Writ of Certiorari Granted May 23, 1955. See 75 S.Ct. 785.
BAZELON, Circuit Judge.
In 1938, Pacific Gas and Electric Company, a public utility under the laws of California, and Part II of the Federal Power Act,
At first P G & E offered a 15-year contract at the 1938 contract rates but with an "escalator fuel clause." Sierra rejected this and turned to intensive negotiations with governmental agencies for "cheap Government power." P G & E then proposed a lower rate (the so-called P-31 schedule) for the same term without the escalator clause. This proposal was accepted in June 1948 and embodied in a contract which was duly filed with the California Public Service Commission and the Federal Power Commission. The P-31 schedule was a lower rate approved by the California Public Service Commission (formerly Railroad Commission) to enable P G & E to retain business of customers that would otherwise "be lost altogether" to public power competition. But a significant condition of this approval was that any loss from such service would be borne by P G & E's stockholders and not by its other customers.
In 1952, however, when public power from Shasta Dam was no longer available to Sierra, P G & E sought the California Commission's approval for rate increases for Sierra and other customers under the P-31 schedule.
The novel and important question for decision is whether and to what extent the pre-existing right of utilities to enter into enforceable rate contracts has been abrogated by the Commission's power under the Act to regulate rates. Congress did not expressly abrogate that right. To find such abrogation by implication,
So guided, we examine the pertinent provisions of the Act.
Section 205(a) of the Federal Power Act requires that rates for the sale of electric energy within the Commission's jurisdiction shall be "just and reasonable." Section 205(c) provides that all rates, charges and contracts relating thereto shall be filed with the Commission. Section 205(d) provides that no change in such filed rates, charges, or contracts relating thereto shall be made without notifying the Commission. Section 205(e) authorizes the Commission, upon complaint or upon its own motion, to determine whether the newly proposed rate or charge is just and reasonable. In modifying a filed rate under § 205, it is not necessary to prove that the original rate is unjust or unreasonable; the new rate will take effect if the utility sustains the burden of proving that it is "just and reasonable".
Under § 206(a), on the other hand, a finding of unreasonableness is a prerequisite to modification of a filed rate. That section authorizes the Commission, upon its own motion or upon complaint, to find that a rate, or contract affecting such rate, is "unjust, unreasonable, unduly discriminatory or preferential." If it so finds, it must determine and fix a "just and reasonable rate, charge * * * or contract to be thereafter observed * * *."
The Commission argues that under both §§ 205 and 206(a) "the statutory scheme is to depend upon regulatory action and initiative in lieu of private contract to protect the buyers' interests — in the public interest." But we think this stretches the statutory scheme too far. The Act's primary aim is that only just and reasonable rates shall be charged. Since "statutory reasonableness is an abstract quality represented by an area rather than a pinpoint",
We cannot agree with the Commission that this view of the statutory scheme is inconsistent with § 205's requirement that contracts and notice of any changes therein shall be filed with the Commission.
Our view of the statutory scheme is supported by a recent Third Circuit case, Mobile Gas Service Corp. v. Federal Power Comm.,
Cases relied on by the Commission do not sustain its position. Tyler Gas Service Co. v. United Gas Pipe Line Co., which the Commission asserts is inconsistent with the Mobile case, expressly withheld any opinion as to the correctness of that decision.
Although the Commission has at all times insisted that no finding of unreasonableness is required, the majority opinion approving the increase stated:
This statement, however, is based entirely upon a record made in a proceeding under § 205(e) in which the unreasonableness of the contract rate was not in issue. And, in any event, as the dissenting Commissioners observed, "no such finding is made. Rather, it seems to have been carefully avoided."
For the foregoing reasons, the order under review is set aside and the case remanded to the Commission with instructions either to dismiss the proceeding or for further proceedings under § 206(a).
This view of the Kansas statute was embraced by the Supreme Court of the United States in Wichita R. & Light Co. v. Public Utilities Comm., 1922, 260 U.S. 48, 43 S.Ct. 51, 67 L.Ed. 124, and by the Court of Appeals for the Tenth Circuit in Allen W. Hinkel Dry Goods Co. v. Wichison Industrial Gas Co., 10 Cir., 1933, 64 F.2d 881.
"Mr. Halleck. Of course, it is your idea that if this bill should pass and the Commission be given the authority contemplated in this bill, that the contract could be superseded or invalidated insofar as attempt to fix the rates of charges is concerned?
"Mr. Booth. That certainly would be my position and we certainly would ask the Federal Power Commission promptly to consider the question as to whether or not the Natural Gas Pipeline Co. of America is earning an unfair return from the fair value of its property." Hearings before House Committee on Interstate and Foreign Commerce on H.R. 4008, p. 43, 75th Cong., 1st Sess. (1937).
This clearly suggests the understanding that contracts would remain in force unless they were "earning an unfair return * * *," i e., were unjust and unreasonable.