Petition for Writ of Certiorari — Indiana & Michigan Electric Co. v. Anderson Power & Light

No. 73- ol}

Inpiana & Mionican Evecraic Company,

Petitioner,

v.

Anperson Power anp Licut or THE Crry oF ANDERSON,

Inpiana; Ricomonp Power anp Licut or THE Crry oF

Ricumonp, Inpiana; and Feperat Power ComMIssION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Wuirney Norts Sermour

One Battery Park Plaza

New York, New York 10004

Counsel for Petitioner

Of Counsel:

RicHarp M. Dicks

Peter J. SCHLESINGER

Linpsay A. Lovesoy, JR.

Smpson Toacuer & Bartietr

September 19, 1973

Oprntion anv OrpEer BeLow

JUMMDEOTION. iio ws Sei eS ied SRST aS SST RE

QueEsTIONS PRESENTED ............-- sa hh ager Soap Oana

Beesowns TMVOIM.......o.o0020ccccc0cccccbbeisshetade

STATEMENT OF THE CASE ....... 0.0 e cece cccccccvces

A. The I&M and Anderson Service Agreement ..

B. The Assertion of Commission Jurisdiction. ...

C. The I&M and Richmond Service Agreement ..

D. The June 13, 1972 Rate Increase Filing .......

E. The Judgment of the Court of Appeals .......

Reasons For GRANTING THE WRIT ............--e000-

Pornt I—The decision below conflicts with the hold-

ings of this Court in United Gas Pipe Line Co. v.

Mobile Gas Service Corp., 350 U.S. 332 (1956), FPC

v. Sierra Pacific Power Co., 350 U.S. 348 (1956), and

United Gas Pipe Line Co. v. Memphis Light, Gas

& Water Division, 358 U.S. 103 (1958) ............

Point II—The decision below represents a clear de-

parture from the accepted and usual course of ad-

ministrative review and calls for the exercise of this

Court’s power of supervision ...................

CONCLUSION ....... cc cece ccc c cc cc ccc ccccccccccecs

OUD, on. 5 6 ch nin epinenabineamTeneees a

Opinion of the Court of Appeals .................

Judgment of the Court of Appeals ..............

Order of the Court of Appeals Denying Petition for

EE ont teedceericeredusardavesscotcevas

Order of the Commission of August 11,1972 .......

Order of the Commission of October 6, 1972 .......

Text of Statutes Relied On ......................

Federal Power Act §205 ......................

Federal Power Act §206(a) ...................

Federal Power Act §313 ...................4..

PAGE

19

roadee Co. v. FOC, 179 F.2d 437

verican Louisiana Pipe Line Co. v. FPC, 344 F.2d

~ - §25 (CADC 1965) 21

Atlantic Seaboard Corp., 28 F.P.C. 860 (1962), rev’d

« om other grounds sub nom. Lynchburg Gas Co. v.

. FPC, 336 F.2d 942 (CADC 1964) 14, 15

Atlantic Seaboard Corp., 28 F.P.C. 882 (1962) .........._ 15

Bel Oil Corp. v. FPC, 255 F.2d 548 (CA5 1958) ........ 21

Boone County Rural Electric Membership Cooperative

v. Public Service Commission, 239 Ind. 525, 159

N.E.2d 121 (1959) 22

California v. Lo-Vaca Gathering Co., 379 U.S. 366

(1965) 14

Carolina Power & Light Co., 47 F.P.C. 1 (1972) ........ 23

Central Telephone & Utilities Corp., 45 F.P.C. 971

.. (1971), modified on other grounds, 47 F.P.C. 60

* (1972) 23

City of Lancaster v. FPC, 252 F.2d 631 (CADC 1958) 19

Detroit Edison Co., 47 F.P.C. 130 (1972) 23

Buke Power Co., Docket No. E-7557 (F.P.C., Feb. 2,

. 1972), aff'd and modified on other grounds (F.P.C.,

~ Dee. 18, 1972) (Opinion No. 641) 19

FPC v. Amerada Petroleum Corp., 379 U.S. 687 ( 1965) 14

FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956) ..2, 7,9

FPC v. Southern California Edison Co., 376 U.S. 205

(1964) 16

FPC v. United Gas Pipe Line Co., 393 U.S. 71 (1968) 21, 24

Gray v. Powell, 314 U.S. 402 (1941) 15

Gulf States Utilities Co., Docket No. E-8121 (F.P.C.,

Aug. 7, 1973)

Hill v. PPC, 335 F.2d 355 (CA5 1964) 21

Indiana & Michigan Electric Co. v. FPC, 365 F.2d 180

(CA7), cert. denied, 385 U.S. 972 (1966) ............... 5

NOG). acini

Indiana & Michigan Electric Co., 83 ¥.P.C.°1252

Indiana Statewide Rural Electric Cooperative, Inc. v.

‘ FPC, petition for review filed, No. 71-2148, CADC,

Dee. 1, 1972

Kentucky Utilities Co., Docket No. E-8172 (F.P.C.,

Aug. 6, 1973)

Kentucky Utilities Co., Docket No. E-8172 (F.P.C.,

Aug. 22, 1973)

Lynchburg Gas Co. v. FPC, 336 F.2d 942 (CADC

1964)

Memphis Light, Gas &€ Water Division v. FPC, 250

F.2d 402 (CADC 1957), rev’d sub nom. United Gas

Pipe Line Co. v. Memphis Light, Gas &é Water

Division, 358 U.S. 103 (1958)

Natural Gas Pipeline Co. v. Panoma Corp., 349 US. 44

(1955)

Phillips Petroleum Co. v. Wisconsin, 347 US. 672

(1954)

Portsmouth Gas Co. v. FPC, 247 F.2d 90 (CADC

1957)

Power Reactor Development Co. v. Electricians’

Union, 367 U.S. 396 (1961)

Public Service Co. of Indiana, Docket No. E-7645

(F.P.C., Feb. 25, 1972)

Public Service Co. of Indiana, Docket No. E-7645

(F.P.C., May 25, 1972)

Public Utilities Commission v. Attleboro Steam &

Electric Co., 273 U.S. 83 (1927)

Rice v. City of Indianapolis, 183 Ind. 203, 108 N.E.

