Law School Case Brief
Fed. Power Com. v. Hope Nat. Gas Co. - 320 U.S. 591, 64 S. Ct. 281 (1944)
The Federal Power Commission is not bound to the use of any single formula or combination of formulae in determining rates. Its rate-making function, moreover, involves the making of pragmatic adjustments. And when the Commission's order is challenged in the courts, the question is whether that order viewed in its entirety meets the requirements of the Natural Gas Act. Under the statutory standard of just and reasonable it is the result reached not the method employed which is controlling.
Respondent Hope Natural Gas Company was in the business of producing, purchasing and marketing natural gas in that state. Hope sold some natural gas to local consumers in West Virginia, although the great bulk went to five customer companies. Cleveland and Akron filed complaints with petitioner Federal Power Commission charging that the rates collected by Hope from East Ohio Gas Co. were excessive and unreasonable. The Federal Power Commission on its own motion instituted an investigation to determine the reasonableness of all of Hope's interstate rates. The Public Utility Commission of Pennsylvania filed a complaint with the Federal Power Commission charging that the rates collected by Hope from Peoples Natural Gas. Co. and two non-affiliated companies were unreasonable. The City of Cleveland asked that the challenged rates be declared unlawful and that just and reasonable rates be determined. The Federal Power Commission entered its order and made its findings. Its order required Hope to decrease its future interstate rates so as to reflect a reduction, on an annual basis, of not less than $ 3,609,857 in operating revenues. The order also established "just and reasonable" average rates per m.c.f. The federal Circuit Court of Appeals set aside the order of the Federal Power Commission. The Federal Power Commission sought further review.
Did petitioner Federal Power Commission determine a "just and reasonable" rate pursuant to the Natural Gas Act in its rate order regarding what respondent natural gas company could charge?
On certiorari, the Supreme Court of the United States stated that the primary issue in these cases concerns the validity under the Natural Gas Act of 1938, 15 U.S.C. § 17, of a rate order issued by petitioner Federal Power Commission reducing the rates chargeable by respondent Hope Natural Gas Company. The Court explained that Congress has provided no formula by which the "just and reasonable" rate is to be determined. The Court reversed the decision to set aside the rate order that had been issued by the Federal Power Commission. The Court held that the Natural Gas Act gave the Federal Power Commission the power to adjust Hope's rates and that the determined rate was just and reasonable. In so holding, the Court stated that the Federal Power Commission had correctly considered the factors in reaching the rate and did not exceed its authority. Further, the Court held that petitioners properly considered the impact on the state in which respondent operated when petitioner issued the rate order. Additionally, the Court held that the rate was not unfairly discriminatory between domestic and industrial users. Therefore, the Court found that the rate order was permissible.
As for a standard of review, the Court explained that the rate-making process under the Natural Gas Act, i. e., the fixing of "just and reasonable" rates, involves a balancing of the investor and the consumer interests. Rates that enable a natural gas company to operate successfully, to maintain its financial integrity, to attract capital, and to compensate its investors for the risks assumed certainly cannot be condemned as invalid, even though they might produce only a meager return on the so-called "fair value" rate base. Anyone who would upset the rate order under the Natural Gas Act carries the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences.
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