Rate regulation

“ But to declare that a particular method of rate regulation is so sanctified as to make it highly unlikely that any other method could be sustained would be wholly out of keeping with this Court's consistent and clearly articulated approach to the question of the Commission's power to regulate rates. It has repeatedly been stated that no single method need be followed by the Commission in considering the justness and reasonableness of rates, Federal Power Comm'n v. Natural Gas Pipeline Co., 315 U.S. 575, 62 S.Ct. ”

“ Rate regulation can well be confined to rates in the aggregate, rate-making applies to the adjustment of individual rates, and must necessarily be the work of men well versed in all the varied elements which control it and the particular conditions affecting the business of each particular road. ”

“ Its Statement of General Policy tentatively designated various geographical areas as producing units for purposes of rate regulation; in addition, the Commission there provided two series of area guideline prices, [21] which were expected to help to determine 'whether proposed initial rates should be certificated without a price condition and whether proposed rate changes should be accepted or suspended.' [22] The Commission consolidated three of the producing areas listed in the Statement of General Policy for purposes of this proceeding. ”

“ The greatest difference of opinion arises when an attempt is made to regulate the issue of stocks and bonds, or to fix the rates which should be charged for transportation, on the basis of a physical valuation.
Arguments for and against rate regulation revolve in a circle, and, apparently, there is no starting point which will satisfy every one. The Courts have ruled that the railroads are entitled to such rates as will enable them to earn a fair return on the value of their property ”

“ If a federal court is arred from inquiring, because such an inquiry amounts in effect to rate regulation, what would have been the consequences to all those affected had the reduction of Interstate's rate gone into immediate effect, rates administered by the Federal Power Commission should be no more open to such an inquiry than are those beyond the power of the Commission. ”

“ The petitioners are not of one mind as to the feasibility and lawfulness of the area rate method of regulation, although no one questions the Commission's right to undertake the experiment. California appears to come closest to the view that the individual company cost-of-service method is the only lawful basis for rate regulation and that the invalidity of the area approach is therefore predictable. ”

“ Aside from the question of rate regulation, is it not worth this much to the railroads of the country to be able actually to prove that the amounts at which they are capitalized are reasonable, as in the great majority of cases they probably are? ”

“ At. that time, the Pipeline Company contended before this Court that if the Commission's rate order should be sustained, the fund accumulated as a result of the stay should be retained by it, and should not be turned over to the distributing companies because 'the purpose of the rate regulation is the protection of consumers, and * * * will not be effectuated by the refunds to wholesalers' of their 'profits from past business.' Upon our remand of the cause for further proceedings, the Pipeline Company petitioned the court below to take jurisdiction of the excess funds. ”

“ The reasons for rate regulation are the same in one case as in the other. Within settled principles, one who undertakes for hire to transport from place to place the property of others who may choose to employ him is a common carrier. ”

“ Fortunately the Supreme Court, in sustaining the Commission, held that the Commerce Court had erred in confusing "knowledge" of intrastate business with its "regulation." As to the former, the authority of the Commission was fully upheld. This and the important question upon which the entire Intermountain rate controversy rested, namely, as to the authority of the Commission to prescribe relativity of rates, [723] were the most important points of law at first raised before the new tribunal. ”

“ The delegation of authority to give up or suspend the power of rate regulation will not be found more readily than would an intention on the part of the state to authorize the bargaining away of its power to tax. ”

“ We find the court's reasoning unpersuasive. The Commission may, in the course of its examination of the producers' financial positions, consider the possible refund consequences of its rate-making orders; but its power to order refunds is not limited to situations in which group revenues exceed group revenue requirements. Area regulation offers a more expeditious method for the calculation of just and reasonable rates, and it will necessarily more rigorously focus the Commission's attention upon the producers' common problems. ”

“ The filed rate doctrine has been a part of our law during the century of regulation of the railroad industry by the Commission. In 1935, when Congress decided to impose economic regulation on the motor carrier industry, partly if not primarily in order to protect the railroads from too much competition, [10] the filed rate doctrine was applied to their rates just as it had previously applied to the railroads. ”

“ To contend, as some of the witnesses called by the railways did in the recent inquiry, that the effect of maximum rates is in all circumstances absolutely nil is an exaggeration. In districts in which no competition exists, a company may choose to earn its revenue by carrying a small quantity at a high rate; before the Railway Commissioners have been proved instances of charges in excess of maximum rates. ”

“ Such a policy, however, could not be continued with constantly diminishing net income. The downward tendency in the rate of return was caused in part by a hardening of the rate structure through a more inflexible policy of public regulation, in part by steadily increasing costs of wages and materials, and in part by the greater difficulty of finding means through economies and new operating methods of overcoming increasing costs. ”

“ Justice Jackson in Hope that a system of regulation be authorized which would center not on the producer but on the product 'which would be regulated with an eye to average or typical producing conditions in the field.' 320 U.S., at 652, 64 S.Ct., at 311. But the Court rejected that approach, saying that §§ 4 (a) and 5 (a) of the Natural Gas Act contained 'only the conventional standards of rate-making for natural gas companies.' Id., at 616, 64 S.Ct., at 294.
Group regulation of rates is not, of course, novel. It has at times been authorized. ”

