F. P. C. v. SOUTHERN CAL. EDISON CO.
Legal provision: Federal Power
Argument of Ralph S. Spritzer
Chief Justice Earl Warren: Number 71, Federal Power Commission, Petitioner, versus Southern California Edison Company et al.
Mr. Ralph S. Spritzer: Mr. Chief Justice, Your Honors.
The single question which is raised by the Government's petition in this case and the only question which was decided by the divided Court of Appeals below is one which relates to the jurisdiction of the Federal Power Commission over an aspect of interstate commerce.
The stream of commerce involved consists of electric energy.
Energy which is generated by the fall of the Colorado River, generated in the States of Arizona and Nevada, which is then transmitted by high-voltage transmission lines into the State of California where it is, in turn, picked up by the respondent Southern California Edison Company, and carried by it together with energy which Edison generates locally to the City of Colton, also in California.
Colton operates a municipally-owned distributing system, serving its some-18,000 or 20,000 residents.
Now, the particular transaction in this continuing movement in interstate commerce which is the focus of the controversy here is the sale of the energy by Edison to Colton.
And the precise question is whether the regulation of the rates at which that sale takes place is a matter within the jurisdiction of the Federal Commission or of the California Public Utilities Commission.
Edison and California urge the latter.
They assume for purposes of argument as did the Ninth Circuit for purposes of its decision, that out-of-state energy moves in interstate commerce to Colton.
But they read the Federal Act to permit, indeed to acquire a determination in each case as to whether the particular transaction is primarily a matter of national or of local concern.
And the Ninth Circuit accepted that test and concluded that it was primarily a matter of local concern in this case and held that the matter was therefore beyond the jurisdiction of the Federal Commission with Judge Browning dissenting from that view.
Unknown Speaker: (Inaudible)
Mr. Ralph S. Spritzer: You do not because the Ninth Circuit assumed for purposes of decision, that there was out-of-state energy reaching Colton.
Now, that issue is still available to the respondents on remand because they argued that it was not sufficiently demonstrated at the Commission hearings that out-of-state energy reached Colton.
At Record 940, you will find that the Court of Appeals accepted the Commission's finding for purposes of its decision.
Unknown Speaker: Therefore, they would not conclude (Inaudible)
Mr. Ralph S. Spritzer: They would not.
The proponents of the other view, of the view that the sales made to Colton are under the federal statute explicitly and exclusively within the federal domain, are three.
First, the City of Colton, it is a separate petitioner here.
And Colton complains that a series of rate increases were put into effect by Edison and that the charges which were thereafter made were unlawfully collected because those increases were not filed with the Federal Power Commission.
A second proponent of what I might call the federal view is the American Public Power Association which has filed a brief amicus curiae in the case and represents more than 1,200 publicly owned distribution systems in some-45 states, most of which purchased some or all of the energy which they distribute from investor-owned utilities like Edison.
Since the association is not participating in the oral argument, I will pause a moment to state though without elaboration the considerations which it says give it principle concern.
It argues that a case-by-case determination of the national interest in each sale and wholesale, of which there are literally thousands, would be well -- impossible.
And, that it would be at least many years under the Ninth Circuit's approach, before any member of the association would know the appropriate forum in which to contest the reasonableness of a particular wholesale rate or service.
It argues further that even then, constantly changing conditions within the electric system would deprive such a determination of any finality or certainty.
It argues finally, that the great technological advances in the electric industry in recent years have brought us, as indeed they have to an era where we have virtually a national grid of interconnected power pools.
And that in this environment, the determination of reasonable wholesale rates of a public utility will often require intimate knowledge of the very complex workings, contractual arrangements, and financial operations of the whole power pool of which the particular utility is by a part and this it suggests, makes national regulation of sales and wholesale in interstate commerce a practical imperative in many situations.
The third proponent of course, of the view that this is within federal jurisdiction is the Federal Power Commission.
If two is concerned with the practical implications for other cases and for its regulatory program of the Ninth Circuit's approach to this problem.
Mindful of my time limitations, I shall concern myself very largely with the strictly legal and statutory basis of its claim of jurisdiction.
Now, in our view of the statute we must meet two and only two very simple requirements in order to prevail.
The first is the requirement that the sale of electric energy be one in interstate commerce.
And the second is that it be a sale for resale or as the Act sometimes alternatively speaks, the sale and wholesale.
Now, the first of these facts was assumed by the court below for purposes of its decision.
The second jurisdictional fact, i.e. that Edison's sales to hol -- to Colton are sales for resale is clear and not contested.
