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Metropolitan Edison Co. v. Federal Power Commission.

CIRCUIT COURT OF APPEALS, THIRD CIRCUIT.


decided: August 23, 1948.

METROPOLITAN EDISON CO.
v.
FEDERAL POWER COMMISSION.

Author: Biggs

Before BIGGS, McLAUGHLIN, and O'CONNELL, Circuit Judges.

BIGGS, Circuit Judge.

The petitioner, Metropolitan Edison Company, seeks review of an order of the respondent, Federal Power Commission, filed November 7, 1944, as amended November 17, 1947, authorizing the issuance of a major license to Metropolitan for the operation by it of the constructed hydroelectric project known as the "York Haven Project", located on the Susquehanna River, a navigable water of the United States at York Haven, Pennsylvania.*fn1 The York Haven Project was constructed originally about 1901 by a company subsequently merged into Metropolitan. Metropolitan objects to the Commission's order of November 7, 1944, as amended, in two major particulars. It asserts that the provisions of Paragraph (A)(viii)*fn2 are not in conformity with the Federal Power Act, 16 U.S.C.A. § 791a et seq., and that the provisions of Paragraph (B),*fn3 dealing with rate of return and amortization reserves, require clarification. It contends also that that portion of the Commission's Opinion No. 160, also filed November 17, 1947, finding Metropolitan "in trespass"*fn4 at York Haven is not justified by the law or the circumstances.

As to the Provisions of Paragraph (A)(viii).

Metropolitan takes the position that since Section 3(13)*fn5 of the Act, 16 U.S.C.A. § 796(13), defines "net investment" in a project as "the actual legitimate original cost thereof as defined and interpreted in the 'classification of investment in road and equipment of steam roads, issue of 1914, Interstate Commerce Commission'", the Commission was without authority to order in subparagraph (viii) that depreciation be employed as a factor in estimating value. Metropolitan further asserts, as indeed does the Commission,*fn6 that the valuation determined by the formula prescribed by Paragraph (A)(viii) as a starting base will fix the maximum for which the United States will be held responsible on recapture, if such be effected subsequently, under the requirements of Section 14 of the Act, 16 U.S.C.A. § 807.*fn7 We think it is clear that the valuation imposed upon the York Haven Project by Paragraph (A)(viii) will serve as the base, throughout the period of regulation, for the establishment, inter alia, both of a reasonable rate of return and amortization reserves pursuant to Section 10(d).*fn8 In this connection we refer to the provisions of Section 4(b) and (e), 16 U.S.C.A. § 797(b) and (e), which provide respectively that the Commission is empowered to determine "the actual legitimate original cost of and the net investment in a licensed project * * *." and to issue licenses "for the purpose of constructing, operating, and maintaining" projects. Section 4(b) and (e) seems to be directed to new projects to be licensed under the Act, long in existence but never licensed such as York Haven. We refer also to Section 23(a), 16 U.S.C.A. § 816 which provides for the licensing by the Commission of projects operating pursuant to purported authority of existing law or under "permit" and which states that "the fair value" of such projects shall "be deemed to be the amount to be allowed as the net investment of the applicant * * *". Admittedly the provisions of Section 23 are not applicable to the York Haven Project.

To put it bluntly, there are hiatuses and inconsistencies in the Federal Power Act and, as was stated by Judge Learned Hand in Niagara Falls Power Co. v. Federal Power Commission, 2 Cir., 137 F.2d 787, 795, "* * * it is necessary * * * to break through the band of verbal logic at its weakest spot." In construing Section 3(13) little aid is procured from the Interstate Commerce Commission "classification"*fn9 though it would appear generally that "accrued depreciation" on road, equipment and miscellaneous property of a railroad must be set up on the general balance sheet in conjunction with operating reserves.*fn10 This might be more persuasive than it is if we were not convinced that by definition Section 3(13) was intended to operate only in the period following the issuance and acceptance of a license. That this is so is made plain by the actual text which speaks of additions of costs minus certain items which shall "have been accumulated during the period of the license * * *." It follows therefore that the definition of "net investment" as "actual legitimate original cost * * *" of Section 3(13) cannot be employed to determine the base of the York Haven Project or to test the legality of the formula of Paragraph (A)(viii).

What statutory sanction then can the Commission find to justify the formula set out in Paragraph (A)(viii)? Section 6, 16 U.S.C.A. § 799, as the Commission points out, provides that each license "shall be conditioned upon acceptance by the licensee of all the terms and conditions of this Act and such further conditions, if any, as the Commission shall prescribe in conformity with this Act * * *." But these provisions do not authorize the formula of Paragraph (A)(viii) for there is nothing in the Act which expressly authorizes the Commission to employ the formula of the "actual legitimate original cost and accrued depreciation" in respect to the York Haven Project which, as the record shows, was completed approximately thirty-three years ago and is now, for the first time, seeking a license. Section 10(g), 16 U.S.C.A. § 803(g), does, however, authorize the Commission to prescribe in a license "Such other conditions not inconsistent with the provisions of this Act as the Commission may require." Can this section be deemed to authorize Paragraph (A)(viii)?