584 (1915)

St. Michaels Utilities Commission v. Eastern Shore

Public Service Co., 31 F.P.C. 1161 (1964) ................

Indiana & Michigan Electric Co., 38 F.P.C. 739 (1965),

aff'd, 365 F.2d 180 (CAT), cert. donied, 385 U.S. 972 La

ry

.

7a

ow

es Tie - as

F. Cases (continued)

Scenic :Mulaon: Preservation Conference v. FPC, 354

F.2d°608 (CA2 1965), cert. denied, 384 U.S. 941

PAGE

54966) 17

Shrewsbury Municipal Light Department v. New

& England Power Co., 32 F.P.C. 373 (1964) ................ 19

Southern California Edison Co., 45 F.P.C. 1021

(1971), appeal pending 23

Southern California Edison Co., Docket No. E-8176

(F.P.C., Aug. 29, 1973) 12

Twin City Realty Corp. v. Clay Utilities, Inc., 146 Ind.

App. 629, 257 N.E.2d 686 (1970) 22

Unemployment Compensation Commission v. Aragon,

: 329 U.S. 143 (1946) 15

g Udall v. Tallman, 380 U.S. 1 (1965) 15

4 United Gas Pipe Line Co. v. Memphis Light, Gas &

Water Division, 358 U.S. 103 (1958) 0... 2, 9-13, 15

United Gas Pipe Line Co. v. Mobile Gas Service Corp.,

350 U.S. 332 (1956) 2,7,9

Statutes and Rules

Administrative Procedure Act, 5 U.S.C. § 554(b) (3)

(1970) 21

18 C.F.R. $1.34(d) (1973) 20

Federal Power Act, 16 U.S.C. § 791a, et seq. (1970),

§ 201, 16 U.S.C. § 824 (1970) 4

§ 205, 16 U.S.C. § 824d (1970) 2... 2, 5, 6, 22

§ 206, 16 U.S.C. §824e (1970) 2

§ 313(b), 16 U.S.C. § 8252 (1970) .......... 2, 3, 17, 20

Inp. Ann. Stat. § 54-313 (1951)

Inv. Ann. Srat. § 54-319 (1951)

Inp. Ann. Start. § 54-423 (1951)

Inp. Ann. Srat. § 54-712 (1951)

28 U.S.C. § 1254 (1970) 0.2...

ei

Other Authorities

Brief of Indiana Municipal Electric Association,

Indiana & Michigan Electric Co., 33 F.P.C. 739

(1965), aff’d, 365 F.2d 180 (CA7), cert. denied, 385

U.S. 972 (1966) 14

Brief of Memphis Light, Gas & Water Division, et al.,

United Gas Pipe Line Co. v. Memphis Light, Gas &

Water Division, 358 U. S. 103 (1958) i Fs}

9 K.C. Davis Apmunistrative Law Treatise (1958)... 21

44 FPC Ann. Rep. (1964) 16

45 FPC Ann. Rep. (1965) 16

46 FPC Ann. Rep. (1966) 16

HERA Tuer s

» 4

5

or

.

‘

“aA;

‘

e

c+

Bs,

Heme Aisi

ty fe ’

ts x

> te 4 "4 ray | :

Sey ‘* Nie

ee ee rere | eee

No.

Inprava & Micuican Execrric Company,

Petitioner,

v.

Anperson Power anp Licut oF THE Crty oF ANDERSON,

Inpiana; RicomMonp Power anp LicHT oF THE CiTY OF

Ricumonp, Inpiana; and Fepera, Power Commission,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Petitioner, Indiana & Michigan Electric Company, re-

spectfully prays that a writ of certiorari issue to review

the judgment and opinion of the United States Court of

Appeals for the District of Columbia Circuit, entered in

this proceeding on May 25, 1973. A Petition for Rehearing,

filed by petitioner, was denied on June 21, 1973.

Opinion and Order Below

The opinion of the Court of Appeals, not yet reported,

and the order denying rehearing are reproduced in the

Appendix,' at la and 26a, respectively.

1 Citations with the suffix “a” are to the Appendix hereto.

Snail ain

2

Jurisdiction

The opinion and judgment (24a) of the Court of Appeals

were entered on May 25, 1973. A timely petition for re-

hearing, filed by petitioner on June 8, 1973, was denied on

June 21, 1973. This petition for certiorari was filed within

90 days of that date. This Court’s jurisdiction is invoked

pursuant to 28 U.S.C. §1254(1).

Questions Presented

1. This Court’s decisions in United Gas Pipe Line Co. v.

Mobile Gas Service Corp., 350 U.S. 332 (1956), and FPC v.

Sterra Pacific Power Co., 350 U.S. 348 (1956), amplified in

United Gas Pipe Line Co. v. Memphis Light, Gas & Water

Division, 358 U.S. 103 (1958), established the conditions

under which a public utility may file with the Federal

Power Commission higher rates under existing tariff-and-

service agreements. Does not the decision below conflict so

sharply with those decisions and introduce such confusion

into the well settled procedure for the establishment and

changing of rates, subject to Commission supervision, as

to require the interposition of this Court?

2. When the court below determined to reverse an order

of the Federal Power Commission on the basis of facts

and theories which had not been litigated before the Com-

mission, was not the court required to remand the proceed-

ings to the Commission, pursuant to §313(b) of the Federal

Power Act, for findings of fact by the Commission?