“ The Commission has concluded that while cost studies are highly relevant to these rate problems they are not conclusive. It said in this case:
'Discretion and flexibility of judgment within reasonable limits have always attended the use of costs in the making of rates. Costs alone do not determine the maximum limits of rates. Neither do they control the contours of rate scales or fix the relations between rates or between rate scales. Other factors along with costs must be considered and given due weight in these aspects of rate making.' 262 I.C.C. p. ”

“ Nor can a litigant insist that a commission may not take a second step in a rate-making process without retracing all previous ones. As put by the Chief Justice: 'The establishment of a rate for a regulated industry often involves two steps of different character, one of which may appropriately precede the other. The first is the adjustment of the general revenue level to the demands of a fair return. ”

“ We shall examine the various issues presented by the rate structure in light of these interrelated criteria.
The first issue is whether the Commission properly rejected the producers' contention that area rates should be derived from field, or contract, prices. The producers have urged that prevailing contract prices provide an accurate index of aggregate revenue requirements, and that they are an appropriate mechanism for the protection of consumer interests. ”

“ In those states where the rate-making power was vested in a regulatory body in continuous session, a like result could have been attained through a single order. On the other hand, in those states where the local law did not permit such prompt action by the rate-making authority, the restoration of rates by state action would necessarily have been deferred. ”

“ The 'impact of the rate order' on any producer is not known.
The 'total effect' of the rate order on a single producer is not known.
It is said, however, that if any producer is aggrieved, it may apply for relief and if it fails to obtain relief it can resort to the courts. But unless we know the standards which will govern in case it applies for relief, we are, with all respect, mouthing mere words when we say the rate is 'just and reasonable.' In absence of knowledge, we cannot possibly perform our function of judicial review, limited though it be. ”

“ One is the newly assumed responsibility by the government in the matter of rate making. The other is its intervention in cases of dispute between the carriers and their employees. In both cases it is imperative that there should be available data for a just determination of the issues at stake. There must be assurance that every essential feature of the situation is fully and fairly set forth upon the books. Otherwise, as in disputed rate cases, every fact as to cost of service,—a primary basis of measurement,—is vitiated. ”

“ Neither the procedure I suggest nor that adopted by the Court can achieve with scientific accuracy the result that would have followed had the court not suspended the rate reduction order. But under the Court's plan to require the Court of Appeals to reconstruct hypothetical rate situations in several states a major part of the funds might be dissipated in a costly but vain search for an unattainable goal. [6] Consumers at least can get a substantial part of the funds under the procedure I suggest. ”

“ Riggs proposes adding to the physical value a minus "going concern value," and he is logical in doing so, if it is conceded that values for rate-making rest on profits; but this the writer does not concede for an instant. Values for rate-making cannot rest on the very thing that it is aimed to regulate, to wit, the rates charged. Until engineers and public service commissions and Courts free themselves from this confusion of cause and effect, there can be no rational theory of rate-making. ”

“ It is claimed that if the Commission have power to fix rates, such power would only be exercised occasionally, and that the power to fix a given rate upon complaint does not carry with it the power to fix rates generally. ”

“ Classification of rates is based on several considerations, such as bulk, value, facility of handling, etc. It is recognized in the management of all railroads, and no complaint is here made of the fact of classification, or the way in which it was made by the commission. By these circulars, rates all along the line of classification were reduced from those there tofore charged on the road. The challenge in this case is of the tariff as a whole, and not of any particular rate upon any single class of goods. As we have seen, it is not the function of the courts to establish a schedule of rates. ”

“ Or may it be that the judicial mind has never yet contemplated the need of regulating the minimum rate? Surely it seems an anomaly that the government should ever seek to [Pg 626] fix such a lower limit, below which compensation may not be had. And yet many cases show that it is absolutely necessary, to the end that justice may be done. Or may the unconstitutionality of fixing minimum rates depend upon the fact that, if thus prescribed along with maximum rates, it will amount, practically, to determination of the absolute rate—the bogey which the carriers seem most of all to hold in dread? ”

“ Not only, as I have shown, have they not charged to capital the cost of improvements covered by stock and bond issues in other countries, but they have shared their gains liberally with the people through rate reductions. It has become common to think of the progressive lowering of rates, while all other charges are rising, as the work of legislative compulsion. ”

“ There seems, therefore, to be no possible injustice to either party in using current prices, when the object is a sale or transfer of the property. However, in determining a proper value as a basis of rates, another factor must be considered. It is inexpedient and against public policy to make frequent changes in the rate charged for such commodities as water, gas, or electric current. Theoretically, the rate could be fixed each year, based on an annual valuation of the property, thus permitting a high rate one year and perhaps an abnormally low rate another year ”

“ In view, however, of the discussion in the court's opinion, [1] the preliminary question should be considered. The fixing of rates is a legislative act. In determining the scope of judicial review of that act, there is a distinction between action within the sphere of legislative authority and action which transcends the limits of legislative power. Exercising its rate-making authority, the Legislature has a broad discretion. It may exercise that authority directly, or through the agency it creates or appoints to act for that purpose in accordance with appropriate standards. ”

“ If the standard by which the reasonableness of charges is to be determined should fluctuate with the market prices of material, labor and land, no schedule of rates could be established for any length of time, for, under the circumstances, a rate that would be reasonable to-day might be very unreasonable to-morrow. ”