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Safe Harbor Water Power Corp. v. Federal Power Commission.

decided: December 30, 1949.

SAFE HARBOR WATER POWER CORPORATION
v.
FEDERAL POWER COMMISSION.



Author: Biggs

Before BIGGS, Chief Judge, and GOODRICH and O'CONNELL, Circuit Judges.

BIGGS, Chief Judge.

For the second time Safe Harbor Water Power Corporation seeks to review in this court an order*fn1 of the Federal Power Commission which will reduce the rates which it may charge for electric energy transmitted in interstate commerce. In the instant case the Federal Commission ruled that it possessed the power to regulate Safe Harbor's rates under Section 20, Part I, and also under Sections 205 and 206, Part II of the Federal Power Act and ordered a substantial rate reduction.*fn2

The circumstances of Safe Harbor's operations are referred to in our earlier opinion, 3 Cir., 124 F.2d 800, certiorari denied 316 U.S. 663, 62 S. Ct. 943, 86 L. Ed. 1740, and need not be detailed here. It will be necessary to read that opinion in conjunction with this. We think it is sufficient presently to state that we held in our earlier opinion that the Commission was without jurisdiction to regulate Safe Harbor's rates under Section 20, Part I of the Federal Power Act, because it had not found that the States of Pennsylvania and Maryland were unable to agree through their properly constituted authorities on the rates to be charged by Safe Harbor for the sale of the electric energy generated and transmitted by it in interstate commerce wholesale. The Commission had not relied upon Part II of the Federal Power Act in its earlier proceedings and the provisions of that Part were not before us. We now hold that the Federal Commission possesses the power to regulate Safe Harbor's rates under the provisions of Part II of the Federal Power Act and that the Commission in making the regulatory order of November 4, 1946, employed a rate base formula authorized by the Federal Power Act and has allowed Safe Harbor a fair rate of return.

I. Applicable Statutory Provisions and Jurisdiction.

A. Did the Federal Commission have jurisdiction under Part II of the Federal Power Act to regulate Safe Harbor's rates and is Section 20, Part I, inconsistent with or repealed by implication by Part II? Repeals by implication are not favored. United States v. Jackson, 302 U.S. 628, 631, 58 S. Ct. 390, 82 L. Ed. 488; United States v. Borden Company, 308 U.S. 188, 198, 60 S. Ct. 182, 84 L. Ed. 181. Safe Harbor holds a fifty year license issued by the Commission on April 22, 1930, under Section 4(e) of the Federal Water Power Act of 1920.*fn3 The provisions of Parts II and III of the Federal Power Act did not become effective until August 26, 1935.*fn4 Section 28 of the Federal Water Power Act, incorporated without change into the Federal Power Act as Section 28, Part I,*fn5 provided that though the right to alter, amend or repeal the provisions of the Act was expressly reserved by Congress no alteration, amendment or repeal should affect any license issued under the Act or the rights of licensees thereunder. Section 20 of the Federal Water Power Act, incorporated without change as Section 20, Part I, of the Federal Power Act, provided "That when said power or any part thereof shall enter into interstate or foreign commerce the rates charged and the service rendered by any such licensee, or by any subsidiary corporation, the stock of which is owned or controlled directly or indirectly by such licensee, or by any person, corporation, or association purchasing power from such licensee for sale and distribution or use in public service shall be reasonable, nondiscriminatory, and just to the customer and all unreasonable discriminatory and unjust rates or services are hereby prohibited and declared to be unlawful; and whenever any of the States directly concerned has not provided a commission or other authority to enforce the requirements of this section within such State or to regulate and control the amount and character of securities to be issued by any of such parties, or such States are unable to agree through their properly constituted authorities on the services to be rendered, or on the rates or charges of payment therefor, or on the amount or character of securities to be issued by any of said parties, jurisdiction is hereby conferred upon the commission, upon complaint of any person aggrieved, upon the request of any State concerned, or upon its own initiative to enforce the provisions of this section, to regulate and control so much of the services rendered, and of the rates and charges of payment therefor as constitute interstate or foreign commerce and to regulate the issuance of securities by the parties included within this section, and securities issued by the licensee subject to such regulations shall be allowed only for the bona fide purpose of financing and conducting the business of such licensee.

"The administration of the provisions of this section, so far as applicable, shall be according to the procedure and practice in fixing and regulating the rates, charges, and practices of railroad companies as provided in the Act to regulate commerce, approved February 4, 1887, as amended, and that the parties subject to such regulation shall have the same rights of hearing, defense, and review as said companies in such cases.

"In any valuation of the property of any licensee hereunder for purposes of rate making, no value shall be claimed by the licensee or allowed by the commission for any project or projects under license in excess*fn6 of the value or values prescribed in section 14 hereof for the purposes of purchase by the United States, but there shall be included the cost to such licensee of the construction of the lock or locks or other aids of navigation and all other capital expenditures required by the United States, and no value shall be claimed or allowed for the rights granted by the commission or by this Act."