Statutes Involved

This petition involves issues which are required to be

resolved under Sections 205, 206, and 313 of the Federal

Power Act, pertinent portions of which are set out in the

Appendix hereto (50a).

aeRO ty + I a OT

let a Se +See Pet eS LES SI LAL Se Se Sa a ssc

3

Statement of the Case

The petitions for review below were filed pursuant to

§313(b) of the Federal Power Act (the Act). No eviden-

tiary proceedings were had before the Federal Power Com-

mission (Commission) ; the entire record before the Com-

mission consisted of pleadings, motions and responses

thereto.

Indiana & Michigan Electric Company (I&M), a sub-

sidiary of American -Electric Power Company, Inc., is an

electric utility engaged in the generation, transmission

and distribution of electric energy for sale both at whole-

sale for resale and at retail. Richmond and Anderson?

each operate municipal electric utility departments which,

pursuant to service agreement, purchase electric energy

at wholesale for distribution to the community. I&M sup-

plies all of Anderson’s requirements and part of Rich-

mond’s requirements. I&M’s service agreements with

Richmond and Anderson do not specify a ‘‘fixed rate’’ at

which electric energy is sold. Rather, the price term in

each agreement refers to a separate ‘‘tariff’’, a ““eommon

practice’’ (8a), and provides for changes in that tariff.

A. The I&M and Anderson Service Agreement.

On April 17, 1957, I&M and Anderson made the service

agreement now in force.® The price term provides as

follows:

‘*The Customer [Anderson] hereby agrees to pay

the Company [I&M] monthly for electric energy

* The municipal electric utility department operated by Anderson,

Indiana is known as “Anderson Power & Light of the City of Ander-

son, Indiana” and that operated by Richmond, Indiana is known as

“Richmond Power & Light of the City of Richmond, Indiana.”

3 The service agreement has been supplemented in respects not rele-

vant here.

POPE TEM TINE eae Fe

4

delivered hereunder at the rate and under the pro-

visions of the regularly filed and published tariff

selected by the Customer and known as Tariff I.P.

(a copy of which is attached hereto) [*], as long

as said tariff is in effect; and in the event said tariff

is replaced by a new tariff incorporating higher or

lower rates than those stipulated herein, the Com-

pany will continue to furnish service as stipulated

in the contract and the Customer will pay for such

service at the higher or lower rates from and after

the date when such rates are made effective. Should

the new tariff incorporate higher rates, the Customer

has the option of cancelling the contract prior to its

expiration date provided notice of cancellation is

furnished the Company within 15 days after the

first billing date of the higher rates.’’

When this service agreement was made, the Commission

had not yet established its jurisdiction over the transaction

(18a); thus the agreement was not filed with the Commis-

sion. It was, as hereafter explained, later so filed.

B. The Assertion of Commission Jurisdiction.

In 1963 the Commission initiated a proceeding under

§201 of the Act to determine whether I&M’s sales of elec-

tricity to its wholesale customers, including Anderson and

Richmond, were subject to Commission jurisdiction. Indi-

ana & Michigan Electric Co., 33 FPC 739, 740 (1965).

I&M vigorously contested federal jurisdiction. The Com-

missioner examiner concluded that each transaction was a

‘‘sale at wholesale . . . in interstate commerce’’ within

§201 and thus subject to federal jurisdiction. I/d., 795.

The Commission affirmed and directed I&M to file as rate

4 As recited in the service agreement, a document labeled “Tariff

I.P.”, setting forth, among other things, the rates to be paid, is

attached to the agreement.

nae a ps Ty cle

schedules its agreements with its wholesale customers, in-

cluding Anderson and Richmond. The Commission added:

‘*Such rate schedules shall remain effective until and

unless superseded by a change filed pursuant to

Section 205(d) of the Act and Section 35.3 of the

Regulations thereunder, or changed pursuant to

order of this Commission.’’ Id., 751

The Commission refused I&M’s motion for a stay of the

filing requirement pending appeal, id., 33 FPC 1252, 1253.

I&M filed with the Commission its wholesale service agree-

ments, reserving its position that the Commission lacked

jurisdiction. On appeal, the Commission was affirmed.

Indiana & Michigan Electric Co. v. FPC, 365 F.2d 180,

183 (CAT), cert. denied, 385 U.S. 972 (1966).

C. The I&M and Richmond Service Agreement.

While judicial review of the Commission’s jurisdictional

decision was being initiated, I&M and Richmond on Novem-

ber 15, 1965 made the service agreement now in force under

which I&M supplies a part of Richmond’s energy require-

ments. The price term of that agreement provides as

follows:

‘‘The Customer [Richmond] hereby agrees to pay

the Company [I&M] monthly for electric energy

delivered hereunder at the rate and under the pro-

visions of Company’s Tariff I.P. as regularly filed

with the Public Service Commission of Indiana, said

tariff being selected by the Customer, as long as

said tariff is in effect; and in the event said tariff

is replaced by a new or revised tariff incorporating

higher or lower rates than those stipulated in the

aforementioned tariff, the Company will continue to

furnish service as stipulated in the Agreement and

the Customer will pay for such service at the higher

or lower rates from and after the date when such

6

rates are made effective. Should the new or revised

tariff incorporate higher rates, the Customer shall

have the option of cancelling the agreement prior to

its expiration date provided notice of cancellation

is furnished the Company within 15 days after the

first billing date at the higher rates.’’

This service agreement was filed with the Commission,

under the reservation previously mentioned.

D. The June 13, 1972 Rate Increase Filing.

On June 13, 1972, I&M filed with the Commission pur-

suant to §205(d) of the Act supplements to its wholesale

rate schedules, with supporting documentation. These sup-

plements increased the rates to wholesale customers.

