Document: 488 U.S. 299 109 S.Ct. 609 102 L.Ed.2d 646 DUQUESNE LIGHT COMPANY and Pennsylvania Power Company, Appellantsv.David M. BARASCH, etc., et al. No. 87-1160. Argued Nov. 7, 1988. Decided Jan. 11, 1989. Syllabus In 1967, appellant electric utilities joined a venture to construct seven nuclear generating units. But in 1980, because of intervening events, including the Arab oil embargo accident at Three Mile Island, participants canceled plans for construction four plants. Thereafter Duquesne Light Co. applied Public Utility Commission (PUC) obtain rate increase amortize its expenditures on plants over 10 years. The PUC granted that included an amount representing first payment 10-year amortized recovery Duquesne's costs aborted Shortly before close proceeding, state law (Act 335) was enacted provided utility's cost facility shall not be made part base nor otherwise rates charged until such time as "is used useful service public." State Office Consumer Advocate moved reconsider light this law, but reconsideration affirmed original order, reading new excluding from base, preventing their through amortization. Meanwhile, similarly authorized it share period. appealed both decisions Commonwealth Court, which held had correctly construed Act 335. Supreme Court reversed, holding 335 prohibited question either by inclusion or amortization, statute did take appellants' property violation Takings Clause Fifth Amendment, applicable States under Fourteenth Amendment. court remanded case further proceedings correct orders, giving effect exclusion required Held: 1. This has jurisdiction decide 28 U.S.C. § 1257(2), authorizes review appeal "[f]inal judgments . rendered highest decision could where is drawn validity any ground being repugnant Constitution favor validity." Although revise court's judgment final purposes Court's appellate jurisdiction. last word 335's constitutionality been presented, all remains straight-forward application clear directive complete orders. Pp. 306-307. 2. A scheme utility regulation, involved here, does "take" simply disallows capital investments are "used 307-316. (a) Under "prudent investment" "historical cost" rule, compensated prudent actual when (their "historical" cost), irrespective whether individual deemed necessary beneficial hindsight. It ruled FPC v. Hope Natural Gas Co., 320 591, 64 281, 88 L.Ed. 333, historical valid basis calculate compensation. 307-312. (b) require subsidiary aspects Pennsylvania's ratemaking methodology examined piecemeal, appellants argue. legislatures competent bodies set rates, essentially administrative arm legislature. Similarly, reasonable subject constitutional attack questioning theoretical consistency method produced it, do here noting inconsistency suddenly selectively applying requirement," normally associated with fair value ratesetting, context system based costs. 313-314. (c) case, relevant times, predominantly entirely costs, shown orders modified failed give return equity given risk regime. Therefore, limited those result constitutionally impermissible rates. 314-315. (d) adoption rule single standard valuation would inconsistent view taken since unnecessarily foreclose alternatives benefit consumers investors. within broad limits leaves free what ratesetting best meets needs balancing interests public. 315—316. 516 Pa. 142, 532 A.2d 325, affirmed. REHNQUIST, C.J., delivered opinion BRENNAN, WHITE, MARSHALL, STEVENS, O'CONNOR, SCALIA, KENNEDY, JJ., joined. J., filed concurring opinion, WHITE joined, post, p. 317. BLACKMUN, dissenting Peter Buscemi, Washington, D.C., appellants. Irwin A. Popowsky, Harrisburg, Pa., appellees. Chief Justice REHNQUIST Court. 1 electricity fixed without consideration electrical facilities were planned never built, even though made. utilities' Amendment United Constitution. We agree conclusion, hold regulation 66 Pa.Cons.Stat. 1315 (Supp.1988). 2 * response predictions increased demand electricity, Company (Duquesne) (Penn Power) 1967 build more capacity. project, known Central Area Coordination Group (CAPCO), three other objective large 1980 Intervening radically changed outlook growth energy desirable way meeting demand. At cancellation, preliminary halted $34,697,389. Penn invested $9,569,665. 3 again 1981, sought permission (PUC)1 recoup unbuilt deferred ruling request received report investigation CAPCO construction. That issued late 1982. found faulted initiating capacity they project 1967. projections indicated growing advantage also events ultimately confounded have predicted, work stopped proper time. summing up, Administrative Law Judge "that regard [canceled plants] every stage prudent." App. Juris. Statement 19h. He recommended allowed sunk adopted conclusions report. 1i. 4 1982, came increase. Again, January 1983, order authority revenues $105.8 million total yearly revenue excess $800 million. 57 Pa.P.U.C. 1, 51 P.U.R.4th 198 (1983). $3.5 amortization $35 loss 5 (Consumer Advocate) about month 1982 proceeding. Act, 335, Pa.Laws 1473, amended Code limiting "the certain base."2 expansion undertaken public producing On reconsideration, order. 177, 52 644 read (obviously useful) 6 Meanwhile another member, Power, power-plants $15.4 $184.2 58 305, 60 593 (1984). Part represented $956,967 year Power's 7 these divided vote 1315. Cohen PUC, 90 Pa.Commw. 