National Association for the Advancement of Colored People v. Federal Power Commission – Oral Argument – February 25, 1976

Media for National Association for the Advancement of Colored People v. Federal Power Commission

Audio Transcription for Opinion Announcement – May 19, 1976 in National Association for the Advancement of Colored People v. Federal Power Commission

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Warren E. Burger:

We hear arguments next in 1619, Federal Power Commission against the NAACP and 1608, NAACP against the Federal Power Commission.

Mr. Journey.

Drexel D. Journey:

Mr. Chief Justice and may it please the Court.

This proceeding comes before you with a history of 6 years in which the EEOC, the FPC, the Justice Department, the Civil Service Commission and others have been seeking an answer to a question.

That question is the proper interrelation of the Equal Employment Opportunity Laws and Economic Regulatory Laws.

We have tried three approaches to get a definitive answer.

We have tried administrative procedures.

We have tried the legislative route and we have tried the judicial route, in all of them we have failed.

What we now require is for this Court to set defenses by which Economic Regulatory Agencies, Equal Employment Opportunity Agencies like the EEOC, the Regulated Gas and the Electric Utility Industry and others may function.

William H. Rehnquist:

Mr. Journey, your statement at what you now require from this Court is such and such raises a question in my mind that bothered me while reading the briefs and bothering the Court of Appeals opinion.

It seems to me that there is a certain abstractness about the question that is presented here.

I do not know whether it is standing or a case or controversy or rightness.

But obviously this Court does not just respond to the request of both parties to tell us, to tell you what you can do and what cannot do.

You have got to show that you have got a concrete controversy.

And I am somewhat disturbed by the fact that this was not any specific attack on a rate hearing or license application but simply a request for a rule and the FPC turned it down because it had no jurisdiction.

Drexel D. Journey:

You Honor, if you look at the history of this, the PG&E case which is quoted in the Commission’s Declaratory Order Number 623.

You will see that this controversy started out in a FPC Hydro Licensing case raised initially by the California Rural Legal Assistance Inc.

The matter in that case was whether economic – the issue – the precise issue there and here is whether economic regulatory statutes are an alternative enforcement strategy for the Equal Employment Opportunity Laws.

The PG&E case, 44 FPC, that is quoted in the Declaratory Order 623 did not go to Court.

The Commission when it faced the issue in the PG&E case invited the NAACP in.

They invited others in to hear the points of whether there was jurisdiction and whether economic regulatory laws could be used as an enforcement strategy.

The commission concluded in the PG&E case that it could not.

The NAACP then brought a general proceeding which culminated in opinion 623 which was directed basically to the gas and electric utility industry throughout the United States.

We think that the question is important and should be resolved by this Court.

We think it is right for judicial review.

NAACP argues that there is a constitutional requirement that the Power Commission have affirmative action employment regulatory programs.

They argue also that under the public interest concept, there is enfolded within the umbrella of the public interest notion, a requirement in the Power Commission to resolve these questions.

The Court of Appeals said, no, said, when you look at the function of a regulatory agency such as the FPC you must look at its delegated authority.

It found that we had under the Power and Gas Act, three things to do basically, we were to look at the conservation of natural resources, we were to look adequacy of supply of electric energy and natural gas and that we were to protect the consumer from exploitation.

The Court went on after making that finding and holding that we had no jurisdiction to determine what employment practices should be to reach into the operation of the economic regulatory function and it found in our ability to disallow costs.

Drexel D. Journey:

What I call an ancillary jurisdiction in the commission, which seems to say by reason of the things the Court of Appeals would have us do, namely get the EEOC forms and let people intervene who claim they were victims of discrimination and unequal employment hearings and opportunity to be heard.

Well, we think what this comes down is an endless procession of litigation for us in terms of, why would we hear these questions, if we are not being told by the Court of Appeals that we can do indirectly that thing which they said we could not do directly.

They said we could not regulate employment practices per se.

Now when we discussed this matter with the Solicitor General, the Solicitor General said that he thought the case had been properly decided by the Court of Appeals holding that we do not have a regulatory jurisdiction per se.

We think that in looking at the additional findings of the Court, they posed a most difficult situation for the commission to administer—

Byron R. White:

Do you mean the Court Appeals is saying that in an individual proceeding, you could look into employment practices as such or only in connection with the cost?M

Drexel D. Journey:

The ladder — but we—

Byron R. White:

And if you thought that, you concluded that if they had the legal employment practices their cost might be lower.

It might make some difference.

Drexel D. Journey:

Your Honor, we think that the Court of Appeals decision suggests that we can, one, either deny rate relief or deny a certificate because of what might be our independent views of what should be their employment practices.

Byron R. White:

But, yes, but only because of its impact on cost.

Drexel D. Journey:

Cost impact and service impact but the way the equal employment opportunity laws are structured and the way the regulatory laws are structured.

There is now in being under the Employment Act of 1972, a comprehensive control mechanism administered by the EEOC.

Byron R. White:

I understand that but let me get your position clear.

Suppose that the FPC on its own, now in a rate proceeding was asked to give rate relief to a company and it thought that the company was engaged in illegal employment practices, which if cured would lower their costs.

Would you have the power under your present statute to tell the company that you would not give them rate relief because they have – because the legal cost would not justify it?

Drexel D. Journey:

If the legality question had been determined in the forum —

Byron R. White:

I am not asking you that.

I asked you do you have the power to determine it in your own proceeding.

Drexel D. Journey:

I believe not in the first instance.

We apply the doctrines of prudence, of just and reasonableness and we disallow costs for rate purposes which do not meet the standards of the Gas and the Power Act.

Byron R. White:

What if somebody comes in to one of your rate proceedings and one of the customers of the utility and complains that the utility – that some of the cost claimed by the utility are forbidden by law?

Drexel D. Journey:

If they are forbidden by law there is—

Byron R. White:

Would you inquire into that?