Richmond and Anderson moved to reject the new rates®

and later supplemented their moving papers. Before

I&M’s responses to the supplements were due, the Com-

mission on August 11, 1972, denied the motions, ordered

the rates -filed, suspended them for five months, and

ordered a hearing to determine their lawfulness under

regulatory standards. Petitions for rehearing filed by

Anderson and Richmond were denied by the Commission

on October 6, 1972, the Commission stating that

‘For service subject to this Commission’s jurisdic-

tion, the Tariff I.P. on file with the Indiana Public

Service Commission is not applicable. ‘We find that

the contracts do not preclude the filing of Rate Sched-

ule WS to supersede Tariff I.P. on file with this

Commission.” (40a).

* Motions to reject on contractual grounds were also made by

certain rural electric cooperative customers. When these were denied,

separate review proceedings were begun, Indiana Statewide Rural

Elec. Cooperative, Inc. v. FPC, petition for review filed, No. 71-2148,

CADC, Dec. 1, 1972, and are currently pending.

ee

E. The Judgment of the Court of Appeals.

On May 25, 1973, the Court of Appeals for the District

of Columbia Circuit, in an opinion by Judge Wright,

reversed the Commission’s orders of August 11,

1972 (28a) and October 6, 1972 (39a) on the ground

that I&M’s rate increases for Anderson and Richmond were

barred under the rule of United Gas Pipe Line Co. v.

Mobile Gas Service Corp., 350 U.S. 332 (1956), and FPC

v. Sierra Pacific Power Co., 350 U.S. 348 (1956). The

court noted that the price term in both agreements followed

“common practice” by referring to “a rate tariff of gen-

eral applicability” (8a). It construed such agreements to

bar rate changes, however. It reasoned that since the

agreements called for payment pursuant to Tariff IP.

“as long as said tariff is in effect”, and since Tariff LP.

was still “in effect” for certain retail customers, I&M

was barred from filing any rate increase except one which

came within the current limits of Tariff LP. Thus, as the

court read the service agreements, they guarantee Rich-

mond and Anderson ‘‘parity’’ in rates with any person

buying power under Tariff I.P.

Moreover, since Tariff IP. is the rate applied to some

state-regulated sales to retail industrial customers,® the

court concluded that no change in Richmond’s and Ander-

son’s rates could be made until the state regulatory agency,

the Public Service Commission of Indiana ( PSCI), acted

to raise or eliminate Tariff LP. In other words, PSCI

was empowered, in the court’s view, to establish a ceiling

on the rates which I&M could charge to Anderson and

Richmond, despite the fact that I&M’s service agreements

with them are subject only to federal jurisdiction.

A ‘‘competitive squeeze’? theory, pressed mainly by

Richmond, appears to have influenced the court below to

adopt its ‘‘parity’’ construction. The court found as a fact

®T&M in fact serves only seven industrial customers under Tariff

IP.

court found that ‘‘parity’’ would relieve this ‘competitive

Squeeze” and therefore read “parity” into the agreements,

xplicitly phrasing its conclusion in terms of the parties’

‘*intent’’:

“. .. Anderson, like Richmond, intended to key its

rates to those charged by I&M to its own industrial

customers in order to protect itself against the same

competitive squeeze that concerned Richmond.’’

(22a)

“‘The parties to both the Richmond and the Ander-

son contracts intended that the municipal buyers

receive electricity under the same tariff that gov-

erned I&M’s industrial retail customers.’’ (23a)

The court ordered the Commission to reject I&M’s filing

and to initiate Proceedings for the refund of the incremen-

tal amounts collected.

Reasons for Granting the Writ

The argument that follows demonstrates: ( 1) that the

ruling of the court below directly conflicts with decisions of

this Court; and (2) that the disposition below departs

from the accepted and usual course of judicial proceedings,

because it is predicated on findings of fact for which there

is absolutely no support in the record, findings made solely

by the court below on appeal without the benefit of findings

by the Commission, as required by law.

POINT .I

The decision below conflicts with the holdings of this

Court in United Gas Pipe Line Co. v. Mobile Gas Service

Corp., 350 U.S. 332 (1956), FPC v. Sierra Pacific Power

Co., 350 U.S. 348 (1956), and United Gas Pipe Line Co.

v. Memphis Light, Gas & Water Division, 358 U.S. 103

(1958)

This Court, in United Gas Pipe Line Co. v. Mobile Gas

Service Corp., supra, and in FPC v. Sierra Pacific Power

Co., supra (hereinafter jointly referred to as “Sierra-

Mobile”), ruled that a utility subject to the provisions of

the Natural Gas Act or the Federal Power Act has the right

“to establish ex parte, and change at will, the rates offered

to prospective customers; or to fix by contract, and change

only by mutual agreement, the rate agreed upon with a

particular customer.” Mobile, supra, 343. Thus, under

Sterra-Mobile, only if a utility has made a “fixed rate” con-

tract to provide service and has bargained away its right

to change such rate, is the utility barred from altering the

rate by unilaterally filing a rate increase under §205.

Despite these clear teachings, this Court, two terms later,

was required to reexplain the Sierra-Mobile rule, in revers-

ing the court below. United Gas Pipe Line Co. v. Memphis

Light, Gas & Water Division, 358 U.S. 108 (1958) (Mem-

phis). Memphis involved several similar agreements which,

as this Court noted, were typical “tariff-and-service” agree.

ments under which

‘‘the agreement between buyer and seller does not

itself contain a price term, but rather refers to rate

schedules of general applicability on file with the

Commission.’’ Memphis, supra, 115 n.8.

10

The service agreements in Memphis contemplated changes

in rates during their term:

***All gas delivered hereunder shall be paid for by

Buyer under Seller’s Rate Schedule [the appropriate

rate schedule designation is inserted here], or any

effective superseding rate schedules on file with the

Federal Power Commission . . -’,” Memphis, supra,

105 (italics original).

The Commission accordingly had accepted new rate filings,

but, on appeal, the Court of Appeals for the District of

Columbia Circuit reversed and ordered them rejected.

