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04/03/78 Boroughs of Chambersburg v. Federal Energy Regulatory

April 3, 1978

BOROUGHS OF CHAMBERSBURG AND MONT ALTO, PENNSYLVANIA AND THE CITIES OF HAGERSTOWN AND THURMONT, MARYLAND, PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT; POTOMAC EDISON COMPANY, INTERVENOR; THE POTOMAC EDISON COMPANY, PETITIONER,

v.

FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT; BOROUGHS OF CHAMBERSBURG AND MONT ALTO, PENNSYLVANIA, ET AL., INTERVENORS; BOROUGH OF CHAMBERSBURG, PENNSYLVANIA, PETITIONER, V. FEDERAL ENERGY REGULATORY

BOROUGH OF CHAMBERSBURG AND MONT ALTO, PENNSYLVANIA, AND CITIES OF HAGERSTOWN, THURMONT, AND WILLIAMSPORT, MARYLAND, PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT; POTOMAC EDISON COMPANY, INTERVENOR NOS. 76-1506, 76-1699, 77-1081, 77-1481 1978.CDC.46



Wright, Chief Judge, Bazelon and Wilkey, Circuit Judges.

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

COMMISSION, RESPONDENT; POTOMAC EDISON COMPANY, INTERVENOR;

Petition for Review of Orders of the Federal Energy Regulatory Commission.

APPELLATE PANEL:

PER CURIAM DECISION

On November 5, 1975, and on February 12, 1976, the Potomac Edison Co. filed proposed rate increases for the 1976 calendar year with the Federal Power Commission (the Commission). *fn1 Joint Appendix at 81-93. On March 12, 1976, the Commission suspended these rates and set the matter for a hearing. Id. Potomac Edison, the Town of Front Royal, Virginia, and the Old Dominion Electric Cooperative reached a settlement on September 3, 1976, according to which Potomac Edison's rates would rise only to approximately 70% of its proposed rate increases. Id. at 296. Since Front Royal had a fixed rate contract *fn2 that was not due to expire until 1980, its rate increase would occur in two steps, 50% on June 1, 1977, and 50% on May 31, 1978. Id. The Old Dominion Electric Cooperative, on the other hand, had a going rate contract *fn3 with Potomac Edison, and consequently it would be charged the full negotiated rate increase as of April 14, 1976. Id.

On September 21, 1976, petitioners in Nos. 76-1506, 77-1081 and 77-1481, the Boroughs of Chambersburg and Mont Alto, Pennsylvania, and the cities of Hagerstown, Thurmont and Williamsport, Maryland, (hereinafter termed petitioners), filed a motion requesting to be included "on an equal basis" in this settlement. J.A. at 285. The Commission, having determined that none of the petitioners except Chambersburg had fixed rate contracts, id. at 186-92, concluded that the negotiated rate increase for all the petitioners other than Chambersburg would become effective April 14, 1976, and that the rate increases for Chambersburg would go into effect in stages, 50% on June 1, 1977, and 50% on March 16, 1978, when Chambersburg's fixed rate contract was due to expire. Since the Commission also determined that Chambersburg's fixed rate contract was effective only for service up to 25,000 Kw, all of the negotiated price increases for service above that level would go into effect on April 14, 1976. *fn4 J.A. at 297; supplemental initial brief for petitioners at 3.

Petitioners objected to the timing of the rate increases, arguing that their net effect would constitute an "unreasonable difference in rates, . . . either as between localities or as between classes of service" in violation of § 205(b) of the Federal Power Act. *fn5 They relied on two early Commission cases construing § 205(b). In Gulf States Utilities Co., 1 F.P.C. 522 (1938), a power company had informed the Commission of its intent to offer a lower rate to its customers as their respective contracts expired over an approximately three year interval. The Commission had found that this procedure violated § 205(b), and it stated that

It is obvious that to deny . . . customers the benefit of the lower rate until their respective rate contracts expire will unduly prolong the present discriminations. Proper practice and the avoidance of undue discrimination requires, except in unusual cases, that once a new rate is adopted by a company it be made available and applied uniformly to all customers of the same class at the same time.

Id. at 524. In Otter Tail Power Co., 2 FPC 134 (1940), a power company had sought to justify the different rates charged its municipal customers on the basis of their population sizes and the results of "individual negotiation and bargaining between the [company] and the municipality . . . involved." Id. at 142. The Commission had found that since there was "no substantial variation in the service conditions or in the characteristics of the delivery and sale of energy to these customers," id. at 141, and since there was "no evidence in the record whatever indicating that the cost per kilowatt-hour to respondent of producing and delivering energy to any one of these customers differs from the cost per kilowatt-hour of producing and delivering energy to any other one of these customers," id., the company had been in violation of § 205(b).

Distinguishing these early decisions the Commission rejected petitioners' argument, stating that Gulf States Utility Co. and Otter Tail Power Co. had been qualified by subsequent decisions of the Supreme Court. In FPC v. Sierra Pacific Power Co., 350 U.S. 348, 100 L. Ed. 388, 76 S. Ct. 368 (1956), the Court had determined that a supplier of power subject to regulation under the Federal Power Act could not depart from a contract obligation to deliver power at a firm price by unilaterally filing proposed rate increases with the Commission under § 205(d) of the Act. Absent an exercise of the Commission's power under § 206(a) "to prescribe a change in contract rates whenever it determines such rates to be unlawful." id. at 353, the contract rates would remain binding. In its construction of the Act, the Court relied upon its interpretation of the Natural Gas Act in the companion case of United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 100 L. Ed. 373, 76 S. Ct. 373 (1956). In that case the Court had analyzed the policies underlying parallel provisions of the Natural Gas Act:

Our conclusion that the Natural Gas Act does not empower natural gas companies unilaterally to change their contracts fully promotes the purposes of the Act. By preserving the integrity of contracts, it permits the stability of supply arrangements which all agree is essential to the health of the natural gas industry. Conversion by consumers, particularly industrial users, to the use of natural gas may frequently require substantial investments which the consumer would be unwilling to make without long-term commitments from the distributor, and the distributor can hardly make such commitments if its supply contracts are subject to unilateral change by the natural gas company whenever its interests so dictate . . . . On the other hand, denying to natural gas companies the power unilaterally to change their contracts in no way impairs the regulatory powers of the Commission, for the contracts remain fully subject to the paramount power of the Commission to modify them when necessary in the public interest. The Act thus affords a reasonable accommodation between the conflicting interests of contract stability on the one hand and public regulation on the other.

350 U.S. at 344. Two years later, in United Gas Pipe Line Co. v. Memphis Light, Gas and Water Div., 358 U.S. 103, 3 L. Ed. 2d 153, 79 S. Ct. 194 (1958), the Court held that where a public utility's going rate contract with a customer permitted the utility "to change its rates from time to time," id. at 110, such changes could become effective upon unilateral filing with the Commission. The Court emphasized

the legitimate interests of natural gas companies in whose financial stability the gas-consuming public has a vital stake. Business reality demands that natural gas companies should not be precluded by law from increasing the prices of their product whenever that is the economically necessary means of keeping the intake and outgo of their revenues in proper balance; otherwise procurement of the vast sums necessary for the maintenance ...


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