power ervoirs for use at “ * * * applicable Act50 Conversely, makes during periods Part II when the Corp. 824(b). 48. See Safe 50. Harbor Power 16 U.S.C.A. Cir., v. Federal Opinion'No. Federal Power Com- 179 F.2d mission, Appendix Brief, to Petitioners’ p. Id. 179 F.2d at 188.

241 no such operations, can be there hydroelectric wholesale Penn Water’s high, river is solely sale particular thing assigning heavy supply the loads plants are used to Each Pennsylvania. Maryland operations which to within Pennsylvania and both pool drawn supplied by sale is in sale effect have to be would otherwise n integrated interstate system hence in- expensive generation. steam terstate nature. carefully coordinated As a result of the by the reached The same conclusion was inter- operations participants this to another regard Third Circuit with reaps the energy pool, Penn state participants pool, Safe Harbor. in this considerable and benefit Baltimore’s pointed Safe Harbor The court out that constantly capacity while available steam elec- “part interstate large integrated of a Company enjoys the benefits Baltimore output system” tric its electric cheaper hydroelectric energy. ac- integrated “must an whole.”53 be treated as so meshed that tivities of each are case, the the second Harbor court Safe peak customers of each demands of the sales again held Harbor’s “con- that Safe easily can be met at all times with stitute in fact wholesale sales interstate most then avail- economic source they commerce” are “delivered to because pointed out, As has able. the Commission system”.54 integrated electric interstate arrangements existence have now “carefully worked out” to meet the evidence We find substantial system “as firm support needs the interstate record the Commission’sfactual requirements, operations energy while in- findings regard to the interstate na firm, volving interchange emergency sales. It is na ture of Water’s energy are conducted at all times a dis- operations underlying the ture of the sales system patching dispatch- controlled the basis for Commission furnishes office op- er’s in coordination various legalistic rather niceties of ti action than * * * erating committees. place operations consti- sale.55 Those tle companies tuent of this interconnected petitioners’ rates and services within bring system plan and far in coordinate advance the II of the Federal reach Part Power steam maintenance schedules which are not assume Act. The Commission did largely upon predicted based flows of jurisdiction over direct consumer sales. Susquehanna River and determina- “was to take in terri meticulous availability hydro tion of the energy dur- held this Court had the states tory which periodic ing steam maintenance outages.”52 reach”56—interstate at could sales pool, Because such an drawing wholesale. steam, hydro capacities extensive : IV Water, of Penn Safe Harbor and Balti- exists, challenges more Company now both Penn Wa- ter and Baltimore. have determination of rate of re been able Commission’s satisfy commitments which turn and of the rate other- calculation base evidentiary wise be legal grounds. capacities, outside their individual on both Hope now constituted. since Natural Gas57 was de Given Ever such cided, challenges integrated interconnected and interstate in- .become p. Co., 1942, 52. Id. at Public 314 U.S. linois Service 503-504, 384, 498, 371; 86 L.Ed. 62 S.Ct. Corp. 53. Safe Harbor Water Power v. Jersey Central Co. v. Federal Commission, Cir., Federal Power 3 124 Commission, 1943, seq., 61, et 319 U.S. 69 802, F.2d 953, L.Ed. 1258. 63 S.Ct. Jersey 54. 179 F.2d at n. also See Pipe Line Co. Feder- 56. Cf. Panhandle v. Central Co. v. Federal Power Commis Commission, 1947, 507, 332 U.S. al Power sion, 1943, 61, 319 U.S. 92 L.Ed. 128. S.Ct. 1258; Light L.Ed. Hartford Electric Co. Hope Cir., v. Federal Power Power Commission 57. Federal Co., 1944, 131 F.2d 956-958. Gas Natural 281, 88 L.Ed. 333. S.Ct. Illinois Natural Co. v. Il Gas Central