Memphis Light, Gas & Water Division v. FPC, 250 F.2d 402

(CADC 1957).

This Court reversed, holding that the court below had

“misconceived the import of our decision in Mobile,”

Memphis, supra, 109. The agreements in Memphis were

“‘vitally different’’, id., 110, from those in Mobile, this

Court explained. Since they made reference to an initial

rate schedule but also called for the application of “any

effective superseding rate,” they put no restriction on the

utility’s right

“‘to change its rates from time to time, subject, of

course, to the procedures and limitations of the

Natural Gas Act.’’ Id.

Thus Mobile imposed no bar:

‘In such circumstances there is nothing in Mobile

which suggests that United was not entitled to file

its new schedules under §4(d), or that the Commis.

sion had no jurisdiction to consider them under

§4(e).”? Id.

In further distinguishing Memphis from Mobile, this

Court also stated:

-ll

‘‘'U)ntil this case no one connected with the indus-

try seems to have thought that agreements of this

sort precluded natural gas companies from chang-

ing their rates in accordance with and subject to

§4(d) and (e) procedures; and .. . the respondents’

present contrary contentions had their sole genesis

in a mistaken view of our decision in the Mobile

case.’? Memphis, supra, 115 (footnote omitted).

Here neither Anderson nor Richmond has ever contended

that they had ‘‘fixed rate’’ contracts like those in Sierra-

Mobile, and the Commission and the court below did not

find otherwise (35a, 14a). Just as in Memphis, these serv-

ice agreements specifically provide for changes in rates.’

The language of each agreement here could hardly state

more explicitly the parties’ understanding that service

would commence under the rates in the tariff referred to,

but that the tariff might be ‘‘replaced by a new tariff

incorporating higher or lower rates,’? whereupon the

initial tariff would no longer be ‘‘in effect’’. Service

would then continue under the new rates, subject to the

customer’s option to cancel. No conditions at all are

placed on the recognized possibility that the initial tariff

might be ‘‘replaced’’ by a ‘‘new tariff’’. Yet the court

below held that I&M’s proposed new rates were barred by

contract. In Memphis, this Court held that nearly identi-

cal words ‘‘left [the utility] free to change its rates from

time to time,’’ Memphis, supra, 110, subject to Commis-

sion review.

The ruling below develops a theory which conflicts with

the express holding of this Court in Memphis by erecting

a Sierra-Mobile barrier to rate changes under any ‘‘tariff-

and-service’’ agreement referring to ‘‘a rate schedule of

7 The price terms of the Anderson and Richmond service agree-

ments are set forth, respectively, at p. 3 and p. 5 supra.

12

general applicability’, Since the court below observed

that such agreements are “common practice” (8a), and

since this Court in Memphis noted that such agreements

are ‘‘typical’’ and even required under Natural Gas Act

regulations, Memphis, supra, 115 & n.8, the impact of the

ruling below is broad indeed. It will affect I&M and other

utilities subject to federal jurisdiction, as is already be-

coming apparent. See, Kentucky Utilities Co., Docket No.

E-8172 (F.P.C., Aug. 6, 1973) (slip op. at 3), and (F.P.C.,

Aug. 22, 1973) (slip op. at 2-3); Gulf States Utilities Co.,

Docket No. E-8121 (F.P.C., Aug. 7, 1973) (slip op. at 5);

Southern California Edison Co., Docket No. E-8176

(F.P.C., Aug. 29, 1973) (slip op. at 1).

The ‘‘parity”’ theory, confected by the court below in

an attempt to avoid the force of Memphis, holds that the

contractual references to ‘Tariff I.P.’’ bound I&M to

maintain service throughout the term of the agreement at

the same rate at which I&M sells power to its industria]

retail customers, since Tariff I.P. supposedly applied to

such customers.® Thus any rate higher than the current

industrial rate, under the parity theory, is unlawful and

must be rejected. This analysis of I&M’s service agree-

ments is unsupported by any facts in the record, as will

hereafter appear (see, Point II, infra).

But most important here is the universal applicability

of the parity theory, the ‘plausible explanation’? (12a)

which the court below accepted. Richmond and Anderson

showed merely that they had typical tariff-and-service

agreements; argued that the initial tariff was applicable

to some other customers; and urged that they had ‘an

interest’? in paying no more than those other customers

who were served under the same tariff. Their “competitive

Squeeze’’ argument, made without any factual support, is

SI&M serves approximately 370 industrial retail customers in

Indiana, of which only seven are served under Tariff I.P. Other tariffs

available to industrial customers include: C.P., O.P., D.P., D.P.-2,

D.P.-3, and E.C.P., all of which are currently on file with PSCT.

‘13

only a variation on the universal theme that a customer

always has ‘‘an interest’’ in avoiding a rate increase.

The reasoning adopted by the court below can therefore

be urged with equal force by any party to a typical tariff-

and-service agreement to prevent the Commission from

accepting for filing rate changes which this Court ruled

in Memphis are permissible.

This Court rejected similar arguments in Memphis.

There, the customers argued that their agreement to pur-

chase gas at a designated rate ‘‘or any effective super-

seding rate’’ permitted a new rate filing only if the Com-

mission first held a hearing under §5(a) of the Natural

Gas Act, determined that a new rate should apply, and

thus made it ‘‘effective’’ to ‘‘supersede’’ the old rate.

Brief of Memphis Light, Gas & Water Division, e¢ al.,

49.53. This Court flatly rejected that claim, Memphis,

supra, 115-16 n.10, holding that the utility had the right

acting alone to make a new rate ‘‘effective’’, so that it

‘*superseded”’ the initial rate.

In square conflict with Memphis, the decision below

holds that rates cannot be raised for Anderson and Rich-

mond unless they are first similarly raised for various

third-party industrial customers. Moreover, this new bar-

rier requires I&M first to obtain approval from PSCI for

rate increases which are subject solely to Commission

jurisdiction. Such additional conditions on the filing of

a rate increase are precisely what was rejected in Memphis

by this Court.

