Court Opinion

ID: 9419626
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:50:31.257087+00
Date Added: 2024-06-11T17:22:19.274774
License: Public Domain

Mr. Justice Jackson,
concurring.
I concur in upholding orders of the Federal Power Commission in this and companion cases. The Court cannot, consistently with Federal Power Commission v. Hope Natural Gas Co., 320 U. S. 591, do otherwise.
The opinion in the Hope case laid down fundamental principles of decision in this language: “Under the statutory standard of ‘just and reasonable’ it is the result reached not the method employed which is con*609trolling. ... It is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end. The fact that the method employed to reach that result may contain infirmities is not then important.” Federal Power Commission v. Hope Natural Gas Co., supra, 602. This case introduced into judicial review of administrative action the philosophy that the end justifies the means. I had been taught to regard that as a questionable philosophy, so I dissented and still adhere to the dissent. But it is the law of this Court, and I do not understand that any majority is ready to reconsider it.
It is true that the Act excludes “production or gathering of natural gas” from jurisdiction of the Commission. If the Commission had imposed any direct regulation upon that activity, I would join in holding it to have exceeded its jurisdiction. But the orders in question have no immediate “impact” upon production or gathering of gas.
The statute commands the Commission to regulate the price of natural gas transported and sold at wholesale in interstate commerce for resale. The Commission has investigated the fiscal aspects of production and gathering because of their bearing on the reasonableness of interstate rates. I suppose a commission is free to take evidence as to conditions and events quite beyond its regulatory jurisdiction where they are thought to affect the cost of that whose price it is directed to determine. This, as I see it, is all that has been done here.
Of course the Commission’s order, whose primary impact is on rates in the interstate markets, has a very important secondary effect on production and on producers of gas. As the industry is organized the Commission could not. fix an interstate price, that would not have some such reaction. Indeed, I think the Commission cannot wisely *610fix a reasonable price without considering its incidental effect on production.
To let rate-base figures, compiled on any of the conventional theories of rate-making, govern a rate for natural gas seems to me little better than to draw figures out of a hat. These cases confirm and strengthen me in the view I stated in the Hope case that the entire rate-base method should be rejected in pricing natural gas, though it might be used to determine transportation costs. These cases vividly demonstrate the delirious results produced by the rate-base method. These orders in some instances result in three different prices for gas from the same well. The regulated company is a part owner, an unregulated company is a part owner, and the land owner has a royalty share of the production from certain wells. The regulated company buys all of the gas for its interstate business. It is allowed to pay as operating expenses an unregulated contract price for its co-owner’s share and a different unregulated contract price for the royalty owner’s share, but for its own share it is allowed substantially less than either. Any method of rate-making by which an identical product from a single well, going to the same consumers, has three prices depending on who owns it does not make sense to me.
These cases furnish another example of the capricious results of the rate-base method in this kind of case. The Commission has put five of the most important leaseholds, containing approximately 47,000 acres, in the rate base at $4,244.24, something under 10 cents per acre. Three such leases are put in the rate base at zero. This is because original cost was used, and these were bought before discovery of gas thereon. The Company which took the high risk of wildcat exploration is thus allowed a return of 6y2 per cent on nothing for the three leases and a return of less than $300 a year on the others. Their present *611market value is shown by testimony to be over 3 million dollars.
I cannot fairly say that the Commission exceeded its jurisdiction in obtaining this evidence and making these calculations, even though the evidence related to production and gathering of gas. But I do think it is a fantastic method of fixing a “just and reasonable” price for gas.1 All of that, however, was thrashed out in the Hope case.
I do not recede from the views therein stated that Hope provides no workable basis of judicial review, no key by which commissions can anticipate what rule, if any, will control our review, and no guidance to counsel as to what issues they should try or how they should try them. I think, however, that the majority which promulgated that decision, or a majority of that majority, should be permitted to continue to spell out its application to specific problems until we see where it leads.
It is difficult for me in these cases, and in some it might be impossible, to follow the rule of Hope in reaching a decision. I have no intuitive knowledge as to whether a given price is reasonable, and my fundamental concept of reasonable price in this industry and how to find it has been rejected by the Court. But it happens that this case illustrates some aspects of the problem of pricing gas, as will appear from the reasons I shall state for the failure of the Company in this case to convince me that it is wronged by the reduction of prices ordered by the Commission.
*612Far-sighted gas-rate regulation will concern itself with the present and future, rather than with the past, as the rate-base formula does. It will take account of conditions and trends at the source of the supply being regulated. It will use price as a tool to bring goods to market — to obtain for the public service the needed amount of gas. Once a price is reached that will do that, there is no legal or economic reason to go higher; and any rate above one that will perform this function is unwarranted. If the supply comes from a region where there is such overproduction that owners are ready to sell for less than a fair return on their investment, there is no reason why the public should pay more. On the other hand, if the supply is not too plentiful and the price is not a sufficient incentive to exploit it and fails to bring forth the quantity needed, the price is unwisely low, even if it does square perfectly with somebody’s idea of return on a “rate base.” The problem, of course, is to know what price level will be adequate to perform this economic function.