In our view Section 201 (b) of the Federal Power Act calls for no further proof and warrants no embroidery.
It appears at page 43 of the Government's brief and it says in terms, that the Act shall apply to the transmission of electric energy in interstate commerce and the vital language here to the sale of electric energy at wholesale in interstate commerce but shall not apply to any other sale of electric energy.
Now, this “but” clause that shall not apply to other sales takes out of federal jurisdiction sales at retail, sales for example which Colton makes to the ultimate user.
Our point stated in a single sentence is that for sales at wholesale in interstate commerce, the Act makes no exception.
Justice Rutledge used almost those words some years ago in the Public Service of Indiana case in which he was discussing the precisely parallel provisions of the Gas Act.
He said, “The line of the statute is clear and complete.
It cut sharply and cleanly between the sales for resale and direct sales for consumptive use.
No exceptions were made.”
I'm still quoting, “No exceptions were made in either category for particular uses, quantities, or otherwise.”
And, he concludes the line drawn by the statute is that one at which the decisions had arrived before the Act was passed.
Unknown Speaker: (Inaudible)
Mr. Ralph S. Spritzer: That's another exception.
There are several, but that doesn't apply to our case of course.
Unknown Speaker: (Inaudible)
Mr. Ralph S. Spritzer: Yes, there were s -- there were limitations upon the Federal Power spelled out throughout every -- each operative provision of this Act, and I'm only arguing that, for sales of energy in interstate commerce for resale, there was no exception.
And indeed, Justice Rutledge's statement that there was no exception in that category is not an isolated expression.
This Court has said, it not once, but in one form of words or another, I think in a dozen or more cases and it has said it in the face of arguments made over the years by other utility companies, as some of the members of this Court will recall, arguments which are precise parallel of the arguments which have been made by Edison in this case.
Unknown Speaker: (Inaudible)
Mr. Ralph S. Spritzer: Yes.
Unknown Speaker: And in periods of time (Inaudible)
Mr. Ralph S. Spritzer: Yes, we do draw upon on that source.
Now, our adversaries say in answer that one cannot look merely to Section 201 (b) and that one must look also to Section 201 (a), which is the statutory preamble, and the states that the Act extends only to matters not subject to regulation by the states.
And the suggestion that they make, is that under present day constitutional standards.
The transaction here in question would not be beyond state power in the absence of a federal statute.
To this argument based on 201 (a), we suggest there are two answers, both of which have indeed been made repeatedly by the Court in past decisions.
The first answer is that the policy expressed in 201 (a) is relevant, as this Court put it in the Connecticut Power and Light case, in resolving any ambiguity or indefiniteness in the specific provisions of the Act but cannot, as Justice Jackson said in that case, nullify a clear and specific grant of jurisdiction.
As I was indicating a moment ago to Your Honor, we think this makes particularly good sense in the construction of a statute which shows that the persons who were concerned about preserving state authority undertook to write into each operative provision the limitations upon federal authority which they contemplated.
For example in Section 204, which gave the Federal Power Commission jurisdiction over the issue in securities by public utilities a matter of certainly of great concern in the 1930s, an exemption was written in, exempting public utilities which were operating in states where the issuance of securities was already subject to a state scheme of regulation.
More appointed for our purposes of course, there are series of the limitations in 201 (b) itself, and our point is that the preamble or policy expressed in 201 (a) may be said to explain or illuminate those limitations but should not detract, as the Court itself has previously stated, from what is most explicitly granted to the Federal Commission.
Namely jurisdiction over sales in interstate commerce and wholesale.
There's a second answer.
When Congress said that the Federal Power Act would provide for federal regulation only in respect of matters not subject to state regulation.
Congress was firmly of the view that the states were not able to deal with sales and wholesale in interstate commerce.
That indeed was the plain teaching of all of the cases which this Court had decided prior to 1935, and Congress, as we view the history, said, in effect, “Very well.
We don't want a no man's land in this field of utility regulation.
We shall therefore, reserve to the states what the Supreme Court has said the states may do.
And then we shall command the Federal Commission which we are creating to do what else remains to be done.
We shall draw a plain line based upon the existing decisions and invest the federal arm with authority to act within its assigned area.”
That perhaps they should say, that this point something about these pre-1935 cases where they of course illuminated the history about the Power Act, Part II, and of the Gas Act which was enacted a few years later.
Now, there are two main groups of cases prior to 1935.
One group typified by the Pennsylvania Gas case which this Court decided in 1919 and by the East Ohio Tax Commission case in 1931 involved the question whether gas all or part of which should come from out-of-state could be subjected to rate regulation or to local taxation at the point where it was sold to retail customers.