Drexel D. Journey:

Yes, sir, but we think your Honor that is not what this case is about and in historical context —

Byron R. White:

But only because there is another mechanism for determining, whether there are legal costs?

Drexel D. Journey:

We think that that is the orderly way to relate the equal employment opportunity control machinery versus the economic regulatory machinery.

Potter Stewart:

Pursuing my Brother White’s inquiry a little bit, let us say a costumer comes in and says some of this cause are forbidden by law because they were bribes, they were bribes of municipal officials.

Are you suggesting that you – your commission would not and could not consider that until or unless the Courts had convicted somebody of bribery?

Drexel D. Journey:

I am saying your Honor that for cost purposes Account 426.5 would disallow that for FPC rate purposes upon a showing of substantial evidence and relating it to the questions of rate making under the Power and the Gas Acts.

Drexel D. Journey:

But I am suggesting also to you that when you read the Court of Appeals opinion and the arguments that were made before the Court of Appeals and the arguments that are made to you that is not the question that is being put to you.

You are being asked to – because of the administrative workload of the EEOC, the 100,000 plus cases in the backlog to have us through the economic rate making procedure determine what the employment conditions should be of the utilities whose services we regulate.

William H. Rehnquist:

What if a customer comes in a rate proceeding Mr. Journey and says the utility defended a lawsuit and then paid $350,000.00 in lawyer’s fee and we do not think it should have defended that lawsuit.

We think it should have just capitulated.

Now would the FPC inquire in that case as to whether or not the utility should have defended the action on the merits.

Drexel D. Journey:

Yes sir, there has been a litigation on that question on legal fees and we have determined that the commission makes a determination on a cost basis supplying the just and reasonable standards whether it should be allowed for rate purposes or disallowed.

But it is up to the utility management in the first instance to engage the lawyer and the lawyer then determines with management what they do or do not do.

William H. Rehnquist:

But supposing the utility shows that it followed the advice of a lawyer in deciding to defend the action and there is no question about the size of the fee.

The customer’s complaint is that the lawyer’s advice was wrong, you should not have defended the action, you really had no defense, you should have settled it and avoid this cost and therefore take the cost out of the rate base.

Drexel D. Journey:

We have had that question Your Honor and we have disallowed some of the costs and that has gone up through the Fourth Circuit.

But that question has been litigated.

William H. Rehnquist:

What standard do you apply in disallowing those — .

Drexel D. Journey:

That just and reasonable standard and the prudency test.

(Inaudible)

Drexel D. Journey:

prudency test for—

Warren E. Burger:

(Inaudible) Justice Rehnquist was just raising, with a variation, suppose the claim was that the president of the company had caused the employment of a law firm and a retainer of a quarter of a million dollars a year.

The law firm being headed up by the son of the president of the company and that these payments refer unnecessary services.

You would inquire into that kind of claim?

Drexel D. Journey:

And disallow that.

Yes.

Warren E. Burger:

Just as though the president had a yacht or an airplane that he did not need that was charging it off to the utility, you are inquiring to that too?

Drexel D. Journey:

Yes, sir, that has all been litigated in the early history of the Power Commission after the passage of the Holding Company Act.

You will find the cases that related to the cost disallowance and rate disallowance coming up in the early Supreme Court history.

What, but I submit to you that that is not what is being asked here and that was not what was involved.

John Paul Stevens:

Mr. Journey, can I ask you a follow-up question?

Drexel D. Journey:

Yes.

John Paul Stevens:

Supposing it was proposed that there be a rule defining when the attorney’s fees and like cost would be allowed in litigation involving charges of discrimination against the power company.

Would you have jurisdiction to adopt the rule that would say in certain circumstances those costs would be allowable and then others they would not?

Drexel D. Journey:

I think for purposes of fixing the regulated utilities cost, we would.

John Paul Stevens:

Then you do not – that Judge McGowan (ph) in his opinion said they did not know whether your holding of no jurisdiction was that no jurisdiction to adopt the specific proposed rule that the petitioners had submitted or any rule relating to employment discrimination.

John Paul Stevens:

The one you have said you could adopt would be a rule relating to employment discrimination.

Drexel D. Journey:

No.

I think Your Honor that, as I understood the question you put to me was whether we could disallow the costs of the utility whose rates we were fixing.

When Judge McGawan (ph) opinion, what he is really suggesting that we do is permit people to intervene and we believe by indirection fix the employment practices of utilities.

We regulate the services and the cost of utilities in the interstate commerce.

What this is all about is the commission is being asked to grapple with the economic conditions of admittedly disadvantaged portions of the society.

Byron R. White:

But McGowan (ph) did not require you to make any rules.

He permitted you as I understand it or the Court of Appeals would permit you to go at it on just a case-to-case basis—

Drexel D. Journey:

But if there is —

Byron R. White:

And only in connection with cost.

Drexel D. Journey:

But if there is jurisdiction Your Honor whether it is rule making or ad hoc, it really means that — that opinions means one of two things.

We can do by indirection that which he said we cannot do directly or it means that we have an ancillary investigatory review authority to consider facts.

Byron R. White:

Have you ever considered in a rate proceeding whether a company has unneeded employees?

Drexel D. Journey:

We have looked at – the answer to that is yes.

Byron R. White:

Yes, you do look in the charges of featherbedding?

Drexel D. Journey:

Yes sir.

Byron R. White:

So you do look in the labor questions.

Drexel D. Journey:

Yes, they relate to costs.

But here what we are talking about is using the economic regulatory process not to in effect control service or rates or costs but to reach back in and cure things which are socially and legally undesirable.

The employment practices of utilities which may be on a discriminatory basis.

Now, it seems to me —

John Paul Stevens:

Mr. Journey, may I just interrupt you and how is that different from disallowing the cost to – a bribe to a public official for example, does that cost associate with a violation of law, why is discrimination any different than any other kind of violation?

Drexel D. Journey:

When the official is bribed presumably there is a determination that he has been bribed and there is —

John Paul Stevens:

You said you would act on substantial evidence as I understood it without a—

Drexel D. Journey:

We would act on substantial evidence—

John Paul Stevens:

But supposing you had substantial evidence of unnecessary costs incurred in connection with racial discrimination.

Drexel D. Journey:

If there were—

John Paul Stevens:

How was that different?

Drexel D. Journey:

If there was a question of — if I may answer on the context of your bribery question.

If there was a proceeding to determine the bribe question, I would recommend to the Power Commission that it defer processing of that until the bribed trial question had been resolved because under —

John Paul Stevens:

(Inaudible) one of power would it be essential as a matter of jurisdiction that you would defer until after there had been an adjudication.

Drexel D. Journey:

It is not essential to defer for a cost allowance purposes Your Honor.

But what it does require is if the other proceeding is going forward and if it is determined that there was not a bribe and indeed those costs should be disallowed and we had kicked them out under Account 426.5 then we would be in the process of needing to put them back in again.

We do not operate in a vacuum —

John Paul Stevens:

You concede as I understand you that you do have jurisdiction to consider the significance of costly illegal conduct in the bribe area, do you make the same concession with respect to costly illegal conduct in the discrimination area and if not why not?

Drexel D. Journey:

If it is for cost incidence purposes, we could review it and we could disallow it.

John Paul Stevens:

If you could review it, could you also make a rule in advance indicating the circumstances under which you would disallow it?

Drexel D. Journey:

Not if it went to the question of saying that we could prescribe what would be the labor requirements of the regulated utility.

See, the rule that was proposed to us is that we undertake and determine an affirmative action program like the Philadelphia plan or one of the other plans to determine the overall employment conduct and practices of the electric and gas utility industry.

(Inaudible)

Drexel D. Journey:

We do not as a matter of course get to that question we – for this reason.

The commission regulates 10% of the revenues of the electric utility industry.

We regulate about 90% of the revenues of the interstate gas and electric utility industry.

But a good part of the employment of the gas and the electric utility industry is covered by State Fair Employment Practice Laws.

It is covered by the Equal Employment Opportunity Laws, it is covered by the Federal Office of Contract Compliance and the General Services Administration is the one that fixes the standards and criteria by which utilities must comport themselves.

We take account of their requirements just as we take account of the IRS requirements or any other requirement.

We might want to disallow an income tax thing or something of that nature but we would not in the first instance make the determination of whether someone had violated the income tax laws.

Lewis F. Powell, Jr.:

Mr. Journey, assume you had a situation in which a utility had been found guilty of discriminatory practices in order to pay back pay, you know, fixed amount, would you as of today on the practices presently prevailing disallow the back pay ordered by say, a Court?

Drexel D. Journey:

Yes, sir that would be question of putting it in to the cost of service and having determined that it was not a just and reasonable item if in fact it was not just and reasonable then disallow it.

Lewis F. Powell, Jr.:

In that situation, you would have a quantified cost.

Drexel D. Journey:

Right.

Lewis F. Powell, Jr.:

And I suppose in many situations involving alleged discrimination there would be no quantification.

Drexel D. Journey:

That is right.

Lewis F. Powell, Jr.:

Do you want to pursue that topic of —

Drexel D. Journey:

Well, there are areas of penalties of back pay and other things where items can be liquidated and we can handle them through the economic regulatory process.

We find it most difficult however to speculate as what might be the loss of morale.

What might be the inefficiency, what might be a lot of the other factors associated with this?

We submit that under their end result test of natural gas pipeline in the case law progeny wherefrom1940 on you have reviewed our cases on a functional appraisal basis.

You should not find that we have this jurisdiction.

Byron R. White:

Well, if you — do you think you would be acting contrary that Court of Appeals opinion if in a specific case you came to these very conclusions that you have just now stated that you have looked at this and you really cannot arrive at anything substantial or definite.

Byron R. White:

And that it is wholly speculative and you just put the issue aside.

Drexel D. Journey:

We think what would happen there is we would then get into a question of interpreting the opinion if I advise the commission we could not—

Byron R. White:

I do not want to think about it right now, But —

Drexel D. Journey:

I think that probably that Court of Appeals opinion means that we could go in and regulate the employment practices of the utilities.

Byron R. White:

Yes, but suppose, you did not—

Drexel D. Journey:

Then it would be –

Byron R. White:

I think you would be required to inquire the Court of Appeals opinion.

Drexel D. Journey:

Then it would be a question to whether we abused our power.

See, if you have the power then—

Byron R. White:

Well, I am asking you whether or not under the Court of Appeals opinion would permit you to conclude just what you said a moment ago.

That you just – now you have looked into it but it does not a quantifiable manner.

Drexel D. Journey:

We — I certainly would take that position that the commission should not be forced to do this but—

Byron R. White:

But what about the Court of Appeals opinion now?

Is that what it permits you to do that or would it require you nevertheless to regulate the employment practice?

Drexel D. Journey:

The Court of Appeals opinion would have us back up here again after I have so advised the commission because the people would not be satisfied that the proof of the putting in this was until we—

Byron R. White:

Well, I know that somebody might bring you up here but all I want to know is what your opinion was that of the Court of Appeals opinion.

Drexel D. Journey:

I think that the Court of Appeals opinion means that there is an ancillary authority in the commission to determine employment practices.

Byron R. White:

I know that is what you say, but that is not my question.

My question is if you exercised that authority and found that you just could do not quantify and so there was no relief given.

Would that be contrary to the Court of Appeals opinion in your view?

Drexel D. Journey:

If we could defend successfully against the challenge that we abused our discretion and not acting, I would—

William H. Rehnquist:

That is Mr. Justice White is asking you, yes or no?

Drexel D. Journey:

I think that we would have difficulty in maintaining that position.

Lewis F. Powell, Jr.:

Is not the problem that you confront not the one you have been articulating but the fact that in every rate case, on a every request for the licensing of an applicant, this issue would be raised and you have to try it and it might take you 6 week or 6 months to litigate it.

Drexel D. Journey:

That is the burden, the administrative burden question.

Lewis F. Powell, Jr.:

(Inaudible)

Drexel D. Journey:

Well, we have that in our brief your Honor.

And we think that this would be an unmanageable workload for us.

We think that under the end result test of natural there are three reasons why you should not find this.

One, we are not equipped to do it.

Drexel D. Journey:

Two, we are otherwise busily occupied with gas and electric matters.

Three, there already is in place in functioning a mechanism under the Equal Employment Opportunity Laws by which equal employment practices are regulated.

The 1972 Amendments did not give us that authority.

The basic 64 Act did not, our Act does not give it to us.

You are being asked to read it into our statute and you are being asked to have us ask answer in each case, substantial questions of relevance and materiality.

We think we would be in a hopeless morass.

We would like the fences fixed.

Either the economic regulatory process is an alternate enforcement strategy for the Equal Employment Laws or it is not.

We think it is not.

John Paul Stevens:

Mr. Journey, you were asked a question about the possible example of quantified cost in a back pay award and you expressed the opinion, those might well be disallowed by the commission.

Has there ever been an issue such as that actually presented to the commission, or are you just giving an opinion based on your judgment as what they do.

Drexel D. Journey:

In terms of disallowing—

John Paul Stevens:

A utility which might have been found guilty of employment discrimination having assessed against it a back pay award.

You suggested that such an amount might well be disallowed as a proper cost.

Is that issue actually been passed on by the commission?

Drexel D. Journey:

It has not been passed on in the employment context but it has been passed on in the context of other things as litigation ensued out of the holding company in the divestiture proceedings and as the gas and electric industry was unscrambled in terms of its financial control.

William J. Brennan, Jr.:

(Inaudible) was unfair labor practices.

Drexel D. Journey:

It is – to the best of my knowledge.

It is not come up in terms of a decision that the commission rendered.

How this actually happens is when the auditors go in and check the books.

They in effect kick out as a matter of course duplicate labor cost.

You see the gas and the electric utility industry, the labor costs are all handled by in-place and functioning accounting requirements and it is broken down by the functions of production transmission, distribution in general.

So that when the auditors go in and look at the books of the gas and the electric companies they kick out these duplicate costs.

William J. Brennan, Jr.:

(Inaudible)I take it then, the procedure that would be followed in connection with an EEOC back pay, (voice overlap).

Drexel D. Journey:

Same thing, and if there was a penalty question it would be kicked out under Account 426.3, if it was an unreasonable charge it would be kicked out under 426.5 —

William J. Brennan, Jr.:

Some of these back pay awards handle a lot of money, a million more dollars, many millions, some of them, are they handled just administratively this way?

Drexel D. Journey:

They would be kicked out by the auditors, yes, in the accounts if they were duplicate costs or penalties.

So they are not left without a remedy, they have one.

Warren E. Burger:

Mr. Glickstein.

Howard A. Glickstein:

Mr. Chief Justice, may it please the Court.

Howard A. Glickstein:

The FPC’s position in this case appears to be that it has jurisdiction to do what is easy and lacks jurisdiction to undertake what is difficult.

The FPC seems to have converted and alleged burden into a jurisdictional barrier.

But the FPC appears to contend is that after employment discrimination has produced costly consequences after the costs of the employment discrimination have been assessed by some other agency, then and only then is it proper for the FPC to disallow such cost in a ratemaking proceeding.

This is the limited extent to which the FPC recognizes any relationship between a duty to eliminate employment discrimination—

Warren E. Burger:

(Inaudible) in your view should prevail in the Federal Power Commission undertakes these evaluations and the EEOC and the complaining parties all disagree with it.

In other words, suppose they had a rather fixed pattern of rejecting all such plans, have you exhausted your remedies when you have gone to the Federal Power Commission or do you get another bite at the apple over in the EEOC?

Howard A. Glickstein:

Well, Mr. Chief Justice, if the Federal Power Commission refused to disallow a specific cost and against the utility in a ratemaking proceeding for example—

Warren E. Burger:

Now what you want them pass on, namely to get in the substantive of aspect forbidden employment?

Howard A. Glickstein:

We concede Mr. Chief Justice that there are remedies before the equal employment commission.

There are remedies under 1981.

We do contend however that the costs of employment discrimination are a very relevant factor for the FPC to consider and not to consider it merely after the costs have been assessed by some other —

Warren E. Burger:

Let me make my question clear, they do just what you ask them to do.

They go into the subject of employment practices with respect to minorities.

But you do not like their decision assuming that you were bringing such a case, do you think the Federal Power Commission has not followed EEOC guidelines and a number of other things.

What do you do about that, just routinely take it as you would any other, federal power determination in the Court of Appeal.

Howard A. Glickstein:

If the Court were to hold that, the FPC had jurisdiction in this area and a particular rate was challenged as including cost that related to employment discrimination.

If a particular license was challenged as being applied for by a company that had a record of employment discrimination.

And the FPC refused to take that into account or discounted it then that would be an additional proceeding in which an appeal would be taken from the FPC’s conclusion on that score.

Warren E. Burger:

Just as you would in any other – in a rate case or any other issue, is that it?

Howard A. Glickstein:

That is right.

William H. Rehnquist:

But I do not think you have answered at least what I understood that Chief Justice question to be and that is, if the Federal Power Commission does what you asked it to investigate discrimination and employment on the practice of the utility and concludes there was no discriminatory practice here.

May you then or may people who claim they were discriminated again to a parties to the FPC proceedings, go the EEOC and start all over again?

Howard A. Glickstein:

Yes, they may, they certainly may.

I think it is clear from the decisions of this Court that there are multiple remedies available for victims of discrimination.

Byron R. White:

(Inaudible) that the FPC would have the power to enjoin certain employment practice or order reinstatement or back pay or things like that?

Howard A. Glickstein:

I think they would have the power to disallow cost related to the fact, — in addition to that Mr. Justice White, it is not merely in the ratemaking proceeding where the Court of Appeals said that the Federal Power Commission has jurisdiction to consider this question.

It is also in licensing and certificating proceedings.

And there if a company is shown to be a known discriminator and that perhaps is a competing company for the license that is not, that is a factor we contend that Federal Power Commission could into account.

Byron R. White:

Well, you are not — do you think that you are barred from raising those issues in licensing proceedings now?

Howard A. Glickstein:

Well, we are barred your Honor because the FPC has prohibited the raising of such an issue in the licensing proceeding.

Howard A. Glickstein:

Yes, we cite the case on page 47, I believe of our brief.

Byron R. White:

(Inaudible)

Howard A. Glickstein:

In both the Federal Power Commission has barred the raising of such issues.

Harry A. Blackmun:

Would the same argument apply to the Nuclear Regulatory Commission, is it not?

Howard A. Glickstein:

Well, I think the factors that the Nuclear Regulatory Commission would be considering in granting a license for a nuclear regulatory plant would be somewhat different than the factors of the Federal Power Commission considers when it grants licenses of set rates, to the extent that the Nuclear Regulatory Commission has the authority to consider whether or not consumers are being exploited, whether or not unjust and unreasonable costs are being passed on then I suspect it would apply.

Warren E. Burger:

(Inaudible) or have you raised it with the ICC for example in the Certificates of Public Convenience and Necessity.

Howard A. Glickstein:

Mr. Chief Justice, the ICC has published a notice of rulemaking and we have the same problem.

They have not done anything about this.

Do they have a rule?

Howard A. Glickstein:

No.

They do not have a rule against us.

Byron R. White:

What about the FCC?

Howard A. Glickstein:

The FCC is the only one of the two Federal Regulatory Agencies that has issued a rule prohibiting employment discrimination by its regualitives.

The FCC does have such a rule.

The FCC, Federal Communications Commission.

I think the Federal Home Loan Bank Board, I believe has issued a similar rule.

William H. Rehnquist:

How about the SEC?

Howard A. Glickstein:

No, the SEC has not issued such a rule.

As the Solicitor General indicated in his amicus brief in this case, the number of the Federal Regulatory Agencies apparently are awaiting the outcome of this proceeding before they determine what they should do.

William J. Brennan, Jr.:

It has been in the records — how would you determine the cost which were to be disallowed?

Howard A. Glickstein:

One cost Mr. Justice Brennan that I guess is readily assessable is of course the back pay award.

And Mr. Journey told you that under the uniform systems of accounts, this would be treated as penalties.

First of all I am somewhat puzzled by that because the uniform system of accounts is just that.

It is a system of accounts that tells utilities how to keep their books.

Byron R. White:

You are talking about a back pay award but you would want the – I thought you are at – going to be asking the Commission to disallow certain costs that were invalid because of discrimination.

That is what could be asked them to do.

Howard A. Glickstein:

And one such cost would be a back pay award.

Byron R. White:

Would it disallow?

Warren E. Burger:

After you have persuaded them to do it?

Howard A. Glickstein:

We would not – that we would not allow or we would urge to the FPC not to take the back pay award that the utility had to payout into account in setting its rate.

John Paul Stevens:

What interest do you have in whether – after the back pay award has been made, what difference does it make to your clients whether that is considered in the utilities rates or not?

Howard A. Glickstein:

Well, the interest that our clients have is in the overall question of the discrimination by—

John Paul Stevens:

(Inaudible) question I should think your position would be one that would aided by encouraging back pay awards rather than penalizing them.

I am just wondering if you are representing the best interest of your client.

Howard A. Glickstein:

Mr. Justice Stevens, we have looked forward to the day when it is no longer necessary to award back pay under Title VII because the problem of that statute is directed to what is eliminated.

And one of the purposes of our request in this case is that if the labor force is used more efficiently, if persons regardless of sex or race are permitted just to obtain employment it will not be necessary for that to be back pay awards.

John Paul Stevens:

The irony of this case as it strikes me is that so often in the employment discrimination field, it is the company that is defending on the ground that if we were to comply it would be very costly.

And here we are suggesting that compliance, we are just suggesting just the opposite.

Howard A. Glickstein:

I certainly concede Mr. Justice Stevens that some companies make that contention.

I believe that is a rather short-ranged point of view.

I think that the testimony of economist is quite clear that in the long run the elimination of employment discrimination is economically efficient.

For that very purpose that Congress passed Title VII.

It concluded that employment discrimination raised a great cost and burden to the state commerce.

Byron R. White:

Now, with the FPC ever get at this in a case.

You certainly do not suggest the FPC itself is going to award back pay, that is going to ensure you to do that.

Howard A. Glickstein:

Mr. Justice White, we are urging that the FPC and now the purpose of our rulemaking proceeding was to have the FPC to take preventive steps to issue a prophylactic rule to prevent these cost from arising.

To prevent it being necessary to—

Byron R. White:

But you lost on that issue in the Court of Appeals.

I take it in the sense that FPC was not ordered to adopt the rule.

Howard A. Glickstein:

It was not ordered to undertake a rulemaking proceeding but Judge McGowan (ph) indicated some aspects of the rule that we were proposing that it might be appropriate for the FPC to adopt.

It might be, they were not required.

Howard A. Glickstein:

They were not required to hold the rulemaking proceeding, correct.

Byron R. White:

Tell me again — tell me a cost in a rulemaking proceeding, this is Justice Brennan’s question.

Tell me a cost in a rulemaking.

Proceeding that you would ask to be disallowed because of—

Howard A. Glickstein:

In addition to back pay.

Byron R. White:

In addition to back pay, I mean.

Howard A. Glickstein:

Well—

Byron R. White:

(Inaudible) make a guess as to how much this discriminatory conduct is costing the company in the long run and disallow that one.

Howard A. Glickstein:

There are litigation costs that would be disallowed.

Howard A. Glickstein:

In addition to that there are as Judge McGowan (ph) indicated some unquantifiable costs.

And it might well be that the FPC could conclude that a company that engages in employment discrimination is operating less efficiently than another company.

And it might take that into account in setting the rate.

We quote in our brief, a letter from the Administrator of the General Services Administration that deals with ratemaking – with the utilities that the Federal Government deals with.

And he says it on page 27 of our brief was, since such practices most certainly effect the utilities overall deficiency the rate of return granted to the utility would be established at the lower end of the zone of reasonableness.

So we do say if the Federal Power Commission were to find that a company was a repeated discriminator that it could take that—

Byron R. White:

(Inaudible)

Howard A. Glickstein:

Yes, sir.

Is that it?

Howard A. Glickstein:

Something of that sort, yes sir.

(Inaudible)

Howard A. Glickstein:

Well, would be a factor that taken to account in determining the rate of return that the—

William H. Rehnquist:

But if was taken by the rate base, you would simply lower the percentage of return or you would ask them to?

Howard A. Glickstein:

That would be one method of proceeding when there are unquantifiable costs.

Warren E. Burger:

But the suggested question, which may have an element of heresy in it, Mr. Glickstein suppose you have a utility down the southwestern part of the country, and EEOC makes some preliminary determination that they have none but they have no people employed in the company or practically none with Spanish surnames.

And so as a result of the negotiation not litigation, negotiation with EEOC, the company agrees to appoint three out of every four employees thereafter with a Spanish surname.

And then some years go by and some objection is made to the rates and the proof is in the hypothetical and you must accept this as being the proof that the cost of this affirmative action program has been enormous.

That it is taking three Spanish speaking surnamed people, and do the work that two people did before, partly because their lack of command of English and perhaps their lack of education or whatnot.

Any reason you want to ascribe but the conclusion is that it is a wasteful, expensive program.

Now then, what about disallowing that cost?

Howard A. Glickstein:

Well, that — Mr. Chief Justice, I think would be a cost that was incurred in furthering a very basic national policy.

I think that would be very similar to a utility arguing that what it had to do to eliminate some environmental dangers was very costly and that expense was challenged.

I think that —

Warren E. Burger:

But my question is directed as to who decides this?

You are going to say that the Federal Power Commission would have to respond to this kind of a challenge to wasteful expenditure.

Because on my hypothesis, there is a determination that this affirmative action program is costly and will become more costly over a period of years.

So you say the Federal Power Commission then must say well, it is true that this is wasteful and unnecessary in terms of operating the company.

But because it furthers a desirable social policy, then the rate makers must – the rate payers must bear that burden.

Howard A. Glickstein:

Mr. Chief Justice, if I were writing the opinion for the Federal Power Commission, I would say that this cost is a necessary element in overcoming the effects of past discrimination, it is a short-range expenditure.

Once the effects of past discrimination are overcome, this company will ultimately operate much more efficiently and whatever costs were incurred as a result of the affirmative action plan.

Warren E. Burger:

You did not have any evidentiary basis for that projection?

Howard A. Glickstein:

Well I—

Warren E. Burger:

So that should be your opinion.

Howard A. Glickstein:

I would not be speculating Mr. Chief Justice.

Again, I think that the factors that go into the economics of discrimination have been studied and the counsel of economic advisers for example estimated some years ago that if employment discrimination were eliminated from our economy the gross national product would increase by $20 Billion.

Discrimination is inefficient.

It might cost something to eliminate it initially but in the long run, when it is eliminated, there will be benefits as a result of it.

Warren E. Burger:

But the question in this case is whether the Federal Power Commission now leaving these very pleasant figures about the gross national product or that the Federal Power Commission which has a very narrow limited mission, presumably, if we read the act is equipped to deal with these broad national highly desirable social objectives.

That is really one of the underlying questions in this case, is it not, if not the underlying question?

Howard A. Glickstein:

And the Federal Power Commission has acted on jurisdictional grounds in rejecting that instead of holding some sort of proceeding and asking the question of what sort of costs are feasible t deal with and what sort of cost are not feasible to deal with.

Perhaps there are some costs that are so difficult to quantify that they could not deal with.

On the other hand there are not probably some costs that they can deal with.

They have not considered that.

They have not given us a reasoned response to why this is not the feasible function for the Federal Power Commission.

William H. Rehnquist:

Would you be satisfied with the reasoned response on an ad hoc case-by-case basis as the Court of Appeals intimated would be permissible or would you insist that it would be an actual rule making legislative type hearing.

Howard A. Glickstein:

Well, Mr. Justice Rehnquist, I would prefer a rulemaking proceeding and I think that would be in the best interest of the Federal Power Commission.

One of the concerns, it has is that what we have proposed would present the great burden because they would have to consider these questions in a case-by-case basis.

But they do not want to that, they have a rulemaking proceeding and state what their policy is.

In addition, Mr. Journey today says that back pay awards are penalties.

That is the first time I ever heard back pay award as defined as a penalty.

Back pay awards are equitable remedies.

So this Court is, they said they are and for the gas and electric utility industry to be suddenly told in a brief to the Supreme Court that in the future back pay awards are going to be treated as penalties is a rather unusual way to make new policy.

Warren E. Burger:

Have they not been — back pay awards are sometime has been held to be penalty?

Howard A. Glickstein:

Mr. Chief Justice, in the Albemarle case, you refered to the back pay awards, equitable remedies.

I am not familiar with any Federal Power Commission case where it held back pay awards would be a penalty.

Potter Stewart:

We were told that at least they are disallowed that double payments for the same employment were disallowed that one of the payments was disallowed, that sort of back pay would be, would it not?

Howard A. Glickstein:

Well, it is certainly not clear from their system of accounts Mr. Justice Stewart.

Potter Stewart:

(Inaudible)

Howard A. Glickstein:

Pardon me.

Potter Stewart:

We were told by that counsel as I understood him, that standard operating procedure for their accounts when they go into a utilities office.

Potter Stewart:

And you take issue over there?

Howard A. Glickstein:

Well, I do not know whether that has been the practice, whether I—

Potter Stewart:

Whatever you call them, penalties or whatever they are disallowed as the cost —

Howard A. Glickstein:

Well, in the un-uniformed system of accounts it indicates that something that is listed as a penalty might be treated otherwise in a ratemaking proceeding.

And I assume that a company would be able to argue that the reason that incurred this back pay award was because it was conducting itself in good faith in some particular situation and it should not be disallowed.

I do not believe that under the uniformed system of accounts is that clear.

The uniform system of account is analogous to your tax return where the Internal Revenue Service tells where to list something.

And merely because you list something under contributions does not necessary mean that that is the way they are going to treat it when they review your return.

William H. Rehnquist:

Well, supposing that it were found in a back pay proceeding like the one that the Court — this court said in the Albermarle, last year that the employer had been acting in good faith but that was not sufficient to award off a back pay award.

Now, would you say that that kind of back pay award should be subtracted from the rate base?

Howard A. Glickstein:

Yes, I would.

I would say that kind of back pay should be subtracted from the rate base.

Lewis F. Powell, Jr.:

I have a hypothetical, let us assume that a utility with a rate case pending before the commission was charged with having pursued a policy persistently say over 10 to 15 years, a discrimination in promotion, with all let us say 200 or 300 individuals.

What sort of relief would you asked of the commission?

Howard A. Glickstein:

In that particular case, we would ask the commission to perhaps, condition the rate increase on the utility undertaking a program to eliminate the effects of discriminatory practices and its promotion procedures.

Lewis F. Powell, Jr.:

You have to litigate before the commission, first of all the issue of alleged discrimination in promotions.

Would you take them out one by one, how else would you deal with them?

Howard A. Glickstein:

Well, I think that there is an instance where it would be desirable for the Power Commission to have some rules in advance.

So they might indicate in the rules under what circumstances they will take allegations of discriminatory practices into account.

For example, if the practice was raised for the first time in a proceeding before the Federal Power Commission, the Federal Power Commission might suggest that we would like to have the expertise of the Equal Employment Commission on this issue.

The Federal Power Commission might decide that if reasonable cause findings have been made by the Equal Employment Commission in cases then it will consider charges of discrimination in proceedings before it.

It might decide that if there has been a judicial finding in some instance then it will consider these issues when the proceeding is before it.

Lewis F. Powell, Jr.:

No authority to order directly any conduct on the part of the utility, would it?

It could as you say perhaps say, we will grant you the requested rate increase provided you satisfy us within a specified period of time that these practices have been eliminated.

Howard A. Glickstein:

I think it could condition the rate increases and condition the granting of licenses and certificates on certain types of performance.

I think that under circumstances the Federal Power Commission could order something directly.

For example, if it desired that every regulatee submit periodic reports indicating what his employment practices were.

It could order something like that directly.

Lewis F. Powell, Jr.:

Let us assume that the charge was that in the employment of people over a long period of time, discriminatory practices had been pursued and there were a substantial number of people who claimed that they were entitled to employment and to be put in to their rightful place in the union structure.

What would you request the commission to do in that case?

Howard A. Glickstein:

I would say that the company that you are referring to was faced with the possibility of substantial cost as a result of putting people in their rightful place.

And therefore the power commission should definitely condition the rate increase on the curing of that situation and not allow the cost that are incurred by making up for the effects of past discrimination to be taken into account in the rate.

Lewis F. Powell, Jr.:

If you were the counsel for the utility company, you would have to be told, you would want to be told which of the 150 people who said they have discriminated against would have to be employed, would you not?

Howard A. Glickstein:

Yes.

And the FPC would do not that.

Lewis F. Powell, Jr.:

The FCF, who would do it?

Howard A. Glickstein:

The FPC would not have the power to order a particular employee to be promoted or reinstated.

The Equal Employment Commission would or the Federal Court would or a State – the Human Rights Commission would—

Lewis F. Powell, Jr.:

If the FPC conditioned a rate increases on the utility doing this, would it not the commission have to identify that people who said they have been discriminated against so that the utility would know how to comply with that condition.

Howard A. Glickstein:

I think the Federal Power Commission could await the resolution of the problem you suggest by another agency if they were —

Lewis F. Powell, Jr.:

It might take two years.

Howard A. Glickstein:

It might.

And the—

Lewis F. Powell, Jr.:

Well, what did the utility do for a public financing —

Howard A. Glickstein:

The rate increases, there is a lot to go into effect and the rate increase would be in effect subject to refund.

And if it turned out that there were no cost to related to this so there would not be any refunds involved.

If there were costs related to this, there would be some refunds.

The FPC can only suspend a rate increase for five months and generally it does it for just a few days.

And the cost – and the new rates are allowed to go into effect.

So the utility would be able to get its increased rate.

Lewis F. Powell, Jr.:

I thought there were dual proceedings pending involving precisely the same charges before the EEOC and the Federal Power Commission, what would be the situation then?

Howard A. Glickstein:

Again, I think that because of the greater expertise of the Equal Employment Commission the Federal Power Commission might defer to their expertise and condition whatever a question was before it on the outcome of EEOC proceeding.

If it were a licensing question they would grant the license on condition that whatever remedy is ordered by the EEOC be expeditiously complied with.

William H. Rehnquist:

Well then, what do you do by way of implementing that condition?

You see you have a license to build a dam which you have applied for one now presumably, and you say when the EEOC provision, proceeding is terminated which I take it could be some months or years down the road.

You then will have a conditional license to build the dam if you comply with the order of the EEOC.

Now, that is a pretty tough road a whole for dam (ph) applicant, is it not?

Howard A. Glickstein:

Well, Mr. Justice Rehnquist, the FPC has suggested that a lot of these fears that it would have to cut off the licenses, the dams and shut off power plants and so forth.

That is not the only remedy at their disposal.

If appropriate rules are issued and a utility does not comply, they can seek Court relief.

Howard A. Glickstein:

They do not have to take the license away from the hydroelectric plant if they fail to comply.

There are other remedies under the Federal Power Act that would be available.

William H. Rehnquist:

But if the EEOC has ordered them to do something, the dam applicant to do something and he is not doing it, the EEOC can seek Court relief, you would not have the Federal Power Commission, would you?

Howard A. Glickstein:

The Federal Power Commission would perhaps be the ultimate weapon that the Federal Power Commission, if it conditioned the license of this hydroelectric dam on the accomplishment of whatever was ordered by the EEOC.

I think that would impose on the hydroelectric dam, a sufficient degree of pressure that it would comply with the EEOC order.

William H. Rehnquist:

The ultimate remedy would be revoking a license perhaps after the dam had been built?

Howard A. Glickstein:

Well, I think the FPC could undertake a civil action and get an injunction requiring the company to comply and for example that we cite in our brief for some cases where utilities at a government contractors fail to comply with the Government Contract Provisions and the Federal Government is not going to terminate its contract with the utility, it needs a power.

And it went to Court and sued to get the compliance with that provision.

More is involved in this case than the FPC’s responsibility however to protect consumers and to ensure the health of the gas and electric utility industry.

Ten years before this Court decided the Brown case and Steele v. Louisville & Nashville Railroad, the 1926 Railway Labor Act was interpreted to prohibit their railroad employees from being subjected to racial discrimination.

Repeatedly, this Court has recognized the critical importance of employment and has endorsed the most effective remedies with dealing employment discrimination.

We contend that in this case, that it is a highly consistent with the Federal Power Commission’s proper regulatory role that it too be required to take steps to deal with illegal employment discrimination.

Thank you.

Warren E. Burger:

Mr. Journey, do you have anything further?

You have about three minutes left.

Drexel D. Journey:

I would just say Mr. Chief Justice and members of the Court that the commissions’ briefs, I believe have covered the constitution points.

I think they have covered the legislative history points.

I think that they have covered the reference to the 1972 Equal Employment Laws and the fact that the procedure there for the EEOC seeking cease and desist orders in Court review were all setup and created in 1972 to correct what the EEOC said it needed enforcement authority to implement what you have said in the Johnson case is a comprehensive regulatory mechanism for dealing with the Equal Employment questions.

We do not think there is anything in the power of the Gas Act that speaks to the question that Mr. Glickstein and NAACP want us to undertake.

Byron R. White:

I take it that Judge McGowan (ph) writing for the Court of Appeals indicated that your task and I am reading, in protecting the consumer against exploitation can be alternatively described as a task of saying that no necessary or illegitimate cost are passed along with the consumer, to the costumer, that is the way he described your job.

Drexel D. Journey:

Yes, sir.

Byron R. White:

And then he went and said without attempting the exhaustive enumeration we identified at least the following as indicative of those arguably within the commissions’ range of concern.

Now I take it that some of these you already indicate that commission regularly considers at least in other kinds of cases.

One, duplicative labor cost incurred in the form of back pay recoveries by employees, who have proven that they were discriminatorily denied employment or advancement.

Drexel D. Journey:

I spoke about that question earlier and said that for whatever reason if back pay and duplicate labor was involved the auditors would pick that up.

Byron R. White:

So this issue – this is just not an issue, do you not think—?

Drexel D. Journey:

Not for ratemaking purposes in terms of cost that is lost.

Byron R. White:

Even though it is back pay with respect to this – a discriminatory practice that has been adjudicated by somebody else.

Drexel D. Journey:

It has been resolved, just as Mr. Chief Justice said somebody’s relative on the payroll.

Byron R. White:

All right, how about the – three, the cost of legal proceedings in either of these two categories?

Drexel D. Journey:

The cost of legal proceedings has been the subject of litigation and the—

Byron R. White:

But you do not contend, you do not – you would not have jurisdiction or that you should not consider those.

Drexel D. Journey:

We do not for cost purposes, no.

Byron R. White:

It seems to me that several of these things he enlists, there is no real question about either your power or your order desirability of considering them.

Drexel D. Journey:

If you are looking at the rate regulatory process is the mechanism by which you adjust the economic relation between the producer of gas and energy and the consumer.

We go through and on a cost to service prudent investment basis with a just and reasonable standard, we go ahead and disallow these things.

We are not talking about that.

I think the issue here, you are being asked to have the regulatory process as a concept be an alternate enforcement strategy for Equal Employment Laws.

Byron R. White:

But the Court of Appeals said that it was way beyond your power or authority to adjudicate individual instances of discrimination that is what the Court said.

Drexel D. Journey:

Yes, sir.

Potter Stewart:

But it has been suggested.

It has been suggested here today, on oral argument for example that the Court of Appeals opinion means or can be read to mean that you not only can but should say to a utility, you cannot have any increase, rate increase at all, regardless of your legitimate increase in cost, you cannot have any rate increase at all until or unless you clean up your discriminatory employment practices.

Drexel D. Journey:

That is what I am—

Potter Stewart:

And that is what you object to.

Drexel D. Journey:

That is what I understood to be the argument.

Thank you, sir.

Warren E. Burger:

Thank you gentlemen.

The case is submitted.