It is clear from the Act that Congress contemplated the licensing of new projects: see Section 3(13); and of old projects in existence under permit; see Section 23(a). Congress must also have had in mind the fact that there were many projects already in existence, not under permit. We think it was the Congressional intent by the enactment of Section 10(g) to give to the Commission wide latitude and discretion in the performance of its licensing and regulatory functions and that Congress must have contemplated the licensing by the Commission of old projects, such as York Haven, not under permit, under the provisions of Section 10(g).*fn11 We think it is clear that the conditions of Paragraph (A)(viii) are not inconsistent with the Federal Power Act, are not in the least arbitrary or unreasonable, and that therefore the Commission possessed the authority to impose them on Metropolitan. Our reasons follow.

The "actual legitimate original cost and accrued depreciation of the project", the formula imposed by Paragraph (A)(viii) will effect the "fair value" required of "permit" projects by Section 23(a). We may not conclude that an existing project, not under permit, should be put in a better position as to value for regulatory purposes under a federal license than an existing project under permit. On the other hand we can see no substantial reason why an existing project without permit should be in a worse position than an existing project under permit insofar as federal licensing is concerned. In any event, it cannot be asserted plausibly that the provisions of Paragraph (A)(viii) of the order sub judice are inconsistent with the provisions of Section 10(g). On the contrary by analogy the paragraph of the Commission's order finds a basis in Section 23. The Act must receive a practical construction, one which will enable the Commission to perform the duties required of it by Congress.*fn12 See Clarion River Power Co. v. Smith, 61 App.D.C. 186, 59 F.2d 861, 863. We think that Section 10(g) authorized the Commission to impose the formula of Paragraph (A)(viii) and we so rule.

The formula set out by the Commission in Paragraph (A)(viii) will form the basis for the application of the Commission's regulatory functions in respect to the York Haven Project but we cannot and do not decide that the base created by the formula of the paragraph will, as the Commission contends and as Metropolitan fears, "fix the maximum" for which the United States will be held liable on recapture under Section 14. That question is not before us and we may not give an advisory opinion respecting it. Section 14 provides expressly that "The net investment of the licensee in the project or projects so taken and the amount of such severance damages, if any, shall be determined by the Commission after notice and opportunity for hearing." The recapture provisions of Section 14 may never be exercised by the United States. We think it is clear that they cannot be exercised in fact without further authorization by Congress and under appropriations which have not yet been made. But it is clear that the meaning of the phrase "the net investment of the licensee in the project or projects taken" employed in Section 14 cannot be properly before us on the instant review.

To sum up our conclusions upon this aspect of the case to the end that there may be no misunderstanding we state again that the formula prescribed by Paragraph (A)(viii) will supply the base on which the York Haven Project may be regulated by the Commission under license. We do not hold that the base of the formula is "the net investment" of Section 14. That question must await future determination as prescribed by the Act.

As to the Provisions of Paragraph (B).

The provisions of Paragraph (B) of the Commission's order of November 7, 1944 were amended by its order of November 17, 1947. Metropolitan asserts that the provisions of the paragraph as amended require further clarification. We do not agree. The Commission's Opinion No. 160, read in conjunction with the letter of November 25, 1947 of Mr. Leon M. Fuquay, Secretary of the Commission, to Mr. Harold J. Ryan, attorney for Metropolitan, leaves no doubt that the question raised by Metropolitan, as to whether the earnings from which amortization reserves are to be set aside would be annual earnings or those earnings accumulated over a given period, remains open for future determination by the Commission.

As to the Objection of Metropolitan to the Finding by the Commission that the York Haven Project Is "in Trespass."

The statement objected to is, as we have stated, in the opinion of the Commission. This court possesses no power to correct a statement in an opinion of the Commission albeit it would be within our province to state that the Commission's finding upon a pertinent point was in error if we so concluded. The Commission's statement, however, is not germane to any substantial issue presented for our determination. It is clear and conceded by all that the York Haven Project was erected in 1904 and has had neither permit nor license. The Commission has not attempted to impose any penalty on Metropolitan by reason of the facts last mentioned. We therefore find it unnecessary to discuss the statement in this opinion.

The order of the Commission of November 7, 1944, as amended by that of November 17, 1947, will be affirmed.


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