Section 14 of the Federal Water Power Act with minor amendments became Section 14, Part I, of the Federal Power Act. It is set out in the footnote.*fn7 Section 14, containing the so-called "recapture"*fn8 provisions, Part I, relating only to licensees, refers to "net investment" as an element going to fix the recapture base of a hydroelectric property and provides that in any event the United States on recapture shall not pay more than the "fair value" of the property. Section 3(11) of the Federal Water Power Act, in effect reenacted as Section 3(13) of the Federal Power Act (albeit with amendments not pertinent here), provided originally and provides now that "'net investment' in a project means 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', plus similar costs of additions thereto and betterments thereof, minus the sum of the following items properly allocated thereto, if and to the extent that such items have been accumulated during the period of the license from earnings in excess of a fair return on such investment: (a) Unappropriated surplus, (b) aggregate credit balances of current depreciation accounts, and (c) aggregate appropriations of surplus or income held in amortization, sinking fund, or similar reserves, or expended for additions or betterments or used for the purposes for such reserves were created. * * *" It is the contention of Safe Harbor, as will more particularly appear hereinafter, that since Section 20 refers to "net investment", the net investment of Safe Harbor must be determined in accordance with the formula of Section 3(13) set out immediately above. This, says Safe Harbor, the Federal Commission failed to do.

The foregoing gives us only part of the background of our problem. As we have stated Safe Harbor is a "licensee" under the Federal Water Power Act, now Part I of the Federal Power Act. But is it also a "public utility" under Part II? A "public utility" is defined in Section 201(e), Part II, as "* * * any person who owns or operates facilities subject to the jurisdiction of the Commission under this Part".Section 201(b) in pertinent part describes such facilities as those employed for "the transmission of electric energy in interstate commerce * * *." The Federal Commission has found on evidence which admits of no serious dispute, that Safe Harbor owns and operates the prescribed jurisdictional facilities. See 5 F.P.C. at pp. 226-229. See Jersey Central Federal Power & Light Co. v. Federal Power Comm., 319 U.S. 61, 63 S. Ct. 953, 87 L. Ed. 1258. Section 201(c) provides that "electric energy shall be held to be transmitted in interstate commerce if transmitted from a State and consumed at any point outside thereof * * *." Section 201(d) states that the term "sale of electric energy at wholesale" shall mean "a sale of electric energy to any person for resale." It cannot be disputed that Safe Harbor makes such jurisdictional sales and the Commission has so found on very adequate evidence.*fn9

Safe Harbor then is not only a licensee under Part I but it is also a public utility under Part II of the Federal Power Act. Section 201(a), Part II, declares the congressional policy in respect to public utilities as follows: "* * * the business of transmitting and selling electric energy for ultimate distribution to the public is affected with a public interest, and * * * Federal regulation of matters relating to generation to the extent provided in this Part and the Part next following and of that part of such business which consists of the transmission of electric energy, in interstate commerce * * * is necessary in the public interest, such Federal regulation, however, to extend only to those matters which are not subject to regulation by the States."

Section 205(a) provides that "All rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission, and all rules and regulations affecting or pertaining to such rates or charges shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful."

Section 206(a) states, "Whenever the Commission, after a hearing had upon its own motion or upon complaint, shall find that any rate, charge, or classification, demanded, observed, charged, or collected by any public utility for any transmission or sale subject to the jurisdiction of the Commission, or that any rule, regulation, practice, or contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order."

Section 208(a) provides that "The Commission may investigate and ascertain the actual legitimate cost of the property of every public utility, the depreciation therein, and, when found necessary for rate-making purposes, other facts which bear on the determination of such cost or depreciation, and the fair value of such property."

The argument favoring repeal by implication,*fn10 or, perhaps more accurately, the reasoning supporting the existence of such inconsistency between the regulatory provisions of Section 20, Part I, and Part II as to require the discarding of the former for the latter, runs as follows. Since Safe Harbor is a "public utility" it is regulable under Part II though it is also a "licensee" under Part I. The language of Part II, Sections 205, 206 and 208 therefore must be deemed to provide the sole regulatory formula. But the contra argument is said to require the conclusion that if a hydroelectric project is a "licensee" under Part I, as is Safe Harbor, it must be regulable under Section 20. If Section 20 be used it is asserted the unique "net investment" formula of Section 3(13) implemented by Section 14, the "recapture" section of Part I, must also be employed.

