Court Opinion

ID: 9465645
Source: CourtListenerOpinion
Date Created: 2023-08-05 00:52:16.448662+00
Date Added: 2024-06-11T17:39:17.872400
License: Public Domain

WILKEY, Circuit Judge,
dissenting:
In Mobile and Sierra the Supreme Court promulgated rigorous standards for invoking the public interest to terminate fixed-rate contracts. However, those cases involved fixed-term contracts of 10 and 15 years, respectively. It is my view that the strict standards in Mobile and Sierra were enunciated with fixed-term contracts in mind and were not intended to apply to perpetual contracts of the type at issue here.
The contract in this case was entered into by Metropolitan Edison’s predecessor in 1906, even before there was state or federal regulation of these transactions. The contract has already run for 72 years. Metropolitan Edison has suffered losses on the contract in 39 of the past 41 years. At present, the contract rate is less than one half of the just and reasonable rate being charged comparable customers; it covers less than one half of the cost of providing the service and, since 1974, has not even covered the fuel costs.
Because the contract is small relative to Metropolitan Edison’s total business, the company’s other customers are able to carry the financial load occasioned by these losses. Nevertheless, these losses are having an adverse impact on the company’s performance and have contributed materially to an impairment of resources. The company has experienced a series of financial difficulties which in 1974 became so serious that it was forced to curtail its construction program below a level it deemed prudent and to cut expenses relating to current service. Its losses under the contract rate, which have increased from less than $300,000 in 1972 to more than $500,000 in 1974, represented revenues urgently needed to provide for future load growth as well as to maintain the quality of current service. By reducing interest coverage and the attractiveness of Metropolitan Edison’s securities generally, the contract rate also adversely affects other customers in terms of higher capital costs, particularly at times when the company is unable to issue funded debt and must resort to costlier financing.
The Commission admits that there is no reasonable possibility that at any time in the foreseeable future fuel costs are going to drop to a level at which they can be *860covered by the existing contract rate. Indeed, it admits that fuel costs are going to remain high and most probably increase. Thus, the Commission acknowledges that there is no way that this contract will be anything but a sheer loss and an increasing drain on the company. Unless the Commission grants relief, this situation will continue indefinitely into the future. Presumably, this contract will still be in effect in the year 2079 A.D., and Middletown will have been reaping the benefits of these rates for 1% centuries.
The Supreme Court could not have contemplated this result in Mobile and Sierra. As already stated, those cases involved limited fixed-term contracts of 10 and 15 years, respectively. Within that context the Supreme Court set forth standards which reconciled the public’s interest in regulation with the principle of contract stability. However, in the context of a perpetual contract, these two considerations of (1) public interest and (2) contract stability take on an entirely different character.
While this court should be guided by the same two considerations in its treatment of perpetual contracts, it should not be bound by the precise standards formulated in the wholly different context of fixed-term contracts. In my view, rates in a perpetual contract are unduly discriminatory when they have already resulted in substantial losses for the last four decades, when they presently do not even cover the cost of fuel, when they are less than one half of the just and reasonable rates charged comparable customers, when they are admittedly discriminatory and will continue to be so indefinitely into the future. It is folly for the Commission to stay its hand. Applying the two Mobile-Sierra considerations: Whose interests are served? How is the public interest served? How is general interest in preserving the stability of supply arrangements served?
I respectfully dissent.