Federal Power Commission v. Sierra Pacific Power Company

PETITIONER:Federal Power Commission
RESPONDENT:Sierra Pacific Power Company
LOCATION:

DOCKET NO.: 51
DECIDED BY: Warren Court (1955-1956)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

ARGUED: Nov 08, 1955
DECIDED: Feb 27, 1956

Facts of the case

Question

  • Oral Argument – November 08, 1955 (Part 1)
  • Audio Transcription for Oral Argument – November 08, 1955 (Part 1) in Federal Power Commission v. Sierra Pacific Power Company

    Audio Transcription for Oral Argument – November 08, 1955 (Part 2) in Federal Power Commission v. Sierra Pacific Power Company

    Earl Warren:

    You may proceed.

    F. T. Searls:

    Just before the recess, I was stating that the Commission itself recognized there’s no area of concept and it’s our determination of the just and reasonable standard.

    And I referred to a recent decision of the Commission which I mentioned on page 3 of our reply brief where the Commission refused to accept an examiner’s holding that there was a zone of reasonableness of — and the examiner had decided that a 6.1% return could be accepted on a filing because the Commission had previously held that a 6% return was reasonable for that company.

    The Commission said that the one-tenth of 1% return doesn’t in itself measure the difference between a fair and unfair return, but it said that we must fix the return in accordance with our own best judgment.

    Accordingly, the Commission reduced the file rate there from a 6.1% return to a 6% return.

    Contrast here, the zone of reasonableness that would have to exist if Sierra’s position were correct comparing a 2.6% return with the 4.75% return compare the rate which is filed with — by the PG&E with the old contract rate which yielded only 78% of the revenue yielded by the new rate.

    That is no — certainly, a zone that we could hardly expect a court to recognize.

    Further examination of what the Commission does will show that the Commission doesn’t engage in a two-step procedure, either under Section 205 (e) or under 206 (a) or the corresponding provisions of the Natural Gas Act.

    The Commission proceeds to determine on the basis of the available evidence from all of the figures and data, what it believes is the reasonable rate for the servicing question, and if the filed rate is different then the Commission orders the rate changed accordingly.

    And it follows that process under a — 206 (a) proceeding just as clearly as it does under a — 205 (e) proceeding.

    The record in the Hope Natural Gas case will show that that is exactly what the Commission did there and that was a 5 (a) proceeding.

    The provision of Section 206 (a) and the corresponding one of Section 5 (a) of the Gas Act, doesn’t say that the Commission shall first find that the existing rate is unreasonable and then, if it does so, proceed to a determination of the reasonable rate.

    It says that whenever the Commission finds that the existing rate is unreasonable, then it shall determine the just and reasonable rate.

    And the process which the Commission follows as I say is not a two-step procedure.If to proceeds that wants to decide for itself what is the reasonable rate and then proceeds accordingly to adjust the existing rate if necessary.

    And that is exactly what happens under the other proceedings or the utility files at proposed rate.

    The Commission doesn’t take the proposed rate and determine whether it is reasonable and if it finds it unreasonable then by a separate step decide what is the reasonable rate, it proceeds to determine what in its own mind is the reasonable rate, and fixes the rate accordingly.

    It is apparent that the requirement of 206 (a) for a finding that the existing rate be reasonable is in essence a burden of proof or failure of proof requirement, if you like.

    It says in effect what shall happen if the — if there is a failure of proof, then the Commission being unable to find the existing rate unreasonable or any other rate reasonable must lead the existing rate in effect.

    And similarly, under Section 205 (e), the burden of proof is expressly placed upon the utility to sustain an increase.

    If it fails to sustain its burden of proof, the existing rate remains in effect.

    The — if we are — if this principle be accepted then that there is one just and reasonable rate to be established by the Commission in its own best judgment using its expert knowledge, its experience, and all of the material which is available to it in a form of regular filings by the utility and the general economic knowledge which it has on the industry then, we submit, there is no difficulty in interpreting the Federal Power Act as setting up two procedures for changes in rates.

    One, the Section 205 procedure is — for a use by the utility where it proposes a change in the rate, contract rate or otherwise and 206 (a) is for the Commission or a complaining party to use.

    Now, the procedural difference is that under Section 205, the utility must not only ask for a change, it must say, “We want to change — we want this rate changed to a particular rate and must file that rate.”

    And it has a burden of proof of establishing that rate and that is quite reasonable in view of the utility’s knowledge of its own affairs.

    Under 206 (a), neither the Commission or a complaining party is obliged to propose a substitute rate of — the filing —

    Felix Frankfurter:

    What do you mean with the —

    F. T. Searls:

    Excuse me.

    Felix Frankfurter:

    — there might be a difference if in asking for an increase necessarily impliedly and they say (Inaudible)

    F. T. Searls:

    That is —

    Felix Frankfurter:

    — if you pull that out — if you pull that out, if you go ahead and establish what you just said.

    F. T. Searls:

    That is exactly what the — our Commission would do.

    The point is that the Act says that when the utility wants to change it, it must propose the substitute.

    I don’t think the reasoning of the Commission or its approach to the problem is any different under one than the other.

    Felix Frankfurter:

    In what now are you assuming about?

    F. T. Searls:

    That — that is exactly my point.

    It’s not necessary for the court below to read into the Act a special treatment for contracts which are treated in Court and the terms with other rates, because a reasonable contract rate it might be displaced by a higher reasonable rate.

    The — the fear of the court below was imaginary.

    Under either procedure, the end result is going to be the reasonable rate fixed by the Commission.

    Felix Frankfurter:

    Then it makes a lot of difference is that all of the — it takes a lot of difference in the state of things that is devised for — sometimes it continue (Inaudible) whether you can start the other way around and hold this thing up a year, it ought to determine whether a displacing rate is too high.

    F. T. Searls:

    All right.

    That is exactly what I’m coming to.

    The difference in a fact of the two procedures pairs in the determination of what is to happen while the subject is being litigated.

    And Section 205 (e) says that the utility can’t have its change for five months if the Commission suspends.

    And after that, it may collect the — the increased rate, but it has to refund any portion that is not reasonable.

    So there isn’t any possibility under Section 205 (e) of the utility collecting anything in excess of the rate which the Commission ultimately decides to be just and reasonable.

    And that is exactly what happened in this case pending the litigation, the rate went into effect.

    The Pacific Gas and Electric Company was ordered to account for the increase and be prepared to refund it with interest.

    It was impossible for Sierra to bear a cause for power under this procedure in excess of the Commission determined reasonable rate.

    Hugo L. Black:

    You pointed out that this is — the point you’ve just mentioned is the distinction between your case and the other case?

    F. T. Searls:

    It is very definitely a distinction.

    And I think that it — it is very apparent that the problem on the Mobile case arises from this failure — elimination of the power of suspension in that proviso and if that — if there is any question as to the interpretation of the Natural Gas Act, it would be more reasonable to consider whether Congress intended to eliminate the refund procedure under the Gas Act of — rather than to question whether Congress intended to eliminate the use of the file rate procedure for initiating changes in contract rates, because there’s nothing inequitable about the file rate procedure as such.

    Hugo L. Black:

    But what is the difference in substance — in substance and between the two sections in your case or the one that which we’ve just — which you’ve just mentioned is a considerable difference between the two sections in the first case.

    So, what is the difference in substance —

    F. T. Searls:

    As far as —

    Hugo L. Black:

    — with reference to these two sections?

    F. T. Searls:

    As far as the wording of the — with respect to filings is concerned, they are identical.

    Hugo L. Black:

    So what’s the difference in substance as to the effect on the projects?

    F. T. Searls:

    I don’t think there is any.

    Hugo L. Black:

    Do you think if the result would be precisely the same whether you proceed in your case under one of the two sections of the other that there’s no greater remedy can be obtained, no quicker remedy, and that in the end, the end result would be the same in both cases?

    F. T. Searls:

    Are — are you talking about — excuse me, are you talking about the difference between —

    Hugo L. Black:

    205 and 206.

    F. T. Searls:

    I — the end result would be the same except for the — the right of the utility to collect subject to refund during the 205 proceeding.

    It’s only the —

    Hugo L. Black:

    And then the other one, it couldn’t — it couldn’t collect —

    F. T. Searls:

    Until — at — until the end of the proceeding.

    Hugo L. Black:

    You couldn’t bring about it a complete change after the proceeding was over in the 206?

    F. T. Searls:

    That is —

    Hugo L. Black:

    That is your difference.

    F. T. Searls:

    That is right.

    And as Mr. Warren —

    Hugo L. Black:

    Is there any other difference that you know of?

    F. T. Searls:

    No.

    Hugo L. Black:

    I mean in substance.

    F. T. Searls:

    No, I didn’t.

    I do not.

    I’m convinced that there is none.

    I’m satisfied that the end — end result is to be the same under either procedure that the Commission — that the reasonable rate does not depend upon the procedure to be followed.

    And that Congress has provided that where the utility of desires to propose a change, it shall be permitted this equitable procedure to minimize delay — to minimize the burden of delay by collecting its proposed increase subject to refund while the proceeding goes on.

    Hugo L. Black:

    But in your judgment is the advantage of — if any that results from making contacts or requiring that contracts be subjected to the Commission.

    What was the reason the Congress put to those contracts before the Commission?Was it — were they — they have any weight of any kind and if so, what?

    F. T. Searls:

    In my opinion, the Congress did not intend contracts to have any weight and it should not.

    They — they represent the agreement of the parties as to the reasonable rate.

    But they could not have been intended that the Commission’s determination of the reasonable rate should be attracted or controlled or limited by the fact that one party or the other or both thought that this was a reasonable rate.

    Hugo L. Black:

    Was — if they required them not merely to be filed and I’m asking you because I want to view them.

    They required them not merely to be filed, but they provided they should — no existing contracts when the Act was passed, no contract existing should be changed without the consent of the Commission, was that right?

    What would be —

    F. T. Searls:

    There was no — there was no expressed provision, but that certainly was the —

    Hugo L. Black:

    Well, I thought it said it expressly.

    I thought the Act said that expressed that.

    F. T. Searls:

    Well I said that no — that is right.

    F. T. Searls:

    No contract can be changed without the acquiescence of the Commission either through a acceptance of a filing or a determination.

    Hugo L. Black:

    It uses the words without prior something of the Commission.

    Now that was different, but there was any provision like that in the original Interstate Commerce Act with reference to existing contracts?

    F. T. Searls:

    No, the — the original Interstate Commerce Act as I understand it did not — did not refer to contracts.

    Hugo L. Black:

    So they did here intend to give some kind of weight to contract?

    I — I don’t know —

    F. T. Searls:

    No.

    Hugo L. Black:

    — exactly what it is.

    F. T. Searls:

    I —

    Hugo L. Black:

    I had — I had to puzzle over in connection with the Pennsylvania case as I recall —

    F. T. Searls:

    The — there is a room for — where utility has a file rate to make a contract to meet a special situation, but it cannot control or be determinative of the reasonableness of the rate.

    Harold Burton:

    It says, “Unless the Commission otherwise ordered, no change should be made in any contract.”

    F. T. Searls:

    That is — that is right.

    And that — the — unless it refers to the accept clause as far as the — the existence of the notice period is concerned.

    The Commission may shorten or eliminate the notice period if it desired.

    Hugo L. Black:

    Well, the sum total of the difference then in result the way it comes to and you see it would be.

    Now, if the other side should win in your case, that interpretation should prevail.

    Companies in order to change contract could not get the advantage of them until after a hearing and judgment by the Commission.

    But if you’ll take your position, the companies could get the advantage of the rate at once, but subject to requirement for refund if they eventually lose.

    F. T. Searls:

    That is right.

    Hugo L. Black:

    That’s the sum total of the difference in these two cases.

    F. T. Searls:

    That I believe is — is right.

    And I think it’s very clear that Congress intended that contracts should be treated exactly on a par with other rates and that the only reason the court below reached the contrary conclusion was that it thought the result might be different in substance because it thought and its opinion is very clear on this that a reasonable contract rate might be displaced by a higher reasonable rate.

    And I say hat the Commission’s determination with respect to the utility’s filings that it is reasonable is a determination that any other rate is unreasonable that that is necessarily so.

    Hugo L. Black:

    You do not take the position that if the contract is fully of no effect so that either side can avoid it at that will.

    F. T. Searls:

    No.

    I — I take the position that the contract is effective so long as it is filed, so long as it is unchanged that either party may institute a proceeding before the Commission to change the contract whenever that contract becomes unreasonable because the utility is not entitled to maintain and the statute very clearly provides it.

    It’s not entitled to maintain conditions of service that are unjust and unreasonable.

    Hugo L. Black:

    In effect, you are saying that the contract rates are the same though the Commission had fixed the rates in the beginning.

    F. T. Searls:

    That is right.

    Hugo L. Black:

    And that they — the contract to fix the rates.

    F. T. Searls:

    That is right.

    Hugo L. Black:

    Subject to change either in the way you say or the way he say.

    F. T. Searls:

    I’d say a contract may constitute a representation by the parties that they think that’s the reasonable rate to start with.

    We say that it’s very clear —

    Hugo L. Black:

    But your view does — your view does not care with your argument.

    It does not care whether the idea that the company — and go away with the — with its contract agreement so that it’s — it’s effective at once and until and such time that the Commission find the Acts.

    F. T. Searls:

    No, not at all.

    I say that my view is that the Congress has set up a statutory process by which a contract rate by like all other rates may be changed that is very reasonable and rational process, no question as to its constitutionality and the courts and other jurisdictions as Mr. Wahrenbrock has shown it had no difficulty in reaching this conclusion with respect to statutes of this type.

    The —

    In this — this instance — in this particular case, you’ve got a higher rate than you had by contract, did you not?

    F. T. Searls:

    That is right.

    And the higher rate has been put immediately into effect.

    F. T. Searls:

    It’s put into effect —

    By the declaration of the Commission that it was a reasonable rate.

    F. T. Searls:

    No, it — it — went into effect, first, we had to file it 60 days in advance to the day we desired it to go into effect.

    Then the Commission suspended it for five months after that date.

    The determination of the — of the five months period, the Commission allowed it to go into effect but subject to refund so that we are not entitled to retain any amount in excess of what the Commission finally determined to be reasonable.

    Well now, what I don’t understand is why the Commission hasn’t already determined that your rate is reasonable?

    F. T. Searls:

    They have very clearly and expressly after hearing in which every contention advanced by Sierra in this case was considered and disposed of.

    But then what — what other hearing is it going to be?

    F. T. Searls:

    If our position is correct, there should be no other hearing at all.

    There is no — no occasion for any other hearing.

    So, there’d be no opportunity for Sierra to recover anything on the basis of their contract.

    F. T. Searls:

    Their only contention is that the filing was invalid, and that therefore, we are not entitled to collect even the reasonable rate of — until after the Commission had made a determination at the conclusion of a Section 206 (a) proceeding.

    There’s no question but that the Commission found that the rate was reasonable in this case and I am sorry that I do not have time to anticipate what I supposed would be the arguments that Mr. Chanler attacking the Commission’s findings.

    Hugo L. Black:

    I’ve got the permission to ask you one more question on the refund.

    (Inaudible) it’s been considerably difficulty frequently in refund provisions working.

    Sometimes, they don’t go back to the people and the company keeps it.

    What is the refund provision here?

    F. T. Searls:

    The refund provision is a standard one, I believe with the public utilities — with the Federal Power Commission that provides for a refund to Sierra.

    As a matter of fact, Sierra has not made any corresponding increase to its customers of a fact which I think it’s immaterial here, but I believe it felt that it wasn’t necessary.

    Hugo L. Black:

    Supposed you would have lose in other — lose in other words.

    Does the refund provision here guarantee that you have to refund or their conditions and contentions on which that rests?

    F. T. Searls:

    If — if the Commission — if the Commission’s order that the new rate is reasonable, were set aside and I take it then the matter would have to be returned to the Commission to determine what is the reasonable rate.

    And if these refund provisions were applied, the order says that it should go back to Sierra or if they have passed it on to any of their wholesale customers which are very minor in amount, then I believe it would go back to their — to any wholesale customers of theirs of the actual words are those entitled to the (Voice Overlap) —

    — in the record you say?

    F. T. Searls:

    That is page 442.

    The number is at the bottom of the page.

    It’s the record in the Sierra case.

    That’s all right.

    F. T. Searls:

    It’s not otherwise provided by State Commission’s action.

    Those entitled of the benefit of the refund shall be the retail customer served by Sierra.

    It says it can buy its wholesale customers of — to the — except to the extent that the benefit of the (Inaudible) any differences shall previously have been passed along to them.

    I would expect Sierra’s position to be that since he did not made any offsetting increase in its own rates that would keep the entire —

    Hugo L. Black:

    It would keep the entire refund even though it should be held that it was unreasonable.

    F. T. Searls:

    Yes.

    I —

    Hugo L. Black:

    That — I asked you to that because from my standpoint that enters into the distinction between actions under the two provisions of the law.

    F. T. Searls:

    Well that is — that is true.

    And I should say that — I believe Sierra’s position is that the refund provision should never come into play because their position is that — has no valid filing to start with and were out of court because we took the long — wrong writ is what I’m saying.

    I would like to add —

    Earl Warren:

    I think that’s — I think you’ve had your time now Mr. Searls.

    You can go on to the other side.

    We have a very full calendar.

    F. T. Searls:

    I’d like to say that —

    Earl Warren:

    Mr. Chanler.

    F. T. Searls:

    — answers on the — answers to Mr. Chanler’s position on the questions of fact are contained in our reply brief and I hope they will fully answer that.

    Earl Warren:

    Thank you.

    William C. Chanler:

    If the Court please —

    Earl Warren:

    Mr. Chanler.

    William C. Chanler:

    In answer to Mr. Justice Black’s question regarding the refund.

    Hugo L. Black:

    Yes.

    William C. Chanler:

    If we are correct now in our position, this filing was illegal.

    We have been paying an illegal rate and of course we get it back.

    Now, the fact that we get it all back — it’s been running a long time is not due to the provisions of the Act.

    It’s due to the error of the Commission in not having granted our petition originally to reject the file.

    It has then entered immediately upon a hearing as to the reasonableness of the contract having proceeded erroneous and forced us to pay illegally.

    Of course, we’ll get our money back.

    That (Inaudible) could happen if they have act in — as I think they should correct that.

    Now, Mr. Searls —

    Hugo L. Black:

    May I ask you just — then I won’t —

    William C. Chanler:

    Yes, sir.

    Hugo L. Black:

    — ask you more question.

    Are there any differences between these two sections outside of the — insofar as the way they function, what they do to your company or the others or in general except what has been mentioned by Mr. Searls.

    William C. Chanler:

    I was very surprised — I’m very surprised to hear Mr. Searls say that there could be only one rate and that therefore, there was no difference.

    It’s a matter of record in this case conceding that PG&E have reasonable rate of return for PG&E on its elected business is five and half percent.

    In this case, PG&E proposed a rate in excess of its contract but still producing only 4.75%.

    The Federal Power Commission after a hearing said, “Notwithstanding the fact that PG&E has concededly entitled the five and half percent, they’re only asking for 4.75% which they deemed — they’re willing to make the sacrifice in order to hold the business against competition.”

    Therefore, as that rate is neither discriminatory nor preferential and pays no burden on the stock — on the other customers, only on the stockholders, we hold the 4.75% rate reasonable.

    Now, you ask me what difference there is between the two sections.

    Let us assume for a minute that — that our contract produced this rate of 4.75 that we now know has been found reasonable by the Commission.

    And that PG&E was filing a proposed increase giving them five and half percent which is stipulated reasonable.

    If they can proceed under Section 205 (b) by filing the proposed increase producing a rate — producing only five and half percent, the Commission is bound under everything they’ve said under the language of the Act to approve the five and half percent rate and thereby throw out our contract that produces concededly reasonable rate of 4.75% without any hearing as to the reasonableness about a contract rate.

    And do you mean without any refund?

    William C. Chanler:

    Without any refund, no we’re out.

    We’re out.

    The new rate goes into effect and our contracts out of the window.

    Now, take it the other way, take our procedure.

    The rate calling for an increase to five and half percent is filed under 4 (d), we immediately communicate with the Commission and say, “Look, there’s a filed contracts here on your books, filed on such date, it calls for a rate producing a return of 4.75%.”

    William C. Chanler:

    They can’t legally increase that rate until you’ve looked at it and found out under 5 (a) whether the rate is reasonable and the contract rate is the only legal rate until that’s done.

    The Commission says, “That’s right.

    We rejected the filing and then proceeds in a hearing,” and I assume its bind as they found out that the contract rate is reasonable.

    The 4.75 rate is reasonable.

    Why is there all the difference in the world between these two sections?Every time that a company makes any rate, a special rate to meet competitions that is less than the — produces less than a reasonable return, that contract is of no value whatever under their theory because any time the company walked right in, it says, “All right, the competition is removed now.

    I’m not scared of it.

    I’m going to get a full reasonable rate.”

    Felix Frankfurter:

    Mr. Chanler, I ought to know but I don’t either under the Federal Power Act or the Natural Gas Act, is there a provision comparable with to that (Inaudible) act prohibiting the railroads to charge a lower rate or they would likely for competitive reasons because it was being economic to the point view of the (Inaudible)

    William C. Chanler:

    There is no such provision, but of course, the Commission could prevent it.

    Felix Frankfurter:

    I know but is there — is there a provision which precludes — is there an — (Inaudible) Commission said at the Interstate Commerce Commission says all the time (Inaudible) it cannot charge too low rate for the economic rate is erroneous, is there such a provision?

    William C. Chanler:

    No sir.

    Felix Frankfurter:

    All right.

    William C. Chanler:

    I know of none, I don’t —

    Felix Frankfurter:

    (Inaudible)

    William C. Chanler:

    I haven’t heard of any.

    It’s not been suggested but I’m sure whether on many cases that hold and of course if that happens, if it is found that the rate is so low that it in fact hurt the economic position of the company.

    Of course then, the rate must be set aside and must be increased contract or no contact because the Commission can’t allow a company because it bound itself up in contracts to —

    Felix Frankfurter:

    I thought about contracts.

    William C. Chanler:

    Or anyway — anyways —

    Felix Frankfurter:

    (Inaudible) under the Interstate Commerce Act that at this rate, the Interstate Commerce Commission may say — or whatever that is reasonable, 5 cents more (Inaudible) but it did give you a (Inaudible) and all the rest of it by the — there is no supply as I know and so far as I’ve heard.

    In these regulatory measures under the authority of the Federal Power Commission.

    There is no such a provision.

    William C. Chanler:

    No sir, I don’t think there is.

    Felix Frankfurter:

    So that four and — to that — the four and a half, whatever it was, is actually being uneconomic rates, you intimated it was.

    William C. Chanler:

    Oh well, I didn’t intimate it was.

    Felix Frankfurter:

    I mean under the contract but they can’t make a lower rate in order to be comparable.

    William C. Chanler:

    Now, I would like to turn to the importance of contracts in the electric business as illustrated by the record in this case which I think will meet Mr. Justice Frankfurter’s point.

    In — at page 28, 29 of my brief.

    I think it begins at page 27, I discussed and quote from testimony given before the California Commission by Mr. B. B. Beckett, the Chief Engineer of PG&E, Mr. Searls’ client.

    At that time, Pacific Gas and Electric Company was attempting to get the Federal Power Commission of the State — California State Commission to authorize a regular schedule or a recognized schedule known as P-31 which was to be used only in connection with contracts for five years or more, which was to be used only for company’s sales and wholesale for re-sale to distributing companies to meet — to enable the distributing companies to meet competition, then threatening because of the Shasta Dam that was being built in the North of California.

    William C. Chanler:

    Mr. Beckett began by pointing out ten years earlier in 1936, they had been before the Commission and got in a similar rate known as P-30, a lower rate to be used to poster the threat of companies and localities and municipalities building their own steam plants.

    And he say’s now, the steam plant danger is gone.

    It cost too much to build a steam plant but we’ve this threat to cheap Government power from Shasta.

    And he said when he was asked whether he’s going to pay the full pay return?

    No, no, then that’s not going to produce any full pay return if you mean by that the normal allocated rate of return that we use in rate measure.

    But he said, “I know of my own knowledge that it’s often better to keep business and to lose it.”

    And if the incremental return, not allocated, exceeds the incremented cost so that we lose less by selling at this low rate than we would lose if we lost the business and abandon our investment in it.

    That’s that for the company, and this — this contract is a P-31 contract.

    I’ll come to that in a minute.

    They said to him, should it always be for five years or at least five years or preferably longer?

    There is some talk here especially in the briefs and I think Mr. Searls suggested that it never was intended that this contract should be minding as to rates for each term.

    They asked Mr. Beckett, why does the costumer want to enter such a contract?

    So, that he will be assured of the low rate at least for the duration of the contract.

    Now there, you have from their own mouths an explanation of why it’s important to set the company to enter into conference.

    Now, they entered into some 20 or 25 P-31 contracts prior to the time they began abrogating them in 1952.

    Our contract was entered into 1948.

    After about two or three years of negotiation.

    After the war in 1946, we discovered that the existing distribution system over the mountains of being inadequate by 1952 or 1953, we needed a new line, and we badly needed lower rates.

    The reason we needed lower rates, spread all over the record on every page of the record, was that the people of Nevada whom we served and their political leaders and everybody there said, “Why isn’t Nevada never gotten its share of Colorado River Power.

    Well, it was too hard to bring it over the deadline was the reason.

    Why can’t we get Shasta power instead?

    And so, in 1946, two years before the contract was entered into, we went to them and we said we need a new line and we need cheaper rates.

    They made a study and they pointed out themselves their own engineer.

    They said they’d better — we better think of giving them a lower rate because of this threat of competition.

    But they didn’t do it.

    And they said no, we’ve given you 15-year contract at the same rates plus an escalator clause or even worse.

    That shows that this rate was meant to be binding when they wanted to change it.

    They put in an escalator clause and we said we won’t have an escalator clause in this rate.

    Well, for a year after that, that was in January 1947.

    For a year, we debated and discussed how can we get Shasta power, Government power of some kind or cheaper power somewhere.

    William C. Chanler:

    It’s all over the record every month.

    Their own president advisory committee met and said, how soon are we going to get somewhere with Sierra?

    Oh, Sierra can’t — won’t talk to us.

    They are dealing with the Government.

    And finally, in August of 1947, the Bureau of Reclamation wrote to Sierra and said how — to PG&E and said we’ve been approached by these Nevada people, how about your winning Shasta power into Nevada?

    Of course, they didn’t like that a bit.

    So, they’ve got together and they said, guys we’ve got to do something about this.

    How about offering them P-31 say’s the president of PG&E.

    And then, the vice president now president, Mr. Sutherland said, “Well we hadn’t considered it while you thought of it.

    We make a study of it.”

    He and Mr. Beckett make a study which is in the record.

    We found in the last minute of the hearing so that it’s not very well presented.

    There’s no testimony about it that it was there all right.

    The present President Mr. Sutherland and the Chief Rate Engineer made a study on the incremental cost versus the incremental return that they would get first by willing then by buying Shasta power under their own contract and not — and then selling their power to us under P-31, they said why it’s for us.

    It’s just about the same.

    We make more money and we won’t get into trouble by willing Government power will offer investment.

    They also discussed the line over the mountains and said that was uneconomical all over.

    It also appears in the record that even after the brief was entered into, Sierra said, can’t we have this contract cancelable by us if we can still get Government power.

    Well, perhaps how the contract was entered into they’ve now contend and even the Commission contends there wasn’t much competition to it, and just (Inaudible) this competition.

    They went before the Federal — California Commission the next year for an increase and said, now of course we’ve got this 25 — 22 contracts including Sierra, entered into to meet competition.

    We don’t want to increase those Mr. Searls’ predecessor then General Counsel of PG&E said,” Well, we’ve just entered into these contracts.

    Anyone who would accuse us of double dot dealing repudiation if we should — now, I ask for an increase, and I think anyone would and I think anyone now does as myself.

    Well, at that time of course, they were still in that side of competition.

    But in 1953, they had entered into their own agreement with Shasta.The — some question in the facts exactly as to whether they did it or whether the bureau did it.

    They entered into a wheeling agreement with the Bureau whereby they would wheel all the power of the bureau wanted to wheel within an area which excluded Sierra.

    And then, they’ve entered into another agreement whereby they had wheel 290,000 kilowatts for Shasta power into the City of Sacramento.

    So, that the Sacramento Municipal District, there was no longer any Shasta power we could get even if we could bring it over the mountains.

    What did they do then?

    They proceeded as to increase all their rates except the City of Redding.

    They said Redding is right at the Shasta Dam.

    William C. Chanler:

    They still got a competitive position.

    We don’t want to touch their rate, but that’s increased all of the others.

    California Commission said, “No you don’t.

    We know how you entered into these contracts and you came here and asked us for the right to make this little rate contracts for periods of years to meet competition, and you’ve got to live up to them and unless you can get renegotiations.”

    I should bring out because there’s much about it in the — in the briefs.

    After the contract was entered into, we — it had to be approved by the California Commission.

    At the hearings before the California Commission, all the Nevada people came storming into the hearing room and said we don’t like this.

    We still want Shasta power, and the president of Sierra and his engineer tried to back up the contract and they said why it would take him too long to build the line over the mountains.

    We couldn’t meet our peak in 53 and 54 if we use Shasta power.

    Although the rate would be cheaper, the rate quoted by the Government would be cheaper than the rate under the contract.

    It’s more practical to accept this contract because they couldn’t deliver in time.

    The Commission claims that shows we couldn’t ever have dealt with Shasta at all.

    Well, of course you can forego a peak for a winter by not taking on more loads, if you can get much cheaper power.

    That’s what the engineer stated at the time in any event.

    So that’s why this contract — (Inaudible) interrupt me.

    That’s why this contract was entered into.

    It stands all over the record.

    The only thing I’m surprised at is why an attempt was made to prove it isn’t so or why anybody contends it isn’t so.

    I was glad that Mr. Fletcher conceded of course that they entered into their contracts in good faith and telling them to be binding and insert the evidence that these were intended and binding.

    However, and they so swore repeatedly before the State Commission.

    It’s all in the record.

    They said this was done to meet competition and that’s why we did it.

    Now, they say, oh nonsense.

    it’s all nonsense.

    We want to get out of it and they raised all these questions.

    Now, at the hearing, as I say, we maintained the because of these reasons, in any event.

    The Federal Commission followed California Commission but didn’t go into the legal question so much.

    They just said we’re going to make to lift the contract with — two Commissioners did that and that’s after we lost our attempt to have them reject the file on the matter of law.

    The Commission beat us on the matter of law right away.

    They said no we don’t pay any attention to the contract.

    William C. Chanler:

    But you may raise your contentions at the hearing.

    So, we went into the hearing and the hope as I say persuading to them but under the state of facts, they — they did not accept the contract.

    But, they didn’t.

    Three commissioners said that we have the facts wrong or something.

    The other two stood by us.

    They also said because the contract didn’t mean anything.

    And then they said as much as made to this by Mr. Searls and his brief.

    We may point out that if a finding on the lawfulness of the 1948 contract rate were necessary, or appropriate on the record before us, that finding would have to be that the 1948 rate is unreasonably low and therefore unlawful.

    They went on.

    None of the evidence in this record warrants a finding that any rate would be reasonable, that would produce a return substantially less than the 4.75% resulting from the proposed rate which is the minimum, PG&E is willing to accept.

    Well, it so says that that’s a finding and of course it isn’t.

    They said if it were necessary, it would make a finding.

    That’s not the finding.

    They said the finding was not necessary as to the reasonableness of contract.

    If the finding were necessary, the finding may propose to make there, would have to be set aside by the courts because it’s perfectly well established that a contract can’t be set aside just because it’s more burdensome on one party than another, or because it is harmful to the company’s stockholders, it must be harmful to the company itself or to the public.

    It must either be discriminatory or preferential or exorbitantly high or the burden must be thrown on other consumers or it must injure the company from performing its services.

    Well, and Mr. Wahrenbrock in the — before the Commission conceded that they none of those things, he says well if first he was here — he was defending the 4.75 rate before the Commission.

    Well, if PG&E is willing to serve one costumer less than to pay return on that business, and earn only a fair return on all the other costumers which is the situation here because the stockholders have solved the loss.

    It seems to me that the other costumers are not the victims of an undue discrimination because they are getting all that the law entitles into in any event.

    They’re paying only a reasonable return on the business to them.

    Isn’t that the situation here?

    Mr. Wahrenbrock, after a little more exchange, yes, that is right.

    Of course it is the situation under the contract.

    It’s been the situation right or wrong under the contract and made it conceded.

    I forgot to point out that when the California Commission approved the P-31 schedule and again when it expressly approved this contract, it made the condition, asked PG&E to agree to the condition.

    The PG&E of course had to agree that in fixing its rates to its other costumers, the other costumers will not be made to bear any higher rate because of the lower rate with which they were serving Sierra that the loss of this business would fall solely on the stockholders.

    And that of course was agreed to, the management did it for the benefit of the stockholders because they thought it was better to keep this business at the lower rate than to lose several million dollars of investment to building lines over the Sierra Summit.

    That was the reason.

    It said it over and over that that was the reason.

    He swore to it under oath.

    William C. Chanler:

    He tried to deny it in this proceeding.

    Again, Mr. Wahrenbrock said in his brief, the only question would seem to be whether in determining what is a fair return for this business?

    PG&E should be held bound by the representations and agreements.

    It made in 1948 as to a satisfactory return for the term of its agreement.

    In other words, should they be bound by this contract?

    Under the rate regulation practices heretofore followed by the California Commission, Mr. Wahrenbrock’s position and by this Commission, no costumer — no other costumer of PG&E will bear any greater burden, if PG&E is held to its 1948 representations.

    And the California Commission has held that it should be.

    He points out that California Commission also refused to let them increase their rates.

    But he then goes on and says the fact that only a very small percentage of PG&E’s business is involved in this contract, and therefore, it doesn’t hurt PG&E’s — I’m reading footnote on page 45 of my brief now.

    I’m sorry.

    I’ll tell you where it was.

    He says that the fact that in this instance, no harm is done to anybody because it’s a small part of the company’s business, still affects the question of principle that if PG&E entered into a great many contracts, it might hurt itself economically and that would be bad.

    Well, I agree of course.

    As soon as that happens, the Commission will come in and set aside the contracts.

    But here, it’s on the record and this case was so advocated by everybody that nobody but the stockholders of PG&E are hurt when (Inaudible) by our contract even though the contract produces only 2.6%.

    The Commission was correct when it accepted the 4.75 rate proposed by the company absent of the contract.

    Assuming there was no contract, for the avowed reason that that was the lowest rate that company was willing to serve at.

    I think it’s the duty of the Commission to obtain the lowest available rate for it’s — for the costumers in the business provided the rate is not so low, as to hurt anyone or a discriminatory.

    The difference is, the Commission forgot when it said the 4.75 was the lowest rate.

    PG&E was willing to service that, but in 1948, they’d agreed to service at the lower rate for 15 years.

    Because they all say that was in the contract, who cares about a contract.

    They don’t exist anymore but I think they do.

    I think this Court knows they do and I think Congress knows they do and this Court has repeatedly so held.

    So, that I believe that I’m convinced that if this had been a hearing under 206 instead of under 205, the Commission would have had to find out contract rate reasonable.

    The Commission isn’t there as the guardian of the stockholders of utility companies, if the management makes the contract for a good business reason to hold a business against competition then later, the competition is removed.

    It isn’t up to the Commission to say now, you can get out of your contract unless somebody is being hurt by it.

    The management is the guardian of the contract, of its stockholders and the Commission is looking after the public.

    And the only public is going to suffer here are the consumers in the State of Nevada whose rates will be — have to be increased if this continues, and there is no refund.

    Now —

    How do you reconcile that with their statement when they said that if they have had to make a finding, they would have found that it was unreasonably low?

    William C. Chanler:

    They would have found it was too low and therefore unreasonable and went on and said that the 4.75 rate was the lowest rate the company was willing to serve at.

    Now, I’m assuming by that that the Commission correct.

    It was taking to position which I think is the right position that a company’s responsive rate, a company proposed rate will be accepted by the Commission even though it produces less than a full return if it is done for a reasonable purpose and doesn’t hurt anybody.

    If it’s done to meet competition or for whatever reason the management may think a good one to meet what they think is competition, I think their argument is that — we couldn’t have gotten Shasta anyhow, but anyway, PG&E thought we could, they wanted to keep us out and they did keep Shasta out.

    There is no reason why the Commission should increase such a rate unless it is found that the public interest is hurt by the low rate contract.

    And therefore, if the Commission is told that the contract is binding unless the contract is found against the public interest, then of course it is evident that PG&E has agreed to serve the contract rate from the duration of the contract.

    That becomes the lowest rate at which they are willing to serve, and I think on the record in this case and in the like of many cases that have been decided by the courts, that rate would have to be — will have to be sustained.

    Now, on this question of a rate being low, I should like to read briefly to Your Honors a decision of — from an opinion in this Court, in a case involving this very problem whether a contract had to be increased because the rate was too low — where is that Arkansas case.

    I lost my note on it.

    All right now, here’s the Arkansas case, I had its map here because my map has moved.

    I’ll find it.

    It’s in my brief.

    There, the question was the company said that the Commission, the State Commission I think it was, must reduce a rate because it falls too heavily on the company.

    And this Court said — it is at page 41 of my brief — there was a contract that forbade on (Inaudible) forbade contracts from being upset in Arkansas so the Court said of course that settles it but says the Court, the question whether in the — this Court in this case 261 U.S., the question whether in the absence of statute it’d be made to appear that the stipulated consideration was grossly inadequate, the Commission under the circumstances disclosed by the record would have been under a duty to fix state rates in contravention of the contracts may be put aside with great consideration.

    While the State may exercise its legislative power to regulate public utility — utilities and fixed rates, not withstanding the affect may be to modify or abrogate private contracts.

    There is quite clearly no principle which imposes an obligation to do so, merely to relieve a contracting party from the burdens of an improvident undertaking, the power to fix rates when exerted is for the public welfare to which private contracts must yield, but it is not an independent legislative function to vary or set aside to its contracts, however, unwise and unprofitable they may be.

    Indeed, the exertion of legislative power surely to that — solely to that in is precluded by the contract in (Inaudible) clause.

    The power does not exist per se, it is the intervention of the public interest which justifies (Inaudible) Mr. Wahrenbrock’s reference to state decisions and I think he has 10 States on his side and my brief, I bring out I think we have 10 on ours and don’t think he’s earned the point.

    I won’t go into that.

    The state cases are usually on slightly different contract — types of statutes.

    There are many State cases that stand exactly for the proposition that we advanced here, some don’t, but I would just like to read from a recent decision of the State Commission of the State of Indiana which has just come to my attention in the — the most recent State decision on this matter in the Commerce Clearing House.

    It’s a matter of Northern Indiana Public Service Company, there, the United States Steel Company brought what would be a 5 (a) proceeding under our Act to have a statute — a contract set aside because the rate was too high, it was bind from the electric light company.

    It was a purchaser.

    And it entered into a 15-year contract with a local electric company.

    It said it’s too high.

    And we’d like to set aside in the State Commission, although State Commission’s pay no attention to contracts, said, such a contract is subject to the police power of the State.

    The power of interference of contracts is however an extra ordinary power and should not, and should therefore be sparingly exercised and only on the clear and unmistakable ground that the welfare of the general public demands it.

    In our opinion, the fact that the terms of the contract there are heavily on one party or the other is not at of itself, sufficient to one of this interference unless it can be shown that the general public welfare is involved.

    The contract between competent and independent parties should not be interfered with by regulatory party except for adequate and compelling reasons of public interest.

    Several State Commissions have expressed these views in clear and concise language starting particularly in a decision from the State of Connecticut.

    William C. Chanler:

    So I had Connecticut and Indiana to my list of the parties.

    I don’t think this is a baseball game and we’re going to win by 10 to 8 on the State cases however.

    It is true that States, I think, mostly go along with the view that I have advanced but three or four of them have taken precisely the opposite view.

    Mr. Wahrenbrock bears with great confidence in the Midland Realty case.

    I think the Midland Realty case when you read what this Court said and what the state court said is clearly distinguishable, this Court stated that it was bound — these questions, I’m reading from page 45 of my brief, are to be decided upon the construction that the State Supreme Court put up on the statute, and that law is to be taken as if it declared that rates made in accordance with its provisions shall supersede all existing contract rates.

    Now that’s a little blind until you go and look at the state court’s decision.

    You there find in the two state court decision cited by this Court, and the Supreme Court of Missouri held first in the (Inaudible) case that because of our own peculiar constitutional provision, all existing rate contracts are outlawed here since the passage of the regulatory statute.

    The point was the Commission — the Constitution of Missouri was amended, I think way back in 1873, by adding a provision that the police power may never be bridge, and the Supreme Court of Missouri thought that that gave a police power greater sanctity than it has anyhow, and that when a regulatory statute was passed, any contract would violate the police power, and that that is why they so held is apparent because a month after the — they decided that (Inaudible) case, they decided the (Inaudible) case at which they overruled some of their prior decisions which had held contracts were valid.

    It refused to overrule one which had so held before the amendment to the Constitution.

    Mr. Wahrenbrock says that that’s all nonsense, what the police power got two with it.

    Well, I’m not here to criticize the Supreme Court of Missouri.

    That’s what they said was the reason for it.

    And the only reason for it and because of it, they said that there can’t be any contracts in the utility business in State of Missouri and that’s all this Court upheld in the Midland case.

    They said of course if the State says, so that’s it, and there’s no doubt about it, we — this Court so held in the railroad business.

    Mr. Chanler —

    William C. Chanler:

    Yes sir?

    If the Court should agree with your view with this matter, what happens?

    Is this thing out to be tried all over again?

    William C. Chanler:

    If the Court agrees with our view in this matter, and if the Court in its opinion alludes to the fact that is referred to in my brief, if it wished to agree with it, but you can’t set aside the contract simply because it’s low.

    You got to show its against the public interest, I don’t know why the Commission would enter into — another hearing because I think it would realize from the record now before it that our contract is not against the public interest.

    But as presently minded, I know from what I’ve heard.

    I’m sure Mr. Wahrenbrock will agree with me.

    If it was sent back to the Commission, the Commission would say if it was allowed to say so, on this record, we think it’s against the public interest.

    I would then have to go to Court and say why?

    What everything says is that the public interest is injured.

    If it goes back — well if the court below is affirmed, the court below said — oh yes that’s the part that does require a discussion.

    The court below in its original opinion ordered this case return to the Commission without prejudice to further proceedings under or — for further proceedings under 206 (a) if the Commission decide to have such further proceedings.

    I made a motion to the court asking to change that, because I said, according to the Commission’s opinion here, all they’ll do — they’ll say, we now say that the contract is bad and it’s always been bad and validate the rate nunc pro tunc as the date of the illegal filing.

    And I say this as you agree with us, the filing was illegal, the contract has been the illegal rate until it set aside and the Commission cannot act retroactively.

    It must first find the contract unreasonable and then set it aside as to the future.

    William C. Chanler:

    And the Circuit Court of Appeals of a very strong opposition from my friends here who contended that of course they should get — they should keep their money, amended its order so as to provide that — that the case should be remanded to the Federal Power Commission with a direction to dismiss the five — the 205 proceeding.

    On the ground with that under its opinion was illegally undertaken and should have been rejected when we so moved in the beginning without prejudice to the right of the Commission to initiate a new proceeding under 206 (a).

    Now, I think that’s what I have suggested they should do.

    I’m not certain now, but I notice in the briefs of my friends here, they say that that would mean — that we’d have to begin all over again at the beginning, and I didn’t mean that.

    We’ve got a voluminous record of 15 volumes I think which all their cost are in and may be one of two things that we want to bring out and perhaps we want to put in evidence to show that although it’s a matter of common knowledge, that they’re not having any difficulty selling securities or anything of that kind and that this contract doesn’t intervene in any way.

    But otherwise, there’d be no objection of course to the Court proceeding prospectively on this record plus other additional evidence anyone may want to put in and so I in my brief have suggested that perhaps the order should be amended further, perhaps I wasn’t quite right what I suggested below that they should dismiss the 205 proceeding without prejudice to further continuing proceedings under 206 (a).

    I don’t know whether the Commission would have thought it was proceeding under both 205 and 206 when it held this hearing, it may have.

    I know it doesn’t say so, they’re a little vague about that, but I would have no objection to that at all, no point beginning at the beginning.

    I’d like to ask you another question, how much money is involved in the refund claims in both cases?

    William C. Chanler:

    In this one, there is at present and I think close to a million dollars about $900,000.

    In the other one I think, it’s about $150,000 or $200,000 in the Mobile case.

    And this one of course had the long time to run that money involved as to the future as long as the contract is not unreasonable.

    Now, on the question I was talking very briefly about the cases, I don’t want to take too much time on cases.

    I don’t think that’s how this case is going to be decided, but Mr. Justice Frankfurter had asked also about the practice that the Commission and the cases effects somewhat on that.

    As I’ve said, there are many State Commissions and many State cases that show they have followed in general the practice that we advocate, and the Commission to my knowledge in anything that’s been presented here has never once permitted a contract rate to be increased over the objection of the other party under a proceeding of this kind until the two cases now before the Court.

    And there is a suggestion that’s been made to the contrary has been disapproved, and I don’t think they are even making them anymore.

    They did it one time and say they did it all the time.

    I think in the other case I showed you that the Court of Appeals of the Sixth Circuit are disposed of their argument regarding the Panhandle litigation.

    The fact that the Commission itself recognizes great contracts as valid and that — also United Gas recognizes contracts as continuing to be valid despite all the storm.

    Mr. Fletcher told us he thought the contract went right out the window.

    Do you remember we have three views here?

    Mr. Fletcher says contracts had gone all together, under the Act.

    Mr. Wahrenbrock says no, the Act recognizes contracts but the company can change them anytime they like.

    Mr. Searls, as I understand it says, there can be only one rate, and that’s the Commission rate and I think from there, reargues therefore there can’t be a contract.

    How do I say, there are two rates writing its own case.

    Now, here is a very interesting case, Mr. Fletcher’s client had —

    Well that — doesn’t that overstate the position?

    William C. Chanler:

    Isn’t it that these contracts so long as they’re reasonable are good contracts?

    That’s my position.

    Well, isn’t that their position?

    William C. Chanler:

    No sir.

    They say the contract is only good until the other side puts out another reasonable rate without any finding as to the reasonableness of our contract at all.

    Mr. Searls says —

    But in the first case, they’re going to have to have a hearing, are they not, under —

    William C. Chanler:

    No.

    Well, no.

    On the first case, they took over the contract by assignment.

    They are now serving our costumer directly and paying as more for it than we were getting before.

    Why they wanted to get out of their contract, as I say I don’t know except that I’ve pointed out —

    Hugo L. Black:

    That doesn’t make it moot then?

    William C. Chanler:

    Well that question, well suggested, we all agreed among each other that we didn’t think it made it moot because I’ve got $140,000 I want to get back or more from my client.

    So, if it doesn’t really make it moot but there was — we also stipulated that it would have no effect on this when they — they offered it to all their costumers and of course we were losing an awful lot of money and we didn’t know how long this case would go on, so that my client wanted to stop the loss of money.

    Oh, Mr. Fletcher said why didn’t we go and ask for increase rates in Alabama?

    And he says that something about who you’re making too much money.

    Well Mr. — the defendant (Inaudible) company who was here then and alleged, asked me to point out to the Court.

    He’s the one who advised the person of the company.

    He said he didn’t want him to go before the Alabama Committee because — Commission because he believed his contract for resale of that gas was a valid and binding contract.

    That’s what he did.

    But here is the case, decided last month, United Gas Pipe Line Company v. Federal Power Commission, 220 F.2d 206, it’s referred to in a footnote on my Sierra brief.

    I didn’t know of it when I wrote to Mobile brief, in which United Gas Pipe Line got into a controversy with Mississippi River Fuel Corporation is only frequently as in litigation, over the proper rate that it had a right to charge Mississippi under its existing rate contract, (Inaudible).

    The rate was a very complicated one, it depended of the source of power, and there was to be an adjustment and a refund.

    And Mississippi went to the Commission or to the Court, I guess, I don’t know if it went to Commission and said — they went before the Commission first at one time and said that they had not received the proper refunds and they’d been over charged.Mr. Fletcher didn’t file or didn’t say well, what’s a recontract?

    He went before the Commission and then before the Court and said, “This contract, as I interpret it, entitles me to the higher rate I was collecting in accordance with the contract.”

    The Commission said, “No, the contract provides the lower rate and we order you to carry out your contract and refund $2 million to Mississippi River Fuel Company.”

    And it falls to contract, the rate contract, the fuels (Inaudible) went up to the Circuit Court of Appeals and the Court of Appeals said the only question involved here of course is a construction of the contracts, the contract provides as the court below said and we enforced it.

    And this Court, oh yes, I know how it brought to my attention now.

    This Court a month ago, or few weeks ago denied certiorari.

    And when I saw that, I was interested in what it said about the facts and looked up the case and I quite naturally — they shouldn’t have taken certiorari in such case.

    It’s just a question of construction of a contract.

    But my point is that everybody concerned recognized a valid contract to sell in either a — either 30 cents or 20 cents whatever it was.

    William C. Chanler:

    And they went also to Court to find and figure which rate was right and here they come in and say, all contracts don’t count at all in this business.

    Now, I think by the time Your Honors are through looking at the discussion of the cases in the briefs, you will see that there isn’t the slightest doubt, that contracts are and must be recognized in this business, and of course if they can be abrogated by any such method as that advocated here, they might as well say there are no contract because they don’t exist.

    I believe Mr. Justice Black asked Mr. Wahrenbrock how the Commission would proceed if my view were accepted.

    I wasn’t quite clear as to what his answer was but it seems to me very simple.

    The Commission can amend its rules.

    All these contracts were on file in the first place.

    And one thing they can do is to have a clerk go up and see when somebody files an increase whether the rate being increased is embodied in the contract, but that’s to come as soon they can say state in every increase whether any part of this rate is involved in the contract and if so who the other party is, and then they notify the other party and the party said we didn’t agree to this or we did agree to it.

    If they agreed to it, it goes ahead like any other rate increase (Inaudible).

    If it didn’t agree to what the Commission must reject it and then say, if he wants to, we want to look at this contract.

    And one other point that’s been discussed here that I forgotten to raise now is to — the company can’t ask the Commission to review its own contract.

    It definitely cannot under the Gas Act, because the Gas Act lists the parties that may bring a proceeding under Section 5 (a), under the Power Act, it merely says on complaint, Mr. Wahrenbrock says he construes that to mean that the company couldn’t complain about its own rate.

    I don’t know whether it could or not.

    But this power of Government to abrogate contract isn’t made for the benefit of the parties of the contract.

    It doesn’t exist to enable people to get out of the contract that hurts them.It exists for the public welfare and the public welfare alone.

    And Congress recognized that.

    They said the representatives of the public who may be injured by the contract, they’re the ones who may complain under 5 (a).

    A local distributing company on behalf of its costumers, a State Commission looking after all the people in the State if there is a discrimination, if there’s an undue preference.

    If the rate is too high.

    If the service is inadequate because the company is too poor, if the company isn’t able to deliver service, all those are going to be taken cared of by the representatives of the consumer, and of course it’s the State Commission, and other representative of the consumers and to local distributing companies, and they have power to initiate a procedure.

    Nobody can stop Mr. Searls’ client from writing a letter to the Federal Power Commission in saying we’re being (Inaudible) by this contract.

    It involves one percent of our business and we are not able to perform our services unless you increase it please, you initiate a procedure, we can’t — they can’t compel them, but they can ask for it.

    So there’s nothing that says that the company is tiny in getting out of a contract when it’s against the public interest.

    It’s merely as time we confided in this contract when the — when it’s gotten all the benefits of it because the reason it entered into it no longer exist and doesn’t want to have to pay the price for the benefit, that’s all.

    They’ve got the benefit here when we gave up all the chance to deal or keep power for somewhere else, and now we can’t get it from somewhere else.

    They don’t want to pay the price.

    That’s all there is to this case as similar in the other case.

    I think simply, the principle of law in statutory construction require that will say that such contract be valid until the administrative party and the Federal Power Commission has found the public —