242 upon case the Commission

creasingly difficult to sustain. That evidence can such required con- Federal determine what is ‘to assure proposition established that the “ integrity in of the en- Power hound to the fidence the financial Commission is ‘not terprise, to so as maintain its credit and any combination to single use formula or ”61 capital.’ rates’, long attract This “standards formulae determining in so finance facts”62 was effect,’ resting as on stubborn ‘impact’ the ‘total result’ ‘end by satisfied which care- to un- Commission the rate ‘cannot be said be order investigated position fully just Penn Water’s limits unreasonable.’ The set relation to that other con- broad, resulting utilities and deliberately Court are subject that it was less risk than special competence cluded from notions of both companies. most utility The as- conception primar- as rate-making surance it from Baltimore Com- pub- receives ily legislative process. as long So pany, existing presently arrange- e., lic con- interest —i. of investors ments, oper- of revenues cover safeguarded, sumers —is it sufficient seems n expenses ating fair and a return on its in- may stand- formulate own 58 even vestment small removes much of may adopt any ards.” The “Commission amount of risk found ordinarily purposes method of base valuation rate companies. utility refer, To Penn so of the rate order long the end result does, extraordinary risk involved unjust and ‘cannot be to be unreason- said 59 Company’s Baltimore abatement of produces “ade- If a order able’.” rate payments it it to deliver fails if quate expenses operating above revenues because of acts of is illustrate how God depreciation) interest on (including pay carefully really insulated bonds, and, in on the stock dividends vari- substantial risk. Nor general, integrity the financial maintain Susquehanna ability of the flow enterprise”,60 of the will be it dis- not present factor at Bal- substantial risk since us, however, turbed. still remains for Company’s payments timore to Penn Water Com- theory examine dependent upon company’s are not the latter purported to assure that to act output. the realm action within of allow- prove Water’s It does case supported able substan- discretion point higher re than cent tial evidence. 554 Per utility. by the average earned turn Safe Rate a. return Harbor, example, allowed part Turning of Penn first to that per five cent return Commission. On " * * * petition addressed to said, review, Water’s Third return, per argued that the we find 5]4 It would difficult to conceive of .a 63 part proj on that hydroelectric the Commission cent secure ect” and affirmed allowed actual representing similarity bonds of the and stock view the rate order. satisfy the test es arrangements, does not financial investment their market and to above. Hope ap and referred that Penn tablished would seem Water’s risks the fairness of a rate of proximate more than Safe Harbor’s Determination study capital utility. “average” of the requires “a do those of the “Each return business, presents problem.”64 as service an individual utility costs income, stock, proximity on the the Stability and dividends of market and the debt capital en company markets, investments in other returns on light of Only satisfactory earnings risk long history a similar factor. terprises having —all Light Washington Baker, v. v. Co. 62. Interstate Co. Gas Colorado 58. Commission, 1945, U.S.App.D.C. 115, 581, 11, 824 U.S. F.2d 14- 188 88 U.S, 952, 1950, 605, L.Ed. denied S.Ct. 1206. certiorari 571. 199. 63. F.2d at p. Id., 188 F.2d at 18. 59. Light Co., & Power Driscoll Edison 64. 119-120, p. Id., at 15. S.Ct. 188 F.2d L.Ed. page Id., 188 F.2d

243 complex penditures the flashboards go were renewal of these are factors which into experimentation regard testing of in or for of fair return. Under the circumstances improvement to thought flashboards, ex- company, this the of 5}4 Commission periments per applied ultimately rate base and abandoned. to the were cent return bonds, that must re- designed provide cent for record per 3.17 flashboards discloses placed often, 8.64 carried per preferred being a result of 5.21 cent for stock and so water, surplus away part high per in whole or in cent common stock expenditures that therewith had sub think connection “fair.” We the Commission expense properly it its are support operating treated as stantial evidence before phase hence the rate base. the case and not includible in findings this of of fact on need the the test Nor the Commission include in meet that the rates allowed experiments do rate abandoned Hope the Nor do we base down in case. laid upon property manifest useful the not that rate based themselves think return ample public evi- petitioners’ service.66 There is capital historical cost thereof, competi that dence in the record to demonstrate approximation milder experiments capital, part necessary to necessary neither were tive cost of is a these improve- point nor contributed to flashboard that test. think it sufficient We adopted. ultimately ment capital that such as the out studies cost presented Commissionhave with to the one during 2. Interest construction—The too judicial many cases stood review per on allowed 6 cent interest Commission reject prop one as a now before us us period of con- during costs construction rate er criterion of of return. struction in the to be included rate base Rate base b. period that theory “during operating construction ‘there is income that no contend the Com

Petitioners which to meet neces- available with these improperly excluded more than two ” 67 sary charges incident to construction.’ from the amount found dollars million disputes finding property But Penn Water gross investment in to be the it construction for there was cessation of in the service. Com used and useful year depre 22 months during reserve for than six mission deduction of period of attendant investment in arriv construction gross ciation exclusion from rate base interest for ing investment rate base also at net $700,000. period, amounting to propriety over challenged. The a deduc of such objects also regulatory like that exclusion of formula under a tion other losses found the Commission well settled our to be to warrant Part II too traceable the cessation of Nor would Part construction. discussing it this time. interest justify “To require during a different allowance I, applicable, conclus if part the cost proj- construction from the As to items excluded ion.65 appear must ect it that the carried base, the Commission licensee we think acted * * * obligation prosecute out evidence. substantial his properly (cid:127) important diligence.”68 due construction with pnly the more will discuss We Here, the cessation of construction them: was due inability to obtain developement 1. Flashboard costs—The found funds financing after included in the rate base the inadequate. Even if be conceded that the 1912 in 1911and in connection cost incurred time market at the financial of cessation original project installation as unsettled as $50,- construction was Penn Wa- system almost but excluded flashboard expended says, it payers from 1913to 1921. ex-' ter does follow that rate 000 Such v. Corp. Light Puget & & Power Power Co. Harbor Water 67. Sound 65. Safe Commission, 1943, Commission, Cir., Power Power 78 Federal Federal U.S. App.D.C. 143, F.2d at 194. F.2d Light & Power Co. v. Ibid. Cir., F.2d ready should now bear the burden its failure recovered investors provide adequate financing in advance form of charges operating annual ex- project. penses depreciation construction to entire sustain reserve.71 risk of the Such losses are much to a due