And the Court answered to that question, "Yes."
It did so over the years on two theories, perhaps, not all together consistent theories.
The first theory found in the Pennsylvania case was that the commerce continues to be interstate.
The commerce and the gas right down to the burner tips where it's used by the ultimate consumer.
But nonetheless, the state may regulate the sale at retail in the absence of federal preemption because it is not a matter of substantially local concern.
The other theory which was elaborated in the East Ohio Tax Commission case was that there's a break in the interstate commerce at the point where the gas is greatly reduced in pressure to be carried through the mains of the city streets.
And that therefore, the sale at retail by a distributor is in intrastate commerce coming after that reduction and pressure.
Both theories, however, led to the conclusion that the state could deal with the sales at retail.
There was another group of cases, a long line of them, involving efforts by the states to deal with sales of out-of-state or of mixed energy made to distribution companies as distinguished from ultimate consumers, in other words, sales at wholesale.
In those cases of which the Kansas Gas case and the Attleboro case are landmark examples.
The Court concluded and without any exception that sales at wholesale in interstate commerce could not be regulated either by the state in which the energy originated or in the receiving state because that would be a forbidden burden upon interstate commerce.
Now, these groups of cases are the cases that Justice Rutledge was talking about when he said, in the excerpt that I quoted earlier, that Congress drew a short line admitting of no exceptions between sales in interstate commerce at wholesale and sales at retail, and that the line drawn was the one at which the decisions had arrived before that Part II of the Power Act was passed.
Let me move forward if I may, from the pre-statutory cases to the decisions which followed, decisions in which this Court defined again and again the jurisdictional line.
The first important one from our -- for our purposes is Illinois Gas against Central Illinois in 1942.
Now, the Illinois Gas Company was a pipeline operating wholly within Illinois, comparable in its function to Edison, but purchasing out-of-state gas from its parent Panhandle, and the question in that case was whether the Illinois Commission could order Illinois Gas to interconnect with a distribution company in a city in Illinois or whether that power rested solely with the Federal Commission.
This is a precisely analogous question because the question of jurisdiction over the extension of facilities turns on precisely the same considerations as jurisdiction over the rates of natural gas or -- companies or of electric utilities.
The opinion of Chief Justice Stone points out at some length that before the enactment of the power in Gas Acts there had been litigation as to the limits upon state authority.
He points to the two lines of cases to which I've referred, the one which suggested that you would balance national and local interests for purposes of determining whether the state could exercise jurisdiction over a sale at retail even though it was part of the stream of commerce and the other line of the cases involving a so-called mechanical approach theory of a break in commerce.
He con --
Justice William J. Brennan: Both those lines of cases led to precisely the same result, didn't they?
Mr. Ralph S. Spritzer: Yes.
His conclusion, and this is my main point of course, is that it is no longer necessary to consider either the balancing approach or the mechanical one of a break in commerce.
Congress he says, adopted the power in the Gas Act to define the area of interstate commerce in which the Federal Commission would regulate.
Its definition, he says, put in the federal sphere the regulation of all sales at wholesale.
The other part of the bargain was that the states would have clear and unequivocal authority to regulate all sales at retail.
And thus it ended, he says.
It ended any need for case-by-case litigation of the respective interests of state and the nation.
And I would add to that, that what Congress, according to the decisions of this Court, ended the Ninth Circuit has now seemingly resurrected.
Justice Potter Stewart: What -- in what case did Chief Justice Stone --
Mr. Ralph S. Spritzer: The case I was referring to is Illinois Gas, the Central Illinois --
Justice Potter Stewart: 314 U.S.?
I have it.
Mr. Ralph S. Spritzer: Yes, it's cited at length in our brief, Your Honor.
Just a few years later, this Court had the Colorado Federal Power Commission against Colorado-Wyoming before it.
Colorado-Wyoming was a pipeline which purchased gas from an interstate carrier at Littleton, Colorado.
It then carried it to a number of Colorado towns and the contention was made that Colorado-Wyoming's sales of this gas to the Colorado communities was intrastate and not subject to federal regulation.
This Court rejected that in opinion by Mr. Justice Douglas stating that there was a continuous stream of the gas from the out-of-state source and that therefore it was clearly a sale in interstate commerce of natural gas for resale.
The Court placed no reliance whatever upon the fact that the Colorado-Wyoming Company also made one sale outside of Colorado, downstream in Wyoming.