98, 494 (1985). then Pennsylvania, reversed. Barasch 325 (1987). controlling language rejected challenge thus interpreted, observing "[t]he 'just compensation' safeguarded fourteenth amendment federal constitution service." Id., 163, A.2d, Since instant investment serving constitute operating expense, no rights attached it. 335.3 arguing prudently incurred violated noted probable 485 933, 108 1105, 99 266 (1988). II 8 parties discussed we must inquire into our case. See Jackson Ashton, 33 (8 Pet.) 148, 898 (1834); Mansfield C. & L.M.R. Swan, 111 379, 510, 462 (1884). Our rests decrees [b]y appeal, final. 9 acknowledged words 1257(2) well interpreted preclude long remain court. Radio Station WOW, Inc. Johnson, 326 120, 124, 65 1475, 1478, 89 2092 (1945). Cox Broadcasting Corp. Cohn, 420 469, 477, 95 1029, 1037, 43 328 (1975), however, recognized practice so strictly. outlined circumstances adjudication issue available reviewed notwithstanding prospect some state-court proceedings. falls categories. finally adjudicated completed left outcome preordained." Cox, supra, 479, S.Ct., 1038. think might undo effects remand allowing disputed consistent law. interpretation leave doubt; related may "otherwise charged." (1986).4 satisfied presented State's straightforward therefore 1038; Mills Alabama, 384 214, 86 1434, 16 484 (1966). III 11 As utilities, statutory duty serve provides "[e]very furnish maintain adequate, efficient, safe, facilities" "[s]uch reasonably continuous unreasonable interruptions delay." 1501 (1986). assets employed interest provide power, owned operated private partly public, status creates own questions 12 guiding principle protects charge "unjust" confiscatory. Covington Lexington Turnpike Road Sandford, 164 578, 597, 17 198, 205-206, 41 560 (1896) (A too low if "so unjust destroy [the] acquired," doing "practically deprive[s] owner due process law"); Pipeline 315 575, 585, 62 736, 742, 1037 (1942) ("By standing usage field 'lowest rate' one confiscatory sense"); Texaco Inc., 417 380, 391-392, 94 2315, 2392, 141 (1974) ("All protected against, sense, higher than level"). If afford sufficient compensation, use paying just compensation Amendments. observed, "[h]ow ascertained, elements inquiry, will always embarrassing question." Smyth Ames, 169 466, 546, 18 418, 433-434, 42 819 (1898). Permian Basin Rate Cases, 390 747, 790, 1344, 1372, 20 312 (1968) ("[N]either economics yet devised generally accepted standards evaluation rate-making orders"). 13 time, thought according present service. method, "fair value" exemplified supra. approach, "company entitled ask upon employs convenience," while hand, exacted [utility property] services worth." U.S., 547, 434. theory Ames mimics operation competitive market. To extent good ones (because benefits exceed costs) rewarded opportunity earn "above-cost" return, is, current "market plant. turn out bad (such public), suffer justify return. 14 gives strong incentive manage affairs efficient suffered practical difficulties led abandonment requirement.5 problems, Brandeis advocated alternative approach minimum, become rule. eminent domain analogy, concluded "taken" specific physical individually valued, devoted enterprise owners. Missouri ex rel. Southwestern Bell Telephone Service Comm'n, 262 276, 291, 544, 547-548, 67 981 (1923) (dissenting opinion). incur fewer risks, money invested.6 15 Forty-five years ago landmark 333 (1944), abandoned only acceptable fixing 605, 289 ("Rates enable [a] company operate successfully, financial integrity, attract capital, compensate investors assumed certainly cannot condemned invalid, produce meager called 'fair value' base"). properly characterized having dimension, despite fact affect degree. Today reaffirm teachings Gas: "[I]t impact counts. said unreasonable, judicial inquiry end. reach contain infirmities important." 602, 288. language, course, dispense raises claim permitted confiscatory: particular "unreasonable" depend risks rate-setting system, margins, overtones. determines slightly form cost/prudent system.7 Neither alleges arrived unreasonable. overall bounds Hope, 16.14% common 11.64% nearly $1.8 billion. Pa.P.U.C., 51, P.U.R. 4th, 243. Its comprises roughly 1.9% base. denial plant reduce annual allowance 0.4%. 15.72% 12.02% 2.4% $401.8 P.U.C., 331-332, 618. $9.6 0.5%. Given numbers, appears acted range reasonableness lower same remand. then, objectionable. No argument reduced jeopardize integrity companies, leaving them insufficient impeding ability raise future capital. Nor demonstrated inadequate holders scheme.8 Instead, argue requires piecemeal. One aspect find objectionable constraint places PUC's decisions. They urge legislative direction impermissibly interferes balance consumer investor Basin, 792, 1373. Appellants note requirement, cost. errors perceive magnitude. 19 seriously contended prevents instructions commissions. doubted And See, e.g., 171, 339, ("The instrumentality legislature performance [ratemaking]"); Minnesota 230 352, 433, 729, 754, 1511 (1913) power necessarily implies discretion").9 stated commission "must free, limitations imposed pertinent commands, devise methods capable equitably reconciling diverse conflicting interests." 767, 1360 (emphasis added). say commission, legislature, constitutional. fails pass muster, performed work. "It theory, counts." economic often hopelessly complex admit result. designed arbitrate niceties. Errors detriment party countervailing allowances net property. Inconsistencies factors aspect. 