It is contended by Safe Harbor that this is so because the base for rate making or recapture is a single financial arrangement with the licensee. "Net investment", says Safe Harbor, must be the same element whether employed as a base to determine the rate of return or the amount to be paid on recapture. This was orally argued by counsel for Safe Harbor in the following terms: "Congress determined that these two subjects of rate making and recapture were inseparably part of a single financial agreement with the licensee; and the reason for that is a very simple one - that the higher the rates, if the licensee gets excessive rates under the recapture formula of Section 14, it serves to reduce the recapture price, so that the two are naturally connected."

Going on with Safe Harbor's argument, it contends that since Section 206, Part II, contains no such formula as that set out in Section 3(13), regulation under Section 206 must be on a different basis from that required by Section 20. Therefore Section 20 must prevail. The proponents of repeal by implication or fatal inconsistence assert that the provisions of the respective sections are incompatible and that one must give way to the other.

Sections 205, 206 and 208 are in fact a later statutory enactment than Section 20 but we do not find the argument in favor of repeal by implication persuasive. As we have seen, Sections 20 and 28 were simply constituted a part of the Federal Power Act by Section 212 of the Public Utility Act of 1935 and Section 213 of the latter Act states, "The Federal Water Power Act, as amended, is further amended by adding thereto the following parts * * *"; then follow Parts II and III of the Federal Power Act. But Section 3(11), now Section 3(13) of the Federal Power Act, and Section 14 of the Federal Water Power Act were reenacted by the Public Utility Act of 1935 albeit amended in parts not pertinent here. See note 10, supra. It can be argued with some plausibility therefore that since Safe Harbor is a "licensee" it must be regulated as such even though it is also a "public utility". But under the view which we take it is not necessary to resolve these questions for we are of the opinion that the provisions of Section 20, Part I, and those of Sections 205, 206 and 208, Part II, are not conflicting or inconsistent.

Our reasons are as follows: First, we point out that the regulatory language contained in Section 20 is substantially identical in effect, the provisions of Section 3(13) aside, with that of Section 206.*fn11 Second, Section 20 expressly provides that in the valuation of the property of any licensee for purposes of rate making "* * * no value shall be claimed by the licensee or allowed by the commission for any project * * * under license in excess of the value * * * prescribed in section 14 hereof for the purposes of purchase by the United States * * *". In other words the reference to Section 14 and via Section 14 to the "net investment" provision of Section 3(13) provides a limit for valuation and cannot be construed as a grant of power to make a valuation. Third, it will be observed that if regulation of rates be had under Section 20 of Part I that such regulation conceivably may be by State commissions, whereas recapture must always be by the United States. The United States on exercising its recapture powers under Section 14 at the end of the license period will be required to pay the "net investment" of the licensee in the project taken but "not to exceed the fair value of the property taken." "Net investment" therefore may exceed "fair value". "Net investment" may be determined by State commissions but "fair value" must be determined by the United States and the two elements need not be the same though they should coincide. If State commissions, for example, should allow too high a "net investment", applying the Section 3(13) formula, the United States would not be bound by such a determination though the figures have been set throughout the entire operative period of the license. The United States on recapture would pay merely "fair value". Moreover, the argument of Safe Harbor, both on its brief and as made orally, the latter being quoted at an earlier point in this opinion, that the subjects of rate making and recapture are "inseparably part of a single financial agreement with the licensee" will not hold water. As we endeavor to point out under "II" of this opinion, dealing with rate base, "net investment" as conceived of by Safe Harbor under the Section 3(13) formula must inevitably result in a rate in excess of a "fair return". This is so because under the view taken by Safe Harbor depreciation is not deducted from rate base. We conclude, and we elucidate our reasons at a later point hereinafter, that if Congress intended such a result it would have made that intention manifest in unmistakable terms in the language of Section 20 and would not have used the "in excess" phrase relating to value as prescribed in Section 14. Section 28 does not require a different conclusion. That section does not confer upon the licensee a right to an excessive rate of return or sustain a charge that the Commission in the instant case has in effect changed the rules relating to ascertainment of rate base in the middle of the game. The present pertinent provisions of Section 20 have remained unchanged since 1920. Fourth and last, while Safe Harbor lays great emphasis upon the last clause of Section 201(a) which provides that federal regulation is "* * * to extend only to those matters which are not subject to regulation by the States.", this language is not pertinent in the instant controversy for it is designed to be applicable only to electric energy transmitted and sold in intrastate commerce. The control of rates referred to in the section is control by a single State and the language has no relation to possible joint control by two or more States under the compact clause of the Constitution.*fn12

We are of the opinion that the view which we have expressed is not in violation of the Fifth Amendment. It is our duty to reconcile the provisions of the Federal Power Act with those of the Constitution of the United States and we think that our solution works a reconciliation of Safe Harbor's franchise, the Federal Power Act and the Constitution.