It refrained from any examination of the consequences, practical or otherwise, of the transactions in Colorado upon other states ruling, as it had ruled in the earlier Central Illinois case, that the statutory language was determinative of the Federal Commission's jurisdiction by its own force.
Still, a third case of similar import is Federal Power Commission versus East Ohio Gas Company in the 338 U.S.
East Ohio bought gas at the Ohio border from the interstate pipelines again, operating solely within Ohio.
It then carried the gas through its high-pressured trunk lines to its own local distribution centers -- systems in various Ohio towns.
Since East Ohio made no sales for resale, it was not subject to federal jurisdiction under the provisions of Section 1 (b) which have to do with sales for resale.
But Section 1 (b) also covers transportation in interstate commerce.
And the questions was whether East Ohio was subject to the Federal Commission's accounting and reporting requirements because it was transporting in interstate commerce.
This Court agreed with the Federal Power Commission that it was stating that there appeared no -- to be no question in its mind that the gas was uninterruptedly flowing in interstate commerce until it reached the towns where it was consumed.
The opinion then deals with the argument which is being made again that Congress intended only to regulate what the states were without constitutional power to regulate.
The answer Mr. Justice Black stated in speaking for the Court is that this Court's decisions prior to 1935 had made plain to Congress that the state's power was confined to sales at retail.
Let me quote a sentence of his opinion directly.
“In a series of cases repeatedly called to the attention of the House Committees, this Court had declared that states could regulate interstate commerce only after it was reduced in pressure and entered a local distribution system.
This was the gap which Congress intended to close.
We have already held that, in doing so, Congress subjected to federal regulation a company transporting interstate gas and selling it for resale wholly within one state, citing the Illinois Gas Case.”
And then he goes on to say that, “East Ohio differs in that it sells gas direct to consumers but that the difference is immaterial for purposes of that case since East Ohio transports in interstate commerce.”
But I -- I shall not burden the Court by stating the facts of other cases in which the Court has dealt with this jurisdictional line but to bring the matter up to date, I will note that the Court stated in the Phillips Case in 1954 that the legislative history showed a clear purpose.
And I quote, "To give the Commission jurisdiction over the rates of all wholesales of natural gas in interstate commerce".
Justice Frankfurter, concurring in that same case, stated that the history showed that Congress drew a fixed line instead of leaving the matter, he states, "To the fluctuation of adjudications under the commerce clause."
Again, on the last term in the Northern Natural Gas case in which Mr. Justice Brennan spoke for the Court, concededly a case involving a quite different problem from the one presented here.
The Court again observed that it was settled before the passage of the Natural Gas Act that direct regulation of the prices of wholesales was beyond the constitutional powers of the states and that Congress had legislated on that assumption.
Now, Edison repeatedly argues in its brief that there's no interest on the part of the federal government or of any state other than California in the Edison-Colton sale.
Now, of course the burden of my argument has been that there is no occasion to measure the respective interests of state and nation.
We are dealing with interstate commerce by definition, here and we think Congress has drawn the line, as it certainly had the power to do, without any exception for any sale in interstate commerce at wholesale.
But I would also challenge if it were necessary, the thought that only California has an interest in the sale.
I think that since this is an interstate sale, there is inevitably a potential multistate interest.
When a commodity moves in interstate commerce from one state to another, the terms upon which resales take place in the receiving jurisdiction inevitably have a bearing upon the flow of commerce into the state and that of course, is the whole assumption upon which this Court has decided, I don't know how many score of, Sherman Act cases.
When goods are sold in state A to customer in state B and they in turn, let us say, fix prices, either at the wholesale or at the retail level, the courts conclusively presume that there is a restraint upon the commerce which moves into the state.
And it certainly then, one can't assume that there is no effect resulting from state regulation upon a flow of commerce which moves into the state from outside.
I would say certainly that what is true of transactions in commodities under the Sherman Act is certainly no less true of sales of energy.
Indeed I suggest that one could hardly work for 24 hours at the Federal Power Commission on rate matters and not be keenly aware that slight changes in the cost of energy work substantial shifts to or from the use of competitive fuels.
If rates for power, for example, to a municipality go up, it's safe to predict that there will be substantial shifts to natural gas or to fuel oil or to coal, particularly by the industrial users.
Now, my point is not that one must predict and measure these consequences in each case, quite the contrary.
It is my point, at the moment is merely to suggest that there are good practical reasons why a legislator might conclude that the line should be drawn where Congress, in our view, has drawn it.
The chief argument we make of course, is that there's no occasion since Congress has legislated clearly, as the Court has repeatedly said, to go beyond the statute itself.
