Opinion ID: 350548
Heading Depth: 1
Heading Rank: 1

Heading: Ratemaking Method

Text: 4 Petitioner contends that the ratemaking scheme used by the Department does not insure a reasonable rate of return and complains that the method is deficient because it does not consider petitioner's investment in the business. 5 It is elementary that no rate is reasonable that is confiscatory. See Railroad Commission Cases, 116 U.S. 307, 6 S.Ct. 334, 388, 29 L.Ed. 636 (1886). However, there exists a zone of reasonableness within which (an agency) is free to fix a rate varying in amount and higher than a confiscatory rate . . . . FPC v. Natural Gas Pipeline Co., 315 U.S. 575, 585, 62 S.Ct. 736, 743, 86 L.Ed. 1037 (1942). Moreover, no single method of ratemaking is required; rather, it is the result reached, not the method employed, which is controlling. . . . It is not theory but the impact of the rate order which counts. FPC v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 287, 88 L.Ed. 333 (1944). Accord: Wisconsin v. FPC, 373 U.S. 294, 309, 83 S.Ct. 1266, 10 L.Ed.2d 357 (1963); FPC v. Texaco, Inc., 417 U.S. 380, 387-88, 94 S.Ct. 2315, 41 L.Ed.2d 141 (1974). 6 When Congress has directed that rates be regulated but has not specified a method for doing so, the agency has discretion in devising a particular scheme. Permian Basin Rate Cases, 390 U.S. 747, 776-77, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968); Wisconsin v. FPC, supra, 373 U.S. at 309, 83 S.Ct. 1266. If the total effect of a rate order cannot be said to be unjust and unreasonable, judicial inquiry is at an end, and it is unimportant that the method employed to reach that result contained infirmities. FPC v. Hope Natural Gas Co., supra, 320 U.S. at 602, 64 S.Ct. 281; Alabama-Tennessee Natural Gas Co. v. FPC, 359 F.2d 318, 331 (5 Cir.), cert. denied, 385 U.S. 847, 87 S.Ct. 69, 17 L.Ed.2d 78 (1966). In devising a ratemaking scheme, a regulatory agency can take into account the peculiar characteristics of a particular industry and can choose among various competing theories. Alabama-Tennessee Natural Gas Co. v. FPC, supra, 359 F.2d at 335. Finally, a regulated industry is not entitled, as a matter of right, to realize a particular rate of return, and the interests of the consuming public are also to be considered in establishing rates. Covington & Lexington Turnpike Co. v. Sandford, 164 U.S. 578, 596, 17 S.Ct. 198, 41 L.Ed. 560 (1896); FPC v. Natural Gas Pipeline Co., supra, 315 U.S. at 606-07, 62 S.Ct. 736 (Black, J., concurring). 7 These principles make clear that this court must first consider whether the result reached by the Department in the instant case is reasonable. If so, our inquiry is at an end and there is no need to examine the ratemaking scheme itself. 3 A party attacking a prescribed rate schedule must show with clear and convincing proof that the rates are unreasonably low. In the absence of such proof, the courts will not find a fifth amendment violation. American Toll Bridge Co. v. Railroad Comm'n, 307 U.S. 486, 494-95, 59 S.Ct. 948, 83 L.Ed. 1414 (1939); FPC v. Hope Natural Gas Co., supra, 320 U.S. at 602, 64 S.Ct. 281. Petitioner has failed to carry this rather heavy burden. 4 8 Finally, petitioner urges that the same method must be used for computing rates for auction stockyards as for terminal stockyards, i. e., a rate base/rate of return formula. See generally Denver Union Stock Yard Co. v. United States, 304 U.S. 470, 58 S.Ct. 990, 82 L.Ed. 1469 (1938); St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 56 S.Ct. 720, 80 L.Ed. 1033 (1936). There is a great deal of difference between the two types of operations, 5 and the Department clearly can take into account these differences in determining a rate formula to apply. Alabama-Tennessee Natural Gas Co. v. FPC, supra, 359 F.2d at 335.