business as from were excluded the losses V' the rate We Puget base in Sound case. Balti Commission found that agree view, ex- $1,733,318 entitled Company was to brief, pressed in that “Interest the idle on its $1,954,261 total rate reduction of or investment financial due to losses it, by operations. dered based on This inability operation go to into as soon as petitioners allocation is challenged by who physical conditions normal construction argue, alia, inter that it upon (1) is based an permit recouped are no more to incorrect reading governing of certain con payers past years from rate later than provisions; (2) tract an incorrect measure * * operation losses in generated cost steam energy 3. Claimed' costs issuance com- capacity supplied by Company Baltimore from properties Twenty mon stock thousand Water; (3) improper and Penn over — shares of common stock in Penn Water’s statement of revenues due to Baltimore predecessor, Ferry Company, McCall Power Penn from Water. In view of part payment issued as for certain were we already have said about the what effect properties. repre- These are to shares said upon of the Fourth Circuit decision this rate $500,000 plant sent cost which should be proceeding, supra, 233-238, 193 F.2d there There included base. was sub- rate there is no need consider whether the to support stantial evidence the Commis- to part various contracts involved herein are all sion’s that almost conclusion shares arrangement illegal of an declared acquired were one Hutchinson in a the antitrust laws. length transaction which not at arm’s (1) Water’s generating capacity represented beyond the profit cost of inadequate alone is its to meet commitments properties part him. Hutchinson was to Pennsylvania to its up customers. makes pooled properties group which of a part deficiency through use project necessary services banking contractual entitlement one third to of Safe beyond stock what and issued to itself and, output Harbor’s extent of a de- compensa- proper to be found Commission thereafter, by part ficiency diversion of properties and services. Under tion for Baltimore’s two-thirds entitlement Safe circumstances, especially “neith- since output. Harbor’s The Commissionincluded any interest to reduce the party er had this Company’s diversion from Baltimore capitalization”,70 repre- the stock nominal supplied by entitlement energy Baltimore paper capitalization anticipated sented to Penn Water for which Baltimore was en- corporate profits rather than actual assets. against titled a credit Penn Water’s 20,000 exclusion of the Commission shares it. argues, cost of Penn Water services merely resulting from transaction was this nowever, 2:1 entitlement to Safe water in the an elimination stock output does Harbor’s not arise until after original as measured estimated cost obligations, Safe Harbor has met it plant. Water, shares with Penn jointly to certain Expenditures of Penn Water’s charged customers. previously 4. expense depreciation reading contract operating Such would mean re- expenditures that the said to be serve—These total almost diverted from Company by Penn $100,000. They properly Baltimore Water to were satis- excluded fy those base customers because from al- Baltimore’s Respondent’s Brief, pp. Federal Power Commission See v. Nat 71-72. Pipeline Co., 1942, ural Gas Niagara Falls Power Co. v. Federal 1037; 86 L.Ed. Cir., 1943, 137 F. Washington Light Baker, Gas Co. v. 2d U.S.App.D.C. 188 F.2d at 20. commitments, all hence that no be due credit would erred in the proceeds to it. Penn Water’s view from basis computing used resultant assumption par- that since credit owing Safe Harbor Balti- Penn Water ty obligat- to, contracts referred more. to Article VII of Safe Pointing Schedule, says ed thereunder and that such contracts Harbor’s Rate * * obligations imposed “to serve the credit Safe should be based [it] exempted law” specifically hydro which are Harbor’s costs rather Baltimore than arrangement. Company’s from the 2:1 entitlement generated steam We costs. agree with the Commission’s view Arti- We think the evidence Com before the cle apply voluntary VII does not diver- amply Harbor disclosed Safe energy sions of such as are involved here. merely party was nominal to contracts applies only Water, to failure of Penn Pennsylvania companies with and that impairment through of its transmission fa- part it was made such as of a short-lived cilities, transmit energy to to Safe Harbor attempt advantages. to obtain certain tax Company. Baltimore There no such attempt brought That fruition. never to impairment instead, here but there was a been, If it it have in a had would resulted request diversion at Penn Water’s change the three-way provide of contract-to consent, part Baltimore’s of the latter that Baltimore Penn Water “would company’s entitlement. If Penn Water’s purchase the Harbor balance of Safe prevail view were to it to pay and were Bal- output proportion two-thirds timore only hydro costs, Baltimore respectively.” one-third contemplated This Company permit would have no incentive to change, made, which was never have would hydro its diversion of entitlement. Such di- accomplished like what Penn Water would requires version it to expens- its use more even change. to do without us facilities, ive steam generating a use consistently contract in three-way has compensated which it is by Penn Water’s terpreted by Safe Harbor and Water Penn payment cost genera- such steam reports to stockholders various and to tion replaces to extent it Baltimore’s regulatory agencies making as 2:1 divi hydro arrangement entitlement. This ben- output sion of Safe Harbor’s entire between efits Penn Water because enabled Baltimore Company and Penn And Water. satisfy commitments it could not otherwise the same construction the contract was paying by undertake the cost least referred to in the second Safe case Harbor expensive steam energy at available said, output when court “Safe Harbor’s Similarly, time of need. beneficial integrated is delivered to interstate elec Company to Baltimore because it brings the system tric the terms the so- expensive power hydro less