I would like to note very briefly, one other significant practical implication, as the Commission sees it of the decision below.
The Federal Commission's power to order interconnections between electric utilities turns on substantially the same jurisdictional considerations as governed its power to regulate sales.
In other words, if the Commission, because of the interpretation of 201 (a) which the respondents suggests, does not have jurisdiction over the rates for the sales by Edison to Colton, by the same reasoning, it could not order interconnections as between utilities similarly situated but lacking such physical connections.
This in the Commission's view would impair its ability to achieve important objectives which are set forth in Section 202 of the Act.
Namely to promote such interconnections as will assure maximum economy and the optimum utilization of natural resources.
Now, it is true that some state commissions, though by no means at all, have authority to order interconnections between utility subject to their jurisdiction.
It's also true we think, that the comprehensive development of regional and national grids which will bring to the country at large the benefits -- great benefits available through the pooling and exchange of power that that development calls for overall rather than for a piecemeal direction.
Chief Justice Earl Warren: Mr. Spritzer, you may continue your argument.
Mr. Ralph S. Spritzer: Thank you, Your Honor.
Before closing, I should like to make brief reference to one item of subsequent legislation.
In 1954, Congress amended the Gas Act, not the Power Act, so as to exempt with certain limitations, to which I'll refer in a moment, so as to exempt gas companies receiving natural gas within a state and transmitting it or selling it for ultimate consumption within the same state.
That was the so-called Hinshaw Amendment to the Gas Act.
And it adopted an approach which is not unlike that which Edison would adopt, not through legislation but through interpretation, for the Power Act.
There are two points that I would like to make in connection with that amendment.
Justice Hugo L. Black: Is that quoted in -- can we find that in your brief?
Mr. Ralph S. Spritzer: Yes, Your Honor.
We've quoted all of the parallel provisions of the Gas Act at the back of the Government's brief.
Justice Hugo L. Black: This amendment I'm talking about?
Mr. Ralph S. Spritzer: Yes, 1 (c) -- Section 1 (c), I believe we've set it forth.
Yes, it's at page 49 of the Government's brief, Your Honor.
There are two points, as I was saying, that I'd like to make in connection with that amendment.
The first is the obvious one, that Congress has not seen fit to withdraw any of the Commission's authority in the electric power field, although it has certainly been long aware that the Commission has exercised jurisdiction over so-called second sales of electricity.
Justice Potter Stewart: There have been bills, haven't there, to --
Mr. Ralph S. Spritzer: Yes.
I was about to say there was a bill to do the same thing for the Power Act as was done by the Hinshaw Amendment for the Gas Act.
In fact, the proposal was made earlier on the power side.
It was opposed by the Commission.
It died in committee.
And so, as we see it, Edison is in substance, asking the Court to do what Congress in the case of the Power Act has refused to do.
The second point I'd like to make about the Hinshaw Amendment is this.
It does not confer a blanket exemption.
It is available to a gas pipeline only when wholesale gas rates where service of the company will be actively regulated by a state commission.
Now, this conditional provision for a withdrawal of federal authority cannot be squared, we think with Edison's suggestion that the Federal Power Act should be read as not conferring any authority to begin with, over sales of the kind that we are dealing with in this case.
In other words, under Edison's view of the statute this was a matter wholly reserved to the states and the Federal Power Commission could not act even if -- contrary to the actual case, even if California had no Public Utilities Commission.
There are of course a number of states which do not have public utility regulation.
In a word we submit that the only fair inference to be drawn from the Hinshaw Amendment of the Gas Act is that if the Federal Power Act is to be similarly amended, it is the function of Congress and not of the judiciary to do so.
The Commission I need hardly -- Federal Commission, I need hardly add in conclusion, would oppose such an amendment, as it has done successfully in the past.
Chief Justice Earl Warren: Mr. Cragun.
Argument of John W. Cragun
Mr. John W. Cragun: Mr. Chief Justice and may it please the Court.
There is another aspect of the breadth of Section 201 of the Federal Power Act which inheres in this case.
It is a question which was decided against Federal Power Commission jurisdiction by the hearing examiner in the first instance, then was reversed by the Federal Power Commission which upheld its jurisdiction under Section 201, and finally, was pretermitted in the Court below.
The question involves Section 6 of the Boulder Canyon Project Act in whether, instead of the Federal Power Commissions having jurisdiction at all, the jurisdiction lies with the Secretary of the Interior.
Section 6 of the Boulder Canyon Project Act is quoted in pertinent part at page 6 of -- 8 -- page 8 of Colton's brief and perhaps I should read some of the pertinent language.