Indeed the effect of the ruling below is to confer juris-

diction upon a state regulatory agency to determine rates

for wholesale sales which are not subject to its jurisdic-

tion. But clearly the states have no power to regulate

rates in such transactions. Public Utilities Commission v.

Attleboro Steam & Electric Co., 273 U.S. 83 (1927); Cf.,

Natural Gas Pipeline Co. v. Panoma Corp., 349 U.S. 44

14

(1955) ; Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672,

681 (1954). Nor may private agreements be used to vest

a state with jurisdiction over sales subject to federal regu-

lation. California v. Lo-Vaca Gathering Co., 379 U.S. 366

(1965); FPC y. Amerada Petroleum Corp., 379 U.S. 687

(1965).

Among its more invidious effects, the opinion below

upsets the very uniformity of federal regulation which

Anderson and Richmond sought and won in the Commis-

sion’s 1965 jurisdictional decision.?

The ‘‘parity”’ argument adopted by the court below to

qualify rights established by Memphis has been rejected by

the Commission as contrary to industry practice. In

Atlantic Seaboard Corp., 28 F.P.C. 860 (1962), the utility

filed new gas tariffs applying for the first time different

rates for partial requirements purchasers from those for

full requirements purchasers. All of the agreements, as in

Memphis, called for service at a designated tariff ‘‘or any

effective superseding rate schedule.” Id., 862. The hear-

9 Anderson and Richmond, as members of the Indiana Municipal

Electric Association (“IMEA”), Participated in the 1964 proceedings

which established Commission jurisdiction. Indiana & M ich. Elec. Co.,

supra, 33 F.P.C. at 748 (1965). IMEA adopted the Commission

staff’s arguments in favor of federal jurisdiction and stressed in

particular the need for national uniformity in rate regulation:

* * * * *

“Proper rates for wholesale sales within American Electric’s

system area must be established by the Federal Power Com-

mission. State regulation will necessarily mean different rates

to the same class of customer, with accompanying economic

disadvantages, even where costs are truly system costs, which

a be allocated as such.” Brief of IMEA, 2 (August 24,

1964)

- - iin ictal

ee ee a a ee

15

ing examiner rejected the filing on the ground that the ini-

tial uniform rate had not been effectively ‘‘superseded’’,

id., 880-81, since it was still in effect as to some customers.

The Commission reversed :

‘It is apparently the form of the filing as separate

rate schedules which has given rise to the Mobile-

Memphis question. While it is undoubtedly true that

the [partial requirements] customers of Columbia

will have to enter into new service agreements under

the new rate schedules, the schedules themselves are

covered by the phrase ‘or any effective superseding

rate schedule,’ and there was no need to obtain the

consent of the customers to file these tariff changes.’’

28 F.P.C. at 862.1

Thus Memphis imposes no ‘‘parity’’ condition on the

right to make a new rate ‘‘effective’’ for a particular cus-

tomer, whether or not the initial rate has been ‘‘super-

seded’’ as to other customers. Rather it flatly holds that the

seller is ‘‘left... free to change its rates,’’ Memphis, supra,

110. The Commission has interpreted the Act, in the light

Memphis, to permit rate filings such as I&M made, under

similar tariff-and-service agreements. On familiar princi-

ples, the agency’s interpretation of the statute under which

it operates should be given great weight. Udall v. Tallman,

380 U.S. 1, 16 (1965) ; accord: Power Reactor Development

Co. v. Electricians’ Union, 367 U.S. 396, 408 (1961) ; Unem-

ployment Compensation Commission v. Aragon, 329 U.S.

143, 153 (1946) ; Gray v. Powell, 314 U.S. 402 (1941)."!

‘0 This ruling was affirmed on rehearing, 28 F.P.C. 882, and was

not challenged in subsequent judicial review, Lynchburg Gas Co. v.

FPC, 336 F.2d 942 (CADC 1964). Significantly, after the 1962

ruling by the Commission in Atlantic Seaboard, rejecting the parity

theory, the Anderson contract was regularly extended and the

Richmond contract was executed.

11 Nor is the Commission hostile to “fixed rate” contracts or to the

rule of Sierra-Mobile as the opinion below implies (10a n.8, 15a);

other utilities whose agreements, like those here, are typi

of the tariff-and-service agreements found throughout |

public utility industry. The error affects suppliers a

customers alike. It introduces widespread confusion i

industry, restricts the contractual rights of utilities a

the statutory authority of the Commission in a way whi

bears no relation to the purpose of the Act, and thus ita

cizes the need for review by this Court.

rather it takes extreme care to honor which have been esta

— Thus, in St Michaels Util. Comm’n v. Easte:

€ :

Purported to apply to all wholesale customers uncor

” Following the decision of this Court in FPC y. Southern Cali

Edison Co., 376 U.S. 205 (1964), and subsequent similar decisi

hundreds of wholesale electric i

filed with the Commis

sion. As chronicled in the Commission's Antal 5

‘iti

contracts, 45 FPC Ann. Rep. 86 (1965) ; and ap-

F066 4a ely, 350 additional wholesale contract filings were made

1966, 46 FPC Ann. Rep. 90 (1966). 7

~ —— =~ Oo eG aan

17

2 oF

POINT O

The decision below represents a clear departure from the

accepted and usual course of administrative review and

calls for the exercise of this Court’s power of supervision

The Federal Power Act provides in §313(b) :

“‘The finding of the Commission as to the facts, if

supported by substantial evidence, shall be conclu-

sive. If any party shall apply to the court for leave

to adduce additional evidence, and shall show to the

satisfaction of the court that such additional evidence

is material and that there were reasonable grounds

for failure to adduce such evidence in the proceed-

ings before the Commission, the court may order

such additional evidence to be taken before the Com-

mission and to be adduced upon the hearing in such

manner and upon such terms and conditions as to the

court may seem proper.’’