system. into its contract’, ‘1931 called two-thirds of the en The conclusions Commission on this Maryland ergy being Company sold point proper supported are by sub- Company] remaining and the [Baltimore stantial evidence. Pennsylvania one-third going to the Com pany (3) part The Commission Water].” [Penn included as The materials before the Commission Penn Water’s cost of service to Baltimore hardly interpreta- consistent Company were the cost energy sold by Penn They tion sought economy now Penn Water Water. as interchange energy— pointed view, adopted instead generated plant lower cost used Commission, that Company replace Baltimore higher generation plant had at a cost —to two-thirds entitlement from Pennsylvania certain Safe Harbor its customers. diverted part which was Penn Water in or- And as of what Penn Water owed to Pennsylvania satisfy its Company, der to commit- Baltimore the excess revenues ments. such sales derived from “for Baltimore’s . (2) that, Penn contends included. even if account” were The evidence Company’s Baltimore energy supports was diverted the Commission’s view that Balti- use Pennsylvania it for in fulfilling Company its entitled to all of Penn 179 F.2d at n. 184-185 Baltimore, one- output Penn Water’s Water’s and of pro- apply the orders intended remaining were third entitlement Safe Harbor spectively, imperatively required that obligations after firm Water’s case before the Commis- met. The us be remanded to customers are its dif- of sion work with the utilities some sales energy were out interchange sales of plan Company’s interchange energy ferent Baltimore diverted such, would not law and, was en- violate state or federal Baltimore entitlement pub- less, contrary and which not be we titled to the revenues therefrom policy. lic done be- indicated, payment This should have been have in a cause stood service. orders cost of vacuum held the after the Fourth Circuit invalid; contract to which VI service application lawfully may can points many other Penn Water raises be continued. requir- which, view, error constitute part us to remand. to reverse in ing But the Commission has the two ordered just the sort Many points these involve companies to continue to observe making of of of evidence and weighing governed by provisions all the old the of pragmatic fall within adjustments which contract which are “in and themselves agency special expert competence the of an lawful,” qualification which overlooks —a be interfered and should not the fact that the Fourth Circuit condemned oper- day-to-day a court unfamiliar entirety. the contract the ma- in its And finan- complex technological and ations and jority apparently hold that this court designed Our review cial materials. authority the Power Commission has flexibility the lea-ve Commission the effect, cause the whole contract to remain satisfactorily necessary which is if since they conclude that federal anti-trust pub- the discharge protecting its function apply regulated laws do to utilities arbitrary interest, yet prevent ac- lic and Part Act. under II of the scope the the tion outside theory, my say, Relying on that brethren points authority. the We have examined all “The motions set aside remand the or to that the Commis- raised are convinced the Commission’s orders on the basis of each one within the treatment sion’s Fourth Circuit’s decision and the other statutory authority and was range points referred above are denied.” supported by substantial evidence. that, despite thus clear the volumi- to set aside the Commission’s The motions case,1 nous record in this the numerous remand are denied those orders briefs, days lengthy sometimes and three orders are argument, of oral the basic issue is a simple one. the Federal Power Com- Has Affirmed. authority order mission combination under terms and con- these two utilities MILLER, Judge K. WILBUR which, private arranged by if con- ditions (dissenting). them, clearly tract violate between my that this court should have view It is the the anti-trust laws and federal motions to annul the petitioners’ granted Pennsylvania? If the Com- utility laws of Federal Power orders reduction power, has the majority mission the United The decision of Commission. correctly the to annul and denied motions Appeals Fourth for the Court of States not, then those If motions should remand. null and Circuit, which held 184 F.2d discussing Before what granted. have been between arrangement contractual the void question, may regard the basic I & Power Pennsylvania Water pro- in detail the review somewhat Light well to Electric Gas and Consolidated parties prepared by abbreviated that us a filed with Commission The Power containing 5,338 containing ag to 17 volumes transcript bulk an volumes 75 26,876 pages. pages. Appendices printed gregate upon assumption ceeding and commerce were based before the Power Commission required by the operation litigation that the method of Fourth Circuit. continue, (b) The of 1931 would contract of service allocation of cost I. upon its premised Commission made was September, The Commission instituted in interpretation entitle- of Consolidated’s investigation an rates obligations ments Penn Water’s charges Water, following Penn contract, return rate of (c) re- it entered January order on Penn Water which the allowed quiring large in Penn reduction Water’s financial secu- largely based major portion annual revenue. The thought rity Penn which the Commission Consolidated; reduction *to was allocated enjoyed under 1931 contract. indeed, ordered in reduction Moreover, later form of rate schedule against company charges Water’s ex- prescribed residual-entitle- followed the $500,000 ceeded sum approximately ment, specified-return formula paid which Consolidated Penn Water had contract. during year” “test The Com- patent fact that the Having observed interpreted 1931 contract upon, and based rate reduction order was entitling Consolidated to Penn Water’s all only to, facilities applied combination of energy except required to meet up by the interchange set customers; firm commitments to as a contract, applied to interpretation result of that the Commis- January