That Act provides, “The Secretary of the Interior shall prescribe and enforce rules and regulations conforming with the requirements of the Federal Water Power Act so far as applicable, respecting control of rates in the absence of state regulation or interstate agreement.”
And it goes on to provide that, “He shall also conform with other provisions of the Federal Water Power Act and of the rules and regulations of the Federal Power Commission already devised or hereafter devised for the protection of the consumer.”
The position of respondent has been throughout that the Federal Power Commission has no jurisdiction in the circumstance like that because, when the Boulder Canyon Project Act was adopted in 1928, the Federal Power Commission tried to get jurisdiction but Congress deliberately placed jurisdiction with the Secretary.
Now, we challenge that view on both grounds.
In the first place, it is not true that the Federal Power Commission tried to get a grant of jurisdiction in the Boulder Canyon Project Act.
What the Federal Power Commission did in reporting on the repeated series of bills which ultimately culminated in that Act, was to point out that Congress had deliberately adopted a policy of private development of these great hydroelectric resources together with regulation by the Federal Power Commission, and that this was flying in the face of that to propose a federal development.
In the second place, you will note from the language which I just read; The Secretary of the Interior is required to conform to the Federal Power Act and to obey the rules and regulations of the Federal Power Commission.
That was logical enough.
At that time he was one of the three members of the Federal Power Commission as it then existed.
Accordingly, the very provision the Boulder Canyon Project Act looked to compliance with the Federal Water Power Act as it then understood.
We think that Section 201 coming some-seven years later, which provided that the Federal Power Commission jurisdiction over rates shall apply to sales of electric energy at wholesale in interstate commerce clearly puts the matter beyond question.
Now, perhaps before I get too far into it, I ought to confess that this issue, possibly, is not justiciable because there is not solely involved Boulder Canyon Energy.
The Federal Power Commission found that Boulder Canyon Energy is mixed with Davis energy, likewise generated outside of the State of California, another great federal hydroelectric installation, and that that mixture is served to the City of Colton.
Sometimes, it's the sole supply of the city over many hours.
I believe the Commission made the finding.
Now, Boulder Canyon Project Act specifically does not apply to Davis energy.
The provision which would apply there is Section 201 of the Federal Power Act and by the rule which this Court adopted in the Pennsylvania Water Case in 343 U.S., and had mixture of jurisdiction on energy, gives the Federal Power Commission jurisdiction of the whole.
Otherwise, it would be unable to regulate that federal energy.
Justice Potter Stewart: So, it was the Commission which found that there was a mixture of --
Mr. John W. Cragun: Yes.
Justice Potter Stewart: And that was not passed upon by the Court of Appeals, was it?
Mr. John W. Cragun: That was not passed upon by the Court of Appeals, but then it wasn't really challenged either.
The issue which was challenged as a matter of fact there, was whether it was proved by Colton and by the Commission that any interstate energy at all reached Colton.
It was the contention of the respondents, in effect, that it was impossible to trace a flow of electric energy in the circumstances that existed here.
But, they --
Justice Potter Stewart: And that was not --
Mr. John W. Cragun: -- didn't challenge the --
Justice Potter Stewart: That was not passed on either by the court.
Mr. John W. Cragun: Not by the court below, no, sir.
Justice Potter Stewart: They've accepted it as a hypothesis that --
Mr. John W. Cragun: It was by the Commission.
Justice Arthur J. Goldberg: (Inaudible)
Mr. John W. Cragun: Well, yes.
And that's the reason that I dare not rely on its being nonjusticiable and rely merely on Davis energy.
The hearing examiner said that, clearly, the Boulder Canyon Project Act gave the Secretary of the Interior jurisdiction.
The Commission said both Boulder Canyon or Hoover Dam, I should say, and Davis energy is mixed here and sent on to Colton, but we think it's in our jurisdiction anyway because of Section 201 of the Federal Power Act.
The very phrase which Mr. Spritzer has been calling to the Court's attention gives the Federal Power Commission jurisdiction notwithstanding the origin of the power at Boulder Canyon.
That phrase, the provisions of Section 201 (b), that the provisions of the Act shall apply to sales of electric energy at wholesale in interstate commerce.
Now, there --
Justice Arthur J. Goldberg: (Inaudible)
Mr. John W. Cragun: Correct.
Justice Arthur J. Goldberg: Between the Federal Water Power Act (Inaudible)
Mr. John W. Cragun: As it now exists.
There was an earlier Federal Water Power Act which is now Title 1.