21 Admittedly, can evaluated imposed. setting expect enterprise. 603, 288 ("[R]eturn should commensurate returns enterprises corresponding risks"); Bluefield Water Works Improvement Comm'n West Virginia, 679, 692-693, 675, 1176 ("A permit equal general country business undertakings attended uncertainties"). faces defined virtually monopolies dealing essential service, relatively immune usual market risks. Consequently, arbitrarily switch back forth between methodologies bear times denying others serious questions. question. fail rate. 22 Finally address suggestion Electric Association amicus standard. signal retreat 45 decisional area unwarranted unsettling. clearly bound formula combination formulae determining rates." 287. More recently, upheld Federal Commission's departure producer cost-of-service (prudent investment) system. Wisconsin FPC, 373 294, 83 1266, 357 (1963), after extensive hearings theories investment, workable independent producers 'ultimate solution' lay approach: 'the determination prices requirements industry.' " 298-299, 1269. upholding FPC's against required, observed: 23 "[T]o declare sanctified make highly unlikely sustained wholly keeping articulated regulate repeatedly need followed considering justness 309 [83 1274] (collecting cases). 24 Texaco, 387-390, 2321-2323. 25 requirement Gas, procedure another. designation investors.10 26 Affirmed. whom O'CONNOR join, concurring. 27 I join reaffirming established mandated Constitution, looks consequences governmental produces rather techniques employs. 2321-2323, (1974); 309, 1275-1276, (1963); 287-288, (1944). important observe, (by mean expended meet legal obligation assure adequate service) account formulas, assessing formulas. determine payments collect government's action confiscatory, unless "investment" is. For purpose, counted. describes, suit, challenges consequences. dissenting. 29 fear, regards argued briefed, strong-arming finality concept finding exception exist. jurisdiction, 1257, there "final judgment" "highest State" had. sure, 1257 somewhat flexibly discrete situations courts: (1975). 30 concludes exceptions ("the preordained," id., 1038). With respect, disagree, concerns whatsoever invalidated Commission, cases ratemaking. deludes itself speaks preordination action. New set, know, possibly emerge course. 31 dismiss want requires. exercises grant enforce laws. 501 "[T]he arise express statutes implication therefrom." Philadelphia 504 312, 317, 473 997, 999 (1984) adding parts follows: "AN ACT "Amending Title (Public Utilities) Consolidated Statutes, providing limitation utilities. "Section section read: "§ Limitation "Except nonrevenue producing, nonexpense reducing improve environmental conditions existing safety convert utilization coal, generating, transmitting, distributing furnishing Except section, presently customers. act pending courts Nothing contained modify change making treatment facilities. 3. immediately. "APPROVED—The 30th day December, A.D.1982." (Emphasis added.) October 10, 1985, Legislature 1985-62 added 520 (Supp.1988) code. 520, now recent legislation, type. L. 100-352, Stat. 662, effective September 25, 1988, date, eliminates substantially 1257(2). Persons aggrieved file petition certiorari, appeal. S.Rep. 100-300 (1988); H.R.Rep. 100-660 (1988), U.S.Code Cong. Admin.News 766; B. Boskey E. Gressman, Bids Farewell Mandatory Appeals, LXXXI Perhaps most problem "laborious baffling task utility." 292-294, 548, (Brandeis, J. dissenting). exchange assets, powerplants, price rarely bought sold. valued stream income very object According Brandeis, test usually degenerated proofs how much reconstruct asset question, hypothetical, complex, inexact process. 548-549. avoids difficult problems encountered relies outlays easily ascertained body less valuing asset. values 1311(b) (1986), accrued depreciation." Accordingly, declared proceeding "we adopt respondent's measure value." 5, 4th 202 likewise 310, 593, 597 (same). Having adjusted various ways things depreciation working proceeds largely each component considered, i.e., debt, preferred stock, stock[,] [t]he latter determined sell stock terms market." 42, 235; 678-679, (1923). "informed Ibid. 325-326, 611-621. bulk represents (set capital) (determined cost). These features several instances, useful. occurrences, lost, allow investment. Metropolitan Edison 55 478, 486 (1982) (amortization company's contaminated Island Unit 2); 61 433 620 (1981) (excluding portion capacity, expenses, charges entire plants); UGI 49 69, 410 923 (1980) (permitting terminated feasibility studies); 46 746, 750 (1973) (10-year unusual expenses caused tropical storm). unsuccessful greater pure approach. modification increases Presumably adjusts premium element accordingly. embedded debt 9.42%. 44, 237. 10.25%. 332, Indeed, concern reverse objection. Challenges laws raised delegated discretion. J.W. Hampton, Jr. States, 276 394, 48 348, 72 624 (1928) (federal delegation import tariff rates); York R. Driscoll, 331 193, 200 864 (1938) (PUC's authorization exempt securities reporting registration unconstitutional nullify requirements). example, rigid hybrid systems date uses again. n. 4, diminishing. emergent wholesale readily assets.

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