It appeared, during oral argument below, that the ‘*parity’’

argument, totally unexplored by any of the parties in the

proceedings before the Commission, bulked large in the

view of the court below and would be a material fact in the

court’s resolution of the issues posed to it.* Counsel for

I&M accordingly requested the court to remand these pro-

ceedings to the Commission for the taking of evidence on

the issue. See, Scenic Hudson Preservation Conference v.

FPC, 354 F.2d 608, 611 n.1 (CA2 1965), cert. denied, 384

U.S. 941 (1966).

There is nothing on the face of I&M’s service agreements

with Anderson or Richmond which suggests a covenant by

it to maintain its wholesale rates at ‘‘parity’’ with its rates

*3 Anderson, on brief to the court below, had argued, without con-

ceding the fact (Br. at 38 et seg.), that if doubt existed as to the

application of the Sierra-Mobile rule, “the case should be remanded

to the Commission for fact-finding . . .”

1. I&M sells power to “‘many”’ retail industrial

customers at Tariff LP. rates (8a).

2. If Anderson and Richmond can buy power at

Tariff LP. they will be able to offer power to retail

i ial customers at prices competitive with I&M

90 (CADC 1957), the court held that judicial review could

not begin until

“the basic facts, about which we cannot speculate,

have been found by the Commission.

“‘We think it essential that the record show the

Commission’s judgment—and its reasons for reach-

ing it—as to the exact legally effective terms and

conditions of the contract, if any, between United

where conclusions must be reached, from numerous

orders and proceedings and perhaps from the con-

duct of the parties—conclusions which should be

made in the first instance by the Commission.”’ Id.,

94.

Accord : City of Lancaster v. FPC, 252 F.2d 631, 633 (CADC

1958) ; American Broadcasting Co. v. FCC, 179 F.2d 487,

444 (CADC 1949).

Here the court of appeals adopted and acted on an

‘‘explanation’’ of the Anderson and Richmond agreements

which it characterized only as ‘‘plausible’’ (12a), but which

in fact is wholly unsupported by the record. Similar cases

show that whether any ‘‘competitive squeeze’’ exists, and

whether ‘‘parity’’ will cure it, cannot be assumed but

depends on a full analysis of numerous factors which have

not been touched on here. Shrewsbury Municipal Light

Department v. New England Power Co., 32 F.P.C. 373, 377

(1964); Duke Power Co., Docket No. E-7557 (F.P.C.,

Feb. 2, 1972) (slip op. at 24-27), aff’d and modified on other

grounds (F.P.C., Dee. 18, 1972) (Opinion No. 641). More-

over, while Richmond on brief to the court below mentioned

its “104 industrial customers”, Richmond Reply Br. at 24,

and its hopes of attracting ‘‘new industrial loads’’, id., it

totally refrained from stating whether any such customers

are or might be served under rates similar to Tariff IP.

If not, Richmond’s argument for rate parity would, of

course, collapse. But on this record, such facts are totally

unknown, and the opinion below lacks any underpinning.

One other ‘‘fact’? may have swayed the court below,

although it concerns only Richmond and would not explain

the Anderson holding. The court found that when the

Richmond agreement was made the parties had ‘‘full

knowledge” that the Commission had jurisdiction over the

sale’* even though the issue was still in litigation. Thus,

In so doing, the court erroneously cited (1la) a Commission

finding which did not involve the Richmond contract (compare, 34a),

and then rejected the finding as “factually incorrect” (11a).

the court read the term calling for payment at ‘*Company’s

Tariff LP. as regularly filed with [PSCI]” as evidence of

an intent to keep rates in “parity” with the state-regulated

Tariff LP. (12a) There is no evidence of the parties’ knowl-

edge or intent in this case. Moreover, the reference to a

tariff which was “‘regularly filed’’ with the state commis-

sion needs no such complex explanation. The language

merely recites compliance with Indiana law, which only

permits public utilities to charge rates which are currently

on file, see, Inp. Ann. Svat. §§$54-313, 54-319. Thus it sim-

ply shows that the agreement is lawful; if the rate had

not been so filed, performance of the agreement might be

enjoinable at the instance of a taxpayer. Rice v. City of

Indianapolis, 183 Ind. 203, 108 N.E. 584 (1915).

I&M’s showing, both in its original presentation and on

motion for reargument, that there is a total absence of

factual basis for the “‘parity’’ theory clearly established

“‘reasonable grounds’’, §313(b), requiring a remand to

the Commission for fact-findings. Prior to the Commis-

sion’s August 11, 1972 order, no party had claimed that

these typical tariff-and-service agreements were intended

to create ‘‘parity’’ between wholesale and industrial rates.

Richmond, in its petition to the Commission for rehearing,

made the wholly new contention that its agreement ‘‘guar-

anteed that for a period of at least ten years it would pay

no higher rates than I&M’s retail industrial customers.”'

It offered no proof. Under Commission rules I&M was

precluded from responding to Richmond’s new claim, 18

C.F.R. §1.34(d) (1973), and the Commission’s order of

October 6, 1972, denying Richmond’s petition for rehear-

ing, made argument on the point unnecessary. Fair

15 Anderson never made a “parity” argument until it filed its reply

brief with the court below, and then its argument was at best sub-

liminal, Anderson Reply Br. at 11. Certainly its late claim was not

the equivalent of a Commission finding.

21 .

practice (see, Administrative Procedure Act, 5 U-S.C.

§$554(b)(3)) forbids the Commission to dispose of a case

on a new theory on which a party has had no opportunity

to present evidence, American Louisiana Pipe Line Co. v.