Justice Arthur J. Goldberg: And that's the (Inaudible)
Mr. John W. Cragun: 1920.
Justice Arthur J. Goldberg: (Inaudible)
Mr. John W. Cragun: That is now Title 1 of the Federal Power Act.
It was reenacted in 1935.
There are two reasons why we feel that, without respect to -- into this question of Davis energy which I but require to call to the Court's attention, or the matter of -- well, let me backup there, two reasons why Section 201 overrides what otherwise would have been the effect of Section 6 of the Boulder Canyon Project Act even if it had the effect contended for by respondent.
In the first place, Section 6 is exactly like Section 20 of the Federal Power Act, that's Part I of the Federal Power Act, the old Act to which Mr. Justice Goldberg referred, which gave a limited sort of federal regulation.
It said that, as licensees of a federal development, the Federal Power Commission could, in the absence of state regulation, undertake to regulate sales in interstate commerce.
Now, after the Federal Power Act was adopted with its much broader jurisdiction the Section 201 jurisdiction in which we refer in 1935, on two occasions, there was litigated before this Court the contention that well we're a licensee under Title 1 of the Federal Power Act.
Therefore, we come under your Section 20 jurisdiction and you don't -- you, the Federal Power Commission, don't have jurisdiction over us under Section 201.
And in both instances, this Court held that that contention could not prevail.
It did so in United States against Public Utilities Commission of California in 345 U.S. and in the Pennsylvania Water case in 343 U.S.
The provisions of the Boulder Canyon Project Act are in entire parody with those of Section 20 of the Federal Power Act.
That is to say, it is a limited jurisdiction in the absence of state regulation which, it's contended would make the Boulder Canyon Project Act inoperative here anyway.
But for the same reason that this Court gave in both those cases, Pennsylvania Water and United States against Public Utilities Commission of California, the contention cannot survive here.
Section 201 was intended to have a broad sweep.
There is internal evidence that Congress would have accepted Hoover Energy sold at wholesale if it had intended that that be exempted from Section 201 of the Federal Power Act, and this is the second reason we give.
Section 201 (f) accepts, first, federal sales no matter where they are In Hoover Dam, Davis Dam and under the Reclamation Act, Bonneville Power Administration, Tennessee Valley Authority, or other federal Installations.
And that shows that there must be a specific exemption or Congress thought it was covering the sales in.
But that's still left with the particular federal agent who sells the power because he's under instructions to get the money to repay, within a specified time, the investment of the United States in building those installations.
Thus Congress made a specific exception where it intended it.
There were other expressed exemptions.
Congress exempted National Parks from the licensing authority of the Federal Power Commission.
It preserved regulation by a different federal agency, the Securities and Exchange Commission under the Public Utilities Company Holding Act which shows that Congress felt that if it hadn't preserved that specifically, the Federal Power Commission would have had it instead of the SEC.
It preserved the power of states over the limiting or regulating the exportation of power produced within the states, showing that that was specifically necessary.
And it preserved state commission regulation of the issue of securities.
All of this shows that Congress was perfectly aware that it was passing a comprehensive statute settling federal policy on the scope and breadth of this regulation which it was investing with the Federal Power Commission.
Accordingly, if Section 201 is totally inconsistent with a regulation of a peculiar block of interstate energy by the Secretary of the Interior or indeed any other federal agency than the Federal Power Commission, such a holding would be inconsistent with what this Court has held to be the sweep of the provisions of Section 201.
Chief Justice Earl Warren: Mr. Lakusta.
Argument of Boris H. Lakusta
Mr. Boris H. Lakusta: Mr. Chief Justice and may it please the Court.
I speak for Southern California Edison Company and I will direct my argument to the issue which was argued by Mr. Spritzer for the Government and which is the issue to which the Ninth Circuit confined itself in disposing of the case before the circuit.
I will be followed by Mr. Bury, also of the Edison Company who will address himself to the Boulder Canyon Project legislation which represents an independent ground for the sustaining of the Ninth Circuit opinion.
It is the position of the Edison Company that the sales by the Edison Company, which is a California company operating wholly in California, to the City of Colton, which is a California City, should be regulated by the California Commission.
The California Commission has regulated those sales for more than 50 years.
The basis for our belief that Federal Power Commission jurisdiction does not lie is that the sales in question are purely local in character and are devoid of national interest.
Now, for purposes of argument, we assume, as did the Ninth Circuit, that the Edison Company does sell to the City of Colton in California energy received from the Hoover Dam in Arizona.
So, we have in effect, two chains of interstate wholesale sales.