Power Commission on very sion concluded that substantial sales sought a rehearing. to show that the by really Penn for Water others had been upon ought premised con- order not to be Consolidated, the account and allocated regarded illegal as tractual which relation it the accordingly. reduction unlawful, which, judicially if found and by accompanied The order was could continue exist. lengthy opinion which makes it clear that pointed Among things, the Commission assumed the continuance of the that on December out to order, the 1931 contract and based 20, 1948, the in the after record Commis upon operate prospectively, the re- was to closed, had had proceeding sion’s been lationship by as it created that instrument by 1931 contract terminated notice the construed it. Consolidated; and that had sued Con example: (a) For The Commission’s in solidated the States District United jurisdictional findings as to the use of Penn Maryland for the District for a Court Water’s for the transmission facilities the declaration contract invalid *****8 energy wholesale interstate electric Apparently unenforceable.2 this was and application approved re- In the of its course or ments were never ratified hearing, Water; Water Com- Penn stated the of Penn stockholders supple- : mission effect of Articles IV V the and proceeding “(c) agreement partic- 1, 1931, Since the record in the mental June purported ularly practice by contract has been closed as construed Balti- ultra, supplemented, Company, to as referred has been made the contract public policy; contrary notice dated December terminated and vires and given opportunity 1948; agreement supplemental if and constituted hereby rehearing agreement Petitioners offer in unreasonable restraint an prove: of trade and in unreasonable restriction “(i) termination; competition generation fact of such The and sale “(ii) null, void, services, unreasonably The contract was and electrical and agree- output unenforceable because the basic limited the of electrical contrary States, made at ments were a time when Penn to the laws of the United Company including [Con- and Water Baltimore Section 1 of Sherman Anti- through July (15 sub- solidated] were affiliated trust Act of Ú.S.C.1946 ownership by 1; 693), Baltimore at. stantial 50 Stat. ed. 26 St by interlocking Penn stock Trade Water and of the Federal Com- Section n officers; agree- September 26, (15 directors basic mission Act of January paragraph 5. The first Power Commis- last Octo- time foregoing officially sion Penn ber order is “The had informed that as follows: been provisions supersede given Water termination the rates and had notice of demanded, “system made, charges col- what the Commission calls the heretofore contracts,” lected against foundation that Penn Baltimore Com- or assessed pany by anti-trust Penn Water and Transmission considered them violative of the Pennsylvania Company. provisions utility laws and All other laws contracts, to that effect. aforementioned of them- had sued for declaration selves lawful defining prescribing 26, 1949, February the Power Com- On power, energy and transmission services rehearing application denied the furnished, classification, prac- be it, response opinion filed tice, regulation affecting or rule such serv- the course of which it said: ices, provisions incorpo- several “ * * * questions as to If there are reference, rated herein shall observed the foundation contracts legality of and be in force.” Respondents’ litigation, which are in January revenue reduction order indicates, application rehearing 5, 1949, rate order of October dependent validity of is not our order 1949,are those this court asked questions. of those the decision to review. leave opinion our we took ca/reto and order II. operation the continuation proceeding While the Power before integrated system3 in interconnected described, just which has rates, changing effect, merely full progress, litigation was in in the Fourth spe- we shown statement wherein our began. As of June stipulated that cifically Consolidated, Water and which were then “ whereby present arrangement sales ‘The dominance, drastically under common had customers are made on a previously existing amended a contract be- firm whereas on definite rate schedules basis tween so as to a .combination of them form Company Baltimore takes what is left and utility their facilities under terms which Respondents recovery assures of the of all made Penn Water a virtual vassal of Con- proper expenses, depreciation, operating solidated. Fifteen later the two years return, prac- taxes and fair is the most corporations -be ceased to under common ticable under the That ar- circumstances. managed control thereafter each was and ivfll, rangement therefore, he continued independently. But the basic contract of with, however, such modifications are 1931, burdensome and as to the restrictive accomplish necessary men- the reductions Pennsylvania company, continued Pennsylvania above to Power & tioned govern relationship define and be- the Philadelphia Company, Metropolitan Light, utilities, its terms tween the two but ” Company Company.’ (My Baltimore and 1980, prospect until to endure bleak —a emphasis.) indeed for Penn Water. Later in 1949—on October 27—the Com- disputes Due to differences and prescribed a rate schedule for Penn developed, invoked the arbi- Consolidated Water’s service to Consolidated Sep- provisions of the contract on tration designed to effectuate the reduction in Penn thereafter, 1, Shortly Penn tember had Water’s which it ordered on revenue suit in the United States instituted Water 719), 45; Company complaint 38 Stat. ed. U.S.C.1946 on Penn Wa- 10(h) declaratory Federal Power relief, of the and Section and other be- ter 808(h), (16 41 Stat. ed. § Act 1068, U.S.C.1946 United District Court fore the States 842), Maryland, and to the laws of 49 Stat. District of Civil Action for the (cid:127) Pennsylvania. Maryland and 4179.” No. “(in) committed Baltimore course, refers, of to the two sets This of the contract breaches material operated the con- facilities as termination; justified and . tract. “ foregoing (iv) The matters now