This case throws light on a subject which in Hope I was trying to discuss more abstractly. The evidence here shows facts from which we can learn, in the way any practical buyer would seek to learn, at which price this company is able, willing, and ready to bring gas into the interstate wholesale market. It is what might be called the most-favored-customer test, a test of course not available in a fully regulated industry but peculiarly adapted to the conditions of the natural gas industry as it has developed. This petitioner, Colorado Interstate Gas Company, sells to Colorado Fuel and Iron Company a large quantity of gas for industrial use. Its consumption approximates that of all the inhabitants of Denver. Colorado Fuel and Iron used in plants 7,267,379 m. c. f.’s, while Denver was supplied for public service 6,196,882 m. c. f.’s. The rates to the Fuel and Iron Company are not and never have been regulated by public authority. In May 1938, *613the Gas Company contracted to extend the Fuel and Iron supply contract for five years at 9% cents per m. c. f. for boiler fuel and 16 cents per m. c. f. for other purposes. The same gas is sold wholesale by the same company at the Denver city gate to the local distributing company at 40 cents per m. c. f.
Of course differences in conditions of delivery must be allowed for. Gas from the field is transmitted roughly 200 miles from the field to Colorado Fuel and Iron and about another 100 miles to Denver. If 50 per cent more transportation added 50 per cent to the entire price of the Fuel and Iron Company gas, which would mean attributing a zero value to it in the field and its entire selling price to transportation, it would bring gas to the city gate of Denver at about 14 cents based on boiler gas and 24 cents based on other gas, instead of the 40 cents being charged.
Another difference must be allowed for. The Denver public service has priority over the industrial gas in time of shortage. This is an impressive legal advantage, but one whose real worth depends on the number and duration of interruptions it causes in actual practice. From the tabulation of reductions and suspensions of service the Fuel and Iron Company appears to have suffered 5 interruptions from 1932 to December 31, 1940 — the shortest for fifteen hours, the longest for fifty hours. I do not belittle these interruptions — they may be very costly to an industrial customer — but nothing indicates that they account for any such difference in price as we have here.
There is every indication that the Colorado Fuel and Iron price was really a bargained one. . The Gas Company’s position seems to have been the same as that stated by one of the witnesses in the Panhandle case, “It may be heresy to say so but we try to charge our nonregulated customers all the traffic will bear.” This may have been candor; it is not heresy. Such is the normal spirit of the market place. But the record shows that Colorado Fuel *614and Iron was not at the mercy of the Gas Company, was bargaining at arm’s length, had a good bargaining position. It had been using other fuels and. the Gas Company had to bid for its business as against fuel competition. Under this pressure the Gas Company was able, ready, and willing to part with its gas, delivered 200 miles from the field, at 9y2 to 16 cents per m. c. f.
What about the Denver rate ? There the local distributing company, which was the purchaser, was a subsidiary of Cities Service, one of the three companies that owned the pipe line and gas supply and were the sellers of the gas. That local company had been distributing manufactured gas, by comparison with which 40-cent natural gas would look cheap, and is cheap. It is not necessary to draw any invidious inferences from intercorporate relationships to conclude that the 40-cent rate at the Denver gate was not a vigorously bargained one and was not much influenced by competitive considerations. The great economic advantages of natural gas to householders and the relative wastefulness of its industrial use are developed in my opinion in Hope.
I strongly suspect from the history of this transaction that there is an explanation of the difference in price— one which is not an uncommon argument used to justify a lower price to industrial than to household users. To supply Denver required laying a 20-inch pipe line, requires operating it, and requires most of the overhead of the business. To carry the additional Fuel and Iron business required only to lay the first 200 miles of pipe of 22-inch diameter instead of 20, and the additional revenue from industrial sales does not add the same proportion of capital investment, overhead, or operating expense. Thus, charging to Denver and other wholesale purchasers for resale to the public no more than would be charged if that service stood alone, the Company may justify its industrial *615sales at low rates as good business from petitioner’s management point of view.
But I do not think it can be accepted as a principle of public regulation that industrial gas may have a free ride because the pipe line and compressor have to operate anyway, any more than we can say that a big consumer should have a free ride for his coal because the trains run anyway. It is true that the Natural Gas Act forbids discrimination only as between regulated rates and does not forbid dis-criminations between the regulated and unregulated ones. 15 U. S. C. § 717c (b). But I do not think it precludes use of a voluntary, fairly bargained selling price as a standard of what is a “just and reasonable” price. By use of the unregulated price as a basis for comparison I think a reduction in the wholesale rates for resale to the public is in order. If this makes low price industrial business less desirable, it will be in the long-range public interest for reasons more fully stated by me in Hope.
I should like to reverse this case, not because I think the rate reduction is wrong, but because I think the real inwardness of the gas business as affects the future has been obscured by the Commission’s preoccupation with bookkeeping and historical matter. Such considerations may be relevant to rate-base theories, but will not be very satisfying to a coming generation that will look back and judge our present regulatory method in the light of an exhausted and largely wasted gas supply. But as the matter stands I see no legal grounds for reversal.

 It does not help me to know what is a reasonable price for gas to learn what it does to outstanding securities. Many gas companies were organized and operated in care-free days when they issued stocks and bonds without supervision. It does not prove that a gas rate is too low to show that it does not pay dividends on inflated values. Nor is a rate proved excessive by the fact that it pays a large dividend upon an exceedingly conservative capitalization. I think Hope’s use of return on stock or bond issues, repeated in these cases, is one of the least reliable of possible tests of rates.