FPC, 344 F.2d 525 (CADC 1965); Hill v. FPC, 335 F.2d

355 (CA5 1964); Bel Oil Corp. v. FPC, 255 F.2d 548 (CA5

1958) ; a fortiort a reviewing court cannot do so. But the

error here is even more striking: it is based both on a new

theory and on purported facts which are not even in the.

record. Nothing justified the court in dignifying Rich-

mond’s tardy claim to “parity” as if it were a finding of fact

by the Commission. If the court saw any substance in the

“parity” theory, it had no choice but to remand for find-

ings on the points it thought pertinent:

‘‘When the court’s view of law or policy differs

from that of the agency, the agency’s findings often

fail to answer the questions the court deems crucial,

and the only proper disposition the court can make

of the case is a remand to the agency so that the

needed answers can be supplied.” 2 K. C. Davis,

ApMINIsTRATIVE Law Treatise 436 (1958).

This Court recently stressed the importance of this prin-

ciple of crderly administrative review in its summary re-

versal in FPC v. United Gas Pipe Line Co., 393 US. 71

(1968). The decision below completely disregards not only

the principle but this Court’s recent application of it in a

case involving the same Commission. Indeed, the court

below adopted another novel theory and made original fact-

findings in an effort to support its holding. The Commis-

sion thought the I&M-Anderson service agreement per-

mitted new rate filings in part because, when it was made

in 1957, the parties contemplated rate changes under state

regulation (34a). Without disputing that fact, the court

said such approach was “beside the point” (20a). Rather,

it held, the issue was what procedural requirements the

- parties intended would apply to rate changes. It believed

that Indiana law permitted rate changes only after inves-

tigation, hearing, and final approval by PSCI (22a). It

found as a fact that the parties “never contemplated” (20a)

that I&M could change its rates “simply by filing a new

tariff” (20a; 22a), and it held that the current filing must

be rejected.

The court’s new legal theory was not urged by any party

at any stage of the case, and of course there was no evi-

dence and no agency fact-findings as to the rate changing

procedures that the parties ‘‘contemplated.’’ Further-

more, the court’s findings, made without the aid of coun-

sel, are based on a complete misreading of Indiana law.

Rather than prohibiting rate changes without a full hear-

ing and final approval, Indiana law specifically authorizes

PSCI to make temporary rate changes simply by find-

ing it ‘‘necessary’’ and declaring an ‘‘emergency”’ to exist.

Inv. Ann. Stat. §54-712; see also, Inp. Ann. Strat. §54-423.

Thus it can direct energy buyers to pay an interim sur-

charge pending hearing and decision on rates. Boone

County Rural Electric Membership Cooperative v. Public

Service Commission, 239 Ind. 525, 529-30, 159 N.E.2d 121,

123 (1959) ; see also, Twin City Realty Corp. v. Clay Utili-

ties, Inc., 146 Ind. App. 629, 642-43, 257 N.E.2d 686, 694

(1970).

Moreover, the ruling that PSCI rate changing proce-

dures must be followed now, even though the service agree-

ment is admittedly subject to Commission jurisdiction,

engrafts the procedural rules of one agency onto an en-

tirely different agency, and it imports into future Commis-

sion proceedings the regulatory law of fifty states, com-

pletely sacrificing federal uniformity. The decision below,

for instance, has extended the five-month suspension period

specified in §205(e) of the Act to include whatever time

it takes the Commission to hold a hearing and finally

approve the new rates. But the Commission has often

dealt with agreements between utilities and customers who

thought they were subject to state regulation. And in such

cases it has consistently been able to preserve the expecta-

tions of both parties without abandoning the Congression-

ally mandated plan for the application of federal jurisdic-

tion. See, e.g., Carolina Power & Light Co., 47 F.P.C. 1,

91-25 (1972); Detroit Edison Co., 47 F.P.C. 130, 131

(1972) ; Southern California Edison Co., 45 F.P.C. 1021

(1971), appeal pending; Public Service Co. of Indiana,

Docket No. E-7645 (F-.P.C., Feb. 25, 1972), rehearing denied

(F.P.C., May 25, 1972); ef., Central Telephone & Utilities

Corp., 45 F.P.C. 971, 973 (1971), modified on other grounds,

47 F.P.C. 60 (1972).

The court below not only acted without the help of Com-

mission findings but it also disregarded Commission expe-

rience in applying the language of utility agreements, a

necessary part of its administrative duties. The reversal

of the Commission here represents a clear departure from

the accepted and regular course of judicial procedure.

This excursion by the court below into new fields without

benefit of Commission findings, and contrary to established

precedent, requires that this case be reviewed here.

Conclusion

The decision of the court below flies in the face of Sierra-

Mobile and Memphis. The right of utilities to change their

rate schedules, when that right is reserved, is now narrowly

restricted, contrary to the result contemplated by this

Court. Review by this Court is necessary to restore the

authority of its decisions in this field.

The court below also insisted upon reaching final decision

without findings of fact on the subjects involved, contrary

to Congressional mandate. That court likewise disregarded

a consistent series of interpretations by the Commission.

That court took the bit in its teeth to the point where ac-

cepted and usual standards of administrative review were

24

so completely disregarded that review here is essential to

the restoration of order in the process of administrative

review.

We take the liberty of suggesting that if this Court should

consider the errors below so clear as not to require the

Court to place this case on its calendar for oral argument,

this matter could be effectively handled by summary re-

versal, as was done in F’.P.C. v. United Gas Pipe Line Co.,

supra, with appropriate directions to the court below, in-

cluding a remand to the Commission for proper findings of

fact.

Respectfully submitted,

Wurirney Nort Seymour

Counsel for Petitioner

One Battery Park Plaza

New York, New York 10004

Of Counsel:

Ricuarp M. Dicxe

Peter J. SCHLESINGER

Linpsay A. Lovesoy, Jr.

Simpson THacuer & BarTLett

September 19, 1973