litigation Penn and Balti- between entry aof to the District Court the back Baltimore, asking that District Court at declaratory judgment in accordance unen- provisions be declared arbitration the opinion Appeals for the of the Court enjoined that Consolidated forceable and remand, a con- Fourth After the Circuit. gave notice It proceeding thereunder. from as to District Court arose in the troversy in an termination to Consolidated agree- of the the invalidation 1931 whether the complaint asked that amended 1927be- agreement of ment had revived entirety. an in its down agreement be struck sale parties interstate tween the applied to the Thereupon Consolidated that Con- energy so delivery of electric order and restraining for a District Court de- to continued solidated was entitled court restrained February on Water, in accordance liveries Penn Water, final determination pending therein, regardless of the terms set forth issues, in re- anything doing contract invalidity amendatory spect generation, transmission by Penn response a motion 1931. In (cid:127)of disposition covered interpret its Water that the Fourth Circuit different from agreement manner controversy, that mandate and settle per- followed in procedure theretofore opinion on a second court delivered Jan- District The formance of the contract. uary 1951.7 February opinion4 on Court filed agreement of court held the earlier valid, 1950, declaring the 1931 contract amendatory revived when 1927was not directing proceed. arbitration to illegal, and contract of 1931 was declared appealed Penn Water to the United terms former reiterated in unmistakable Appeals States Court of for the Fourth was invalid holding 1931 contract that the court, September and that Circuit opinion, entirety. In the course in its opinion5 handed down an exhaustive said, 186F.2d at Fourth District reversing judgment amendatory contract into the entering appellate the 1931 Court. The court held “ ** * contrary public policy contract invalid its in- up gave Clayton and as violative the Sherman and producer and seller dependent status as a Pennsyl- Acts utility and the subjected laws com- itself so electric opinion, vania. the course of Consolidated pletely the dominance of page said, Fourth Circuit 184 F.2d at 568: controlling statutes violate the as to “ * * * must he stricken agreement hence be, may although well down. present Maryland arrangement between the “ * * * is invalid for utilities prior contract has Here forth, set that an reasons interconnection of changed and its nature merged interchange facilities and an electrical of agreement, and as subsequent unlawful the energy may between them continued be changed, has resulted in an so unlawful ap- some method that would meet with the twenty relationship which has continued for proval appropriate regulatory the of au- such rela- illegality the of years. When thority and will offend either the anti- declared, tionship it is idle to contend utility laws or Pennsyl- trust the laws of original the can withdraw that the court (Emphasis supplied.) vania.” illegal relationship and from the contract certainly petition validity,

Consolidated’s after it has been give for certiorari was Supreme period. denied long on December Court therein so buried 11, 1950,6 perish relationship along result with the of which case went must Pennsylvania constituting Hessey al., 4. & Water Power Co. Co. and et v. Maryland Light of Consolidated Gas Commission Electric & Power Public Service Co., Pennsylvania (two D.C.Md., F.Supp. v. & Power Water Co. cases), S.Ct. Pennsylvania Water & Power Co. v. Light Gas, Power Co. v. Pennsylvania & Consolidated Electric & Pow- Water Light Co., Cir., Gas, er Electric & Pow- 184 F.2d 552. Consolidated Co., Cir., 186 F.2d 934. er Light 6. Consolidated Gas & Pow- Electric er & Co. Water Closely provisions inseparable associated these

of which it has been made future illegal were the restrictions on the part. activities Penn Water which resulted j|e í}í j|c sfc sfc contract. invalidation of the whole this case and “Throughout the trial of required Therein Penn to obtain Water was motion, pending argument approval enter- before of Consolidated its desire to Penn Water has reiterated any agreement or ing into sale to Con- supply continue electric purchase energy and of electric and solidated; close relation- and in view of the approval be- obtain the of Consolidated ship parties, the existence of between the disposing- making fore or investment equipment the control and interconnecting excess of property having its value bodies, there regulatory rates over its $50,000. were conditions These restrictive the interests is no reason to fear that safeguard Consolidated included in order to Maryland electricity will consumers of performance promises and it in the its the exist- suffer the invalidation through is conceded them the contract that without two utilities. ing contract between the impracticable would have been a declar- “The District should issue Court not have been made.” judg- atory aside judgment (1) setting 1950; (2) and order of March ment Although judgment a court of a final agreements December declaring competent jurisdiction invalidated had thus 29; September June 1931.and the entire contract between effect; and (3) no are void Consolidated, the Federal Power Com- February order of dissolving restraining regarded mission still it as desirable (Emphasis 1949.” supplied.) interest that the facilities of Presumably the District Court at Balti- companies operated two as one declaring judgment entered a more then system. integrated and interconnected agreements between Penn Water opinion, the Being of Commission was effect, as no Consolidated to be void co-oper- understandably anxious no it had been directed do. There interchange use facilities ative equivocation limitation in the Fourth or energy be I think it should have continued. simply hold directive. It did not Circuit’s required parties called in and them to con- provisions, but void the restrictive immediately out contract in work new entirety. agreement in its demned the 1931 form conventional which would accord obviously con- This because court opinions Appeals of the Court of depend- arrangement that the whole sidered the Fourth Circuit. which fettered Penn ed the restrictions however, thought, that the Fourth Circuit paragraphs containing and that the para- condemn the two meant therefore, restrictions, were not sever- agreement graphs pro- the 1931 remainder the contract. able from the hibited Penn buy- Water from selling excerpt appears following from the This and from ing energy increasing re- opinion, 186 F.2d from the Fourth Circuit’s plant investment ducing without Con- agreement, “The 1931 at 936: consent. It solidated’s reasoned that hand, provided that Consolidated should be require the could continuance of the old capacity all the electric and entitled to paragraphs if contract those were elim- available to Penn Water and not inated. This would leave in effect the con- performance disposed of in the otherwise of definition Consolidated’s tractual residual contracts, and in consideration existing of payment type and residual entitlements the. thereof, agreed pay Penn Consolidated But the Fourth Circuit rate. said those of equal operating to its ex- an amount Water closely provisions were so associated with specified of a return on exist- penses, illegal restrictions on the the future ac- facilities, and the cost facili- of new ing Penn that of Water the whole tivities con- depreciation, and Consolidated was less ties invalid. The opinions court’s tract credit for the amount the sales allowed a of abundantly clear its persons. Penn intention to energy by of Water to make strike relationship the Consolidated consti- just which arrangement, down the a entire —not statutes tuted violation of anti-trust the provisions. restrictive ? them when established contract between significant Water It that Penn question should One who considers that that, un- without the Consolidated conceded proposi- indisputable bear in mind three former, the the lawful restraints on per tions are not Regulated : 1. industries impracticable have heen contract would exempt Act. 2. Part se from the Sherman an made. That wotild not have been II of the give the Act does not Com- Power and the re- admission the restrictions that the lift ban anti- the “closely- so mainder the contract were implication repeals by trust As laws. 3. restrictions illegality associated” that favored, only repugnancy clear complete invalidity. if resulted in Even law new results between old and the paragraphs agreement were unlawful way only giving and then the former severable, provisions would remaining repugnancy. pro tanto to extent incompatible Fourth Circuit’s be with the Pennsylvania Georgia Company, Railroad un- free and decision because under them 456-457, U.S. im- competition would still be restrained 1051; 89 L.Ed. United Borden States v. possible. two Welding facilities Company, 1939, seq., 198 et system companies integrated into one —the S.Ct. 84 L.Ed. objective conducive not—is In competition. denying holding the motions and that power, "has the Commission the ma- Ill such jority the court first con- necessarily “system contracts” After foundation cluded that II Power Part of the Federal void, had been held null and impliedly repealed superseded Act had December entered a motion in this court on “ exempt * * * the anti-trust so as to statutes 29, 1950, asking we set that prohibitions their the combination between aside, annul and dismiss the orders of Water Consolidated sought Commission be in these reviewed Commission ordered to continue. alternative, or, proceedings, remand proceedings In in bold relief the these to the Commission order show think- my majority ing and set aside its brothers of instructions annul orders * * conclusion, sought to be reviewed led them I have skele- herein pertinent portion opin- tonized the of their Pennsylvania Utility Public Commis ion: moved this court on sion also December. 29, 1950, problem raised “To dismiss orders “The motions annul sought statutory one of the Federal Power Commission interrelation two 10,239 No. on the schemes —each reviewed Case different reflects pressures concep- the decision historical and different ground United public Appeals for the Fourth tions of the The Sherman interest. States Court Act, 1-7, note, Pennsylvania re- & Power 15 U.S.C.A. §§ Utility attempt represent keep Public lated laws Company and competition prices Electric free Consolidated Gas channels of so Commission v. Company of Baltimore are determined the work- Light and Power services ** * Mary free ings of market. marked Public Commission of Service De Part II (1950), cert. denied contrast statute land, 184 F.2d invalid, null, Power Act. con- renders void the Federal evidences cember competition gressional recognition that can the orders of the Federal no and of effect proceedings protection and the assure interest setting which is conducive pursuant which said industrial to orders an it before place market and can have no free issued.” to a were monopolies are because of industries which presented question by these motions The ** public grant *. have called basic issue: what I objectives indicate contrasting Power Commission law- “These the Federal can only limited laws can have that the antitrust establish between Penn Water and fully application spe- regulated tion of the facilities utilities!. iby industries two to of * * * any But neither that other cific nor sec- statutes. section “ * * * of what we tion Part II the Commission The net of authorizes effect require that, though regulated have to interconnection already said is co-ordina- of exempt from the tion facilities per industries are not se under terms conditions- repeals implication which will a antitrust result violation of the laws and favored, laws are Sherman Act. The are not the antitrust Commission can exer- superseded regulatory cise its of specific and under all § up arrangement Part II repugnancy setting statutes to without extent. * * * which is unlawful between them. where a statute under anti-trust statutes. Fourth provides comprehensive for The intimated much detailed as suggested regulation particular industry, as do when it that the interconnection Act, facilities interchange energy the Interstate Commerce 49 U.S.C.A. seq., “by 1 et Act, and the Federal Power there continued some method that § is, indicated, only approval as we meet with the appropriate limited area of the application regulatory of antitrust considerations and will authority not offend either the utility to Commission decisions.” anti-trust laws or the laws Pennsylvania.” F.2d The [184 568.] generalities These boil down to the thesis opinion majority suggest any does not rea- that Part of the Federal Power Act is II why son cannot be done the Com- repugnant the- and there- anti-trust laws mission. supersedes them to the extent of the repugnancy; repugnancy and that ex- per- Since the Power Commission -can exempt tends far as the anti- so all its form functions under Part II with- trust laws the combination of utilities or- out creating a violation of the Sherman by the Act, dered Commission which other- is there is repugnancy no between the illegal under statutes. clearly wise those statutes, two and no room court ' superseded say that II Part anti-trust point par- The do out with majority not statutes. ticularity repugnancy rely. They “con- to find in the seem said, Circuit, I have as did the Fourth objectives” trasting acts anti-trust that neither Part nor I Part II of the Act, saying and Part II of Power .the purports suspend Federal Power Act designed first was to obtain the benefit respect anti-trust statutes to licensees competition, to eliminate free regulated utilities On the thereunder. .and competition having place utility no as contrary, Sherman sub § Act regulatory field and to substitute for repeated stantially 10(h), found § only repugnancy agency. being the This Act, I Part Power 16'U.S.C. § majority, suggested holding their 803(h), follows: “Combina necessarily is that the anti-trust laws are arrangements, tions, agreements, or under superseded II Act by Part of the Power express standings, implied, to limit the objectives the extent of the two output energy, of electrical to restrain legislation are in Let forms of contrast. trade, fix, maintain, prices or increase any really repugnancy see if there is us hereby for electrical or service are II between the Act Part Sherman prohibited.” the Power Act. Penn Water is a licensee under Part I of former, section The first subject prohibitions the Act so is illegal con- every declares 15 U.S.C. § 10(h). majority considers that § tract, conspiracy in restraint combination or omission that section from Part II or commerce. The-1931 contract of trade only repealed 10(h) not but also amounted Consolidated was Penn Water and between repeal prohibitions the Sher- of that section. held violative companies regulated far man Act as ' saying That Section found in Part II of concerned. amounts Act, empowers apply the Commission to the anti-trust laws do n require regulated industry provisions and co-ordina- unless their the interconnection annul, in ad- regulatory for the motions to repeated substantially denying in the are theory the anti- to that anti- dition the fallacious opposite the is true: the statute. Just regulated in- apply to trust laws do not regulated industries apply laws to trust however, examination, the expressly dustries. exemption is On unless therefrom upon the statute, to rest ground or must additional is seen provided regulatory in the in stated inevitably same It is thus implied provisions of the erroneous idea. be motions opinion: petitioners’ clearly repugnant grant the “To regulatory act time would set at this prohibitions. aside the order to anti-trust be criteria those to antitrust substitute noted, too, must that Penn Water It be * * Act, . the Federal Power under its status as licensee does not lose simply regulated I is also Part because it it would be By this the court meant that nevertheless, continues, It under II. Part improper orders to annul the for- continues to be to a licensee so be “a handed ground on the mere that decision by 10(h) engage in the com- bidden § private parties in a un- down suit between illegal arrangements binations made non-controlling destroyed der a statute” had that, the thereby. when Com- It follows only they arrangement to which could required Con- mission possibly application. If Penn Water combination solidated remain in “wishes,” the Fourth Circuit’s because of courts, condemned which had been decision, change make some old only authority it not did not act under arrangement the Com- contractual power, it no gives of Part II which retained, be the ma- has ordered to affirmatively but also 10(h) violated § say only can do is to sub- jority thing it its own act. basic Then, proposed arrangement. mit new opinion says, however, majority The that disposed of the after Commission has a Part II when a I is also Part licensee .peti- proposal, file Penn Water can a new company, is, longer no it is aggrieved. tion for That review if feels subject provisions anti-trust § Penn Water wanted to would true if 10(h), simply language of because the that legal change existing arrangement. appear section not in Then does Part II. key reasoning The error the court’s repealed by 10(h) the notion that § is revealed its allusion to the decision opinion: Part II is thus stated “ * * * Fourth as one “handed down prohibitions 10(h) of § private parties between suit apply to a which is also licensee non-controlling statute.” It shows that regulated under Part II extent deny- assigning this additional reason prior repealed by not that statute is annul, the court is the motions to still ing repugnancy clear it and later between lawfully assuming Commission can that the statute.” require form a combination these utilities to suppose say I the court meant that legally form cannot their clearly repugnant Part II 10(h) is to § own contract. language not similar because it does contain repealed and therefore im- section already sufficiently think I I have shown plication. repugnant II is But Part not controlling the Sherman is the Act 10(h) that it same reasons is § which the Commission is not em- statute repugnant to the laws: it is not anti-trust powered judgment to override. That necessary for the Commission to cause not invalidating arrangement existing fully 10(h) a violation of in order to ex- private suit between handed down II regulatory ercise its under Part is, parties course, It immaterial. is subject over a Part I licensee which private parties, yet binding those this II regulation. Part disobey required it. has them It court idea phase portion done so erroneous has One superseded by has been opinion motions Act which denies the the Sherman court’s Act and that in which Part II of the so remains to be noticed. statute.” give “controlling another reason purports court rendered, re- it can therefore opinion being it is majority portion In the quire the service discussed, says it is the continued rendition being now the court rates, un- no unlawful. reflecting matter if existing “services and the sub- derlying operations, which were the motions For I think given, the reasons im- ject order.” should to annul order the Commission’s has plication is that all the Commission My have dissent. granted, been and so I ac- prescribe rates service done majority, having denied brothers of the rendered; if the rates tually being explore motions, proceeded then service, just reasonable for order merits of the rate reduction findings in that re- if the Commission’s Com- which the implementing rate schedule evidence, supported by substantial spect are affirmed or- prescribed, those suggest an end.” I review is at “our action, from that I dissent also ders. operations” were the sub- the “underlying orders should have set I think the been ject and therein of the Commission’sorders I improper. prolong do not aside as But They did not deal lies the vice in them. by discussing the this merits dissent contractual with rates but ordered the alone orders, perfectly clear that as I think operations” “underlying to continue. being set aside should without that, boot-strap argument say after the applicability Fourth Cir- basis or pre- because the Commission has judgment long became final. existing scribe rates service so as cuit’s

Case Details

Case Name: Pennsylvania Water & Power Co. v. Federal Power Commission (Two Cases). Pennsylvania Power Utility Commission v. Federal Power Commission

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

Date Published: Feb 4, 1952

Citation: 193 F.2d 230

Docket Number: 10236, 10239, 10531

Court Abbreviation: D.C. Cir.