First of all, we have the sale by the U.S. Government through the Secretary of the Interior at Hoover to the Edison Company.
Then we have a second downstream sale for resale, this one being within California by the Edison Company or that Hoover Energy to the City of Colton.
I should say parenthetically, that the Edison Company does not concede as a factual matter that any Hoover Energy does reach the city.
We believe there was a failure of proof on that score.
But assuming that such energy did reached the city; it is that second sale for resale with which we are concerned.
The Ninth Circuit concluded that, where there is such a second wholesale sale in the chain of sales and it is a second sale for wholesale which, by no stretch of the imagination could be of any interest to any other state than one so that there can be no so-called multistate interest and therefore, no national character to which one could ascribe that sale.
It -- it should follow that, both as a matter of constitutional law and as a matter of construction of the Federal Power Act, the Federal Power Commission is not given jurisdiction.
Now, in arriving at the result, the Court of Appeals followed four simple steps.
First of all, it noted that the words of Congress in Section 201 (a) are to the effect that Federal Power Commission Regulation is to cover the, it did not say all but it spoke generically, to cover the sale of electric energy at wholesale in interstate commerce.
And it then has a limiting clause, “Such federal regulation, however, to extend only to those matters which are not subject to regulation by the states".
Secondly, the Ninth Circuit examined the constitutional law and the decisions which preceded the enactment of Part II of the Federal Power Act in 1935, and it ascertained that one of the primary purposes of the enactment was to fill the gap in regulation which had been revealed by this Court's decision in the Attleboro case.
It proceeded to examine the Attleboro case and to determine that the constitutional principle applied by this Court in that case was to ascertain whether the sale in question be national or local in character and if it could be said that, if it's purely local in character, it would be within the constitutional reach of the states in the absence of congressional legislation.
Next, the Court observed that the purpose of Congress, in accordance with a constitutional history, was that whatever power the states could constitutionally exercise over interstate commerce prior to passage of the Act should be preserved to them.
It determined that, factually, this case involved that kind and it put it -- put to itself a very simple question.
Could California have regulated the sale prior to passage of the Federal Power Act?
It had to answer that in the affirmative because it could find factually no multistate interest and it therefore, concluded that, as a matter of statutory history and the purpose of Congress, Congress must have intended that this kind of sale be kept away from the -- or out of the jurisdiction of the Federal Power Commission.
Now, we think that logical sequence is the one which this Court should follow.
Returning now to the Attleboro gap itself in the Attleboro decision, that case involved a sale by a generating company in Rhode Island to a distributing company in Massachusetts.
The sale -- the wholesale sale happened to be at the border of the two states, but that point is not particularly material here.
It clearly was a wholesale sale in interstate commerce and it clearly involved the conflicting interests of two states.
The Court weighed the national versus the local interest.
It pursued the same principles of constitutional law which date back to the Cooley versus Board of Port Wardens' decision of this Court in 1851, and it determined that, upon those principles where there was a multistate interest, there could be no regulation by the states -- by the generating state and of course, the same rule would follow as to the distributing state.
Now, as the Court stated in the Attleboro case, “The test of the validity of a state regulation is whether the particular business which is regulated is essentially local or national in character”.
I might point out that Justice Brandeis dissented in that case but not as a matter of principle.
He also accepted the principle of constitutional law that you determine state constitutional power by determining the local as opposed to the national interest.
He merely reviewed the facts and determined that -- or concluded that, in his view, the local interest prevailed in this case.
Now, that is the case with which Congress was faced when it enacted the legislation with which we are concerned, Part II of the Federal Power Act.
The Attleboro case did not, as the Government would indicate, hold that all wholesale sales in interstate commerce are automatically excluded from state constitutional power.
Indeed, the case involved a wholesale sale, and indeed the cases looking the other way, where state jurisdiction was sustained in the preceding years, did happen to involve retail sales.
And indeed, it is perhaps true that this Court had determined that generally retail sales are almost by definition or by a process of crystalizing the thinking of the Court within the concept of local rather than national interest.
But we do not find in the Attleboro decision any indication or statement that, as a cut and dried part of a vast matter all wholesale sales are national in character and the Ninth Circuit, in dealing with this matter, found itself face-to-face with a case where the sale is purely local in character.
Justice Byron R. White: Well, would you say that the Kansas case based its conclusion on the fact that a wholesale sale was of national significance rather than local significance?
Wasn't that the rationale of that case?
Mr. Boris H. Lakusta: The rationale of that case followed exactly in line, Mr. Justice White, with the thinking of the Attleboro case.
Justