Wisconsin v. Federal Power Commission - Oral Argument - January 09, 1963 (Part 2)

Wisconsin v. Federal Power Commission

Media for Wisconsin v. Federal Power Commission

Audio Transcription for Oral Argument - January 09, 1963 (Part 1) in Wisconsin v. Federal Power Commission

Audio Transcription for Oral Argument - January 09, 1963 (Part 2) in Wisconsin v. Federal Power Commission

Earl Warren:

Mr. Solomon.

Richard A. Solomon:

May it please the Court.

Just before the recess, we were discussing what we're attempting to do in our area of proceedings and the question that would come up: What about the man whose cost of service is substantially higher than the price that the Commission will fix in any given area?

And I was indicating that this is a problem which the Commission will have to face up to.

I want to make it clear, Justice Black, that there's a very wide distinction at a minimum between a cost-of-service price and a confiscation price.

Obviously, in a cost of service, there are many, many things which go into it which no Court would consider in determining what is a confiscation, for example as a rate of return.

It's hardly confiscatory if a man selling gas doesn't make a 9%, 10% or 11% return on his investments, and yet, a rate of return would go into a cost of service price.

But there will undoubtedly, and let me stress again because I want to make it perfectly clear, whatever the old Commission -- Commission that decided the Phillips case might have thought about area pricing, and I would agree there are certain ambiguities, if you read the Commission's decision in Phillips and a statement of policy, both of which were on the record here, certain ambiguities about the language there exactly as to what they intended by area pricing.

It could be argued that maybe they were talking about contract price, field price.

This Commission is basing its pricing on cost considerations.

But assuming that an individual producer could show that an area price which has been set is confiscatory within the narrow limitations of what is confiscatory, and it could show that this was not because of carelessness or inefficiency or what have you on his part, but because he just hadn't been successful in this business, this mining business.

He had gone around and attempted to get gas and the only thing he'd gotten finally after 15 or 20 or 30 drilling of wells was a little trickle of gas.

I think there are grave doubts as to whether this Court would say because a man on his 15th attempt to drill for a well has gotten a little trickle of gas that he has to be allowed to sell that gas at a price which would allow him in and there to recover all the costs he's put into that.

That isn't the nature of this business.

Hugo L. Black:

I presume when the Commission was acting --

William J. Brennan, Jr.:


Hugo L. Black:

-- however, it would be a very natural inclination for them to -- if they're going to take a whole group together by the sea that they didn't hurt any -- anyone particular a company, only six or seven so that you would tend to have as a fixed price, not a maximum price, as a just and reasonable price, the price that might give some people what they considered a reasonable profit and give the others five times as much.

Richard A. Solomon:

Well, the theory of area pricing does concede that some people who are fortunate or efficient will get more than on a cost of -- individual cost-of-service prices.

If Phillips turns out to be an efficient producer, it is possible that when we get through with area pricing, the prices that Phillips gets would be somewhat higher than Company X would get -- no, the prices will be the same, but they will be getting more than they would be getting on a cost-of-service basis, whereas Company X which we can assume is an inefficient producer or unlucky producer would be getting less than they would be getting on a cost-of-service basis.

Hugo L. Black:

I would also assume maybe -- maybe I could be wrong, is when they start to kind of fix some kind of an average price, these contract prices that had been fixed when there was no regulation of any kind and which are pretty well fixed subject to certain procedures whereby they might be held unjust and unreasonable, maybe the average would be figured according to the average of these contract prices.

Richard A. Solomon:

The Commission, I can only reiterate, has not suggested by any of its activities in the area of proceeding that it intends to fix prices by the field prices at which gas is being sold in that area.

I cannot tell you that it will give no consideration to these field prices, what the prices at which gas is being sold in that area, but the basic intent of the Commission is to fix a price for the gas based upon the cost and economic necessities of producing and bringing gas to the market in sufficient quantities so that it will serve the needs of the consumers at the cheapest possible prices to do so.

William J. Brennan, Jr.:

Probably if an area, the price is possibly around these figures or maybe some higher or some lower, but they cluster around some particular figure.

You just suggested that this will not be conclusive upon the Commission.

But how -- how the Commission is going to ignore that in the area of pricing business?

Richard A. Solomon:

The prices for example in a given field -- when you say price is hovering, of course, you recognize that --

William J. Brennan, Jr.:

Well, I'm thinking of the old techniques that the Wage Stabilization Board and the OPA follow when they, for very different reasons, had to determine going prices for a given job in a given area or going prices for a particular commodity.

That's the old cluster technique as I recall --

Richard A. Solomon:

Yes, and that is not we're starting out to do.

William J. Brennan, Jr.:

Well, I --