We shall presently hold, as appears from heading "I.B." of this opinion, that the Federal Commission has properly found that the States of Pennsylvania and Maryland have been unable to agree on cooperative regulation of Safe Harbor's rates. Conceding that regulation under Part I, whether conducted by the Federal Commission or State Commission, is identical in scope and that the Federal Commission cannot regulate electric energy which the States cannot regulate under the compact clause, clause 3 of Section 10 of Article I of the Constitution, nonetheless, since regulation under Section 20 sans the "net investment" base of Section 3(13) is or should be substantially identical with regulation by the Federal Commission under Section 206 because of the similarity of regulatory language of Sections 20 and 206, it seems only an academic question whether regulation be conducted by the Federal Commission to require that the sale and distribution or use of electric energy "* * * shall be reasonable, nondiscriminatory, and just to the customer"*fn13 (Section 20) or by the Federal Commission in such way that the rate or charge for electric energy may be regulated if it is "* * * unjust, unreasonable [or] unduly discriminatory".If, as we have held, the provisions of Section 206 properly are to be read in the light of Section 20 in fact making the provisions of Section 20 (sans the "net investment" language of Section 3(13)), the equivalent of those of Section 206, the rights of Safe Harbor as a licensee are preserved, the requirements of Section 28 are met and regulation of Safe Harbor's rates may proceed upon such a fair and equitable basis as the Federal Commission may determine. See Federal Power Comm. v. Hope Natural Gas Co., 320 U.S. 591, 64 S. Ct. 281, 88 L. Ed. 333. In other words we read Section 206 as if the provisions of Section 20 were a part of it.

We appreciate the fact that our construction of the provisions of Section 20 is at variance with the dicta of two courts. See Niagara Falls Power Co. v. Federal Power Commission, 2 Cir., 137 F.2d 787, 792-793, certiorari denied 320 U.S. 792, 64 S. Ct. 206, 88 L. Ed. 477, and Alabama Power Co. v. Federal Power Commission, 75 U.S.App.D.C. 315, 128 F.2d 280, 293, certiorari denied 317 U.S. 652, 63 S. Ct. 48, 87 L. Ed. 525. Our first opinion squints in the same direction. But as Judge Learned Hand stated in the Niagara Falls Power Company case, 137 F.2d at page 795, in construing the Federal Power Act, "* * * it is necessary * * * to break through the band of verbal logic at its weakest spot. * * *" Cf. Metropolitan Edison Co. v. Federal Power Commission, 3 Cir., 169 F.2d 719, 723. The "fair value of the property" provision of Section 14, however, will supply an upward limit and whatever may be found to be the Section 3(13) "net investment" base the property can be recaptured by the United States at its "fair value". We are faced with the practical task of construing Acts of Congress. We can perceive no grave dichotomy in using the provisions of Section 3(13) for recapture and not employing them in arriving at a rate base.

We point out that Safe Harbor's license casts but little light on the problem of rate regulation. An examination of the license and the rules and regulations promulgated by the Commission tend to support the Commission, or at least, serve to show that the Commission's general conception of its rate-making power has been consistent. Article 1 of the license provides that the project "* * * shall be subject to all the terms and conditions of this license, including the terms and conditions of the Act and of the rules and regulations of the Commission pursuant thereto and made a part of this license." Article 26 provides that the licensee shall abide by such reasonable regulation of services and rates as are prescribed by state agencies or by the Federal Commission when it has jurisdiction. Article 23 contains language somewhat like that of Section 3(13), Part I, of the Federal Power Act but that article deals with amortization as required under Section 10(d) of the Federal Power Act. Regulation 17 (Section 2D) of the rules and regulations of the Commission makes it clear that the determination of net investment and rate of return for purposes of amortization shall not be construed as limiting rate-making proceedings. This regulation is specifically referred to in Article 23 of the license. We do not assert that amortization and depreciation are the same coin. But no other article is even remotely analogous here.Since the license contains no limitations on rate-making authorities not to be found in the Federal Power Act itself, we need not concern ourselves further with the provisions of the license.

B. Was the Federal Commission entitled to regulate Safe Harbor under Part I of the Federal Power Act? Because of our rulings under heading "I.A." of this opinion this question has become academic. We think we should resolve it, however, because the reviewing Court may take a view of the substantive law which differs from our own. Under heading "I.A." we held that regulation of rates under Section 20 was substantially the same as regulation under Section 206 and that regulation under Section 206, because Safe Harbor is a licensee under Section 4, must be exercised with due regard to the provisions of Section 20. In our earlier opinion we held that the Federal, Commission was without jurisdiction to regulate Safe Harbor's rates as provided in its earlier order*fn14 because it had failed to make a finding that the States of Pennsylvania and Maryland were "* * * unable to agree through their properly constituted authorities on the services to be rendered, or on the rates or charges of payment therefor * * *". Our actual ruling went no further than ...


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