St. Michaels Utilities Com'n v. FEDERAL POWER COM'N

• Decision Date: 01 May 1967
• Docket Number: No. 10829,10833.,10829
• Citation: 377 F.2d 912
• Parties: ST. MICHAELS UTILITIES COMMISSION and Commissioners of St. Michaels, Maryland, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. Delmarva Power & Light Company, Delmarva Power & Light Company of Maryland, and Delmarva Power & Light Company of Virginia, and Accomac-Northampton Electric Cooperative, Choptank Electric Cooperative, Inc., and Delaware Electric Cooperative, Inc., Intervenors. STOCKTON LIGHT & POWER COMPANY OF MARYLAND, and Stockton Light & Power Company of Virginia, Petitioners, v. FEDERAL POWER COMMISSION, Respondent. Delmarva Power & Light Company, Delmarva Power & Light Company of Maryland, and Delmarva Power & Light Company of Virginia, and Accomac-Northampton Electric Cooperative, Choptank Electric Cooperative, Inc., and Delaware Electric Cooperative, Inc., Intervenors.
• Court: U.S. Court of Appeals — Fourth Circuit

377 F.2d 912 (1967)

ST. MICHAELS UTILITIES COMMISSION and Commissioners of St. Michaels, Maryland, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

Delmarva Power & Light Company, Delmarva Power & Light Company of Maryland, and Delmarva Power & Light Company of Virginia, and Accomac-Northampton Electric Cooperative, Choptank Electric Cooperative, Inc., and Delaware Electric Cooperative, Inc., Intervenors.

STOCKTON LIGHT & POWER COMPANY OF MARYLAND, and Stockton Light & Power Company of Virginia, Petitioners, v. FEDERAL POWER COMMISSION, Respondent.

Delmarva Power & Light Company, Delmarva Power & Light Company of Maryland, and Delmarva Power & Light Company of Virginia, and Accomac-Northampton Electric Cooperative, Choptank Electric Cooperative, Inc., and Delaware Electric Cooperative, Inc., Intervenors.

Nos. 10829, 10833.

United States Court of Appeals Fourth Circuit.

Argued March 10, 1967.

Decided May 1, 1967.

Spencer W. Reeder, St. Michaels, Md., for petitioner in No. 10,829.

George B. Mickum, III, Washington, D. C. (W. Edgar Porter, Salisbury, Md., Henry C. Ikenberry, and Richard E. Rubenstein, Washington, D. C., on brief), for petitioners in No. 10,833.

William H. Arkin, Atty., Federal Power Commission (Richard A. Solomon, Gen. Counsel, and Howard E. Wahrenbrock, Sol., Federal Power Commission, on brief), for respondent.

John W. T. Webb, Salisbury, Md. (Webb, Anderson & Burnett, Salisbury, Md., Robert E. May, Francis H. Caskin, and May, Shannon & Morley, Washington, D. C., on brief), for intervenors utility companies.

William C. Wise, Washington, D. C. (Arthur Dean Betts, Georgetown, Del., Wilbert Merriken, Denton, Md., and Baxley T. Tankard, Eastville, Va., on brief), for intervenors cooperatives.

Before BELL and WINTER, Circuit Judges, and HARVEY, District Judge.

HARRISON L. WINTER, Circuit Judge:

Delmarva Power & Light Company, and its subsidiaries,¹ supply wholesale and retail electric service in Delaware, nine counties of the Eastern Shore of Maryland, and two counties of the Eastern Shore of Virginia. By the final order in the consolidated rate and complaint proceedings which we are asked to review,² the Commission found generally that Delmarva's rates were just and reasonable, and that Delmarva's form of rate was not unreasonable and did not subject any person to undue prejudice or disadvantage within the meaning of § 205(b) of the Federal Power Act. 16 U.S.C.A. § 824d(b). Delmarva makes, demands and receives a different rate from its so-called Tariff Customers from the rate charged its so-called Cooperative Customers; Tariff Customers consist of municipalities and investor-owned distribution companies, and Cooperative Customers are Cooperatives. The Commissioners of St. Michaels, Maryland, a municipal corporation ("St. Michaels"), the St. Michaels Utilities Commission, a municipal public utilities commission, and Stockton Light & Power Company of Maryland, and Stockton Light & Power Company of Virginia (collectively "Stockton"), all of which initiated the consolidated proceeding before the Commission by their written complaints, seek review of the Commission's order because they allege the form of the rate is not supported by substantial evidence and is unduly prejudicial. St. Michaels and Stockton are Tariff Customers, which are charged a higher rate than Cooperatives. In an earlier proceeding, we denied a motion to adduce additional evidence.³

The rate charges as shown on the filed tariff are set forth in the margin.⁴ It is conceded that, based upon the quantities purchased at the established rates, the average cost of a kilowatt hour of electricity to Cooperative Customers is less than the average cost of a kilowatt hour of electricity to Tariff Customers. This difference was fully recognized by the Commission, which found that during the 1962-1963 test period purchases by the Tariff Customers constituted 8.5% of total system electric revenues from wholesale sales, that Delmarva properly treated Tariff Customers and the Cooperatives as members of different wholesale classes, that a rate of return of 6% for Delmarva was fair and reasonable and that Delmarva would earn a rate of return of from 5.74% to 6.07%, depending upon which peak responsibility method of allocation was employed, on service to its Tariff Customers while it would earn 5.56% or 5.75%, depending upon federal income tax rates, on service to Cooperative Customers. In dealing with the form of the rate, the Commission concluded (Delmarva being referred to as "Delaware Power," its then corporate name):

"Delaware Power has stated that the computed average rate paid by the Cooperatives during the twelve-month period ending June 30, 1963, was 9.7 mills per kwh as against a computed average rate of 11.9 mills paid by the Tariff Customers. The record shows that the average kwh costs of the smaller Tariff Customers, such as St. Michaels and Stockton, are higher than the group average because of the inability of these smaller customers to take advantage of the tariff discounts for large volume purchases. In great measure the difference in rate structure between the Cooperatives and the Tariff Customers can be accounted for by the actual difference to the Delaware Power System in the costs of serving these two wholesale groups. Thus, Delaware Power\'s rate of return on its service to the Tariff Customers exceeds its rate of return on its service to the Cooperatives by only 0.89 percent, when computed on the basis of staff\'s cost of service data, adjusted by the examiner\'s cost of service and allocation findings. In addition, as the record plainly shows, the lower rates charged the Cooperatives can be be attributed to the superior bargaining power which the Cooperatives have demonstrated in their negotiations with the Delaware Power System by reason of their apparent ability to build their own generating and transmission system. We have given weight to this bargaining power in South-western Public Service Company, Opinion No. 451 (1965).

* * * * * *

"* * * the operations of Stockton are so much smaller than those of the Cooperatives, as to indicate that Stockton\'s relatively higher average charges are due essentially to the small scale of its purchases rather than to the classification as a Tariff Customer.

* * * * * *

"We accordingly find that the record in this proceeding does not support the charge that the Delaware Power System has unduly discriminated against its Tariff Customers by charging them rates which are excessively higher than those charged the Cooperatives." (footnotes eliminated)

Overall, St. Michaels and Stockton attack the Commission's order on the grounds that there was lacking substantial evidence of record to support the discrimination in rate approved by the Commission, and that the Commission illegally took into consideration improper factors to justify the discrimination.

Discrimination in rates is prohibited by § 205(b) of the Federal Power Act. 16 U.S.C.A. § 824d(b).⁵ This provision is closely modeled on the Interstate Commerce Acts, 49 U.S.C.A. § 1 et seq. The purpose of the latter is "* * * to prevent favoritism by insuring equality of treatment on rates for substantially similar services * * *," (emphasis supplied), United States v. Chicago Heights Trucking Co., 310 U.S. 344, 351, 60 S.Ct. 931, 935, 84 L.Ed. 1243 (1940). See also, Ayrshire Collieries Corp. v. United States, 335 U.S. 573, 69 S.Ct. 278, 93 L.Ed. 243 (1949); L. T. Barringer & Co. v. United States, 319 U.S. 1, 63 S.Ct. 967, 87 L.Ed. 1171 (1943); I. C. C. v. Delaware L. & W. Co., 220 U.S. 235, 31 S.Ct. 392, 55 L.Ed. 448 (1911); I. C. C. v. Alabama Midland R. Co., 168 U.S. 144, 18 S.Ct. 45, 42 L.Ed. 414 (1897). Thus, it has been held that differences in rates are justified where they are predicated upon differences in facts — costs of service or otherwise — and where there exists a difference in rates which is attacked as illegally discriminatory, judicial inquiry devolves on the question of whether the record exhibits factual differences to justify classifications among customers and differences among the rates charged them.

Much of the opinion of the Commission in this case was devoted to considering whether an initial classification between Tariff Customers and Cooperative Customers was justified, whether the rates charged each such classification was proper, and whether there was an undue discrimination against the Tariff Customers. Our examination of the record satisfies us that the essential findings of the Commission in these regards are fully supported, and we affirm the Commission's order.

A brief résumé demonstrates the factual underpinnings to support the conclusions that customers should be classified into two groups and a different rate charged each group. The Tariff Customers are the old-established private or municipal electric utilities which serve the towns and settled areas of the sparsely populated, predominantly rural, area of Delmarva's operations. The Cooperative Customers were established by farmers, under the provisions of the Rural Electrification Act, 7 U.S.C.A. § 901 et seq., to obtain service where it was unobtainable from the Tariff Customers; and the Cooperative Customers were organized after the major transmission lines of Delmarva were constructed. As a result, Delmarva makes delivery of electrical energy directly to the load centers of most of its Tariff Customers; the Cooperative Customers have a substantial investment in transmission lines, the Tariff Customers very little. Cooperative Customers provide their own substations and take energy at voltages determined by Delmarva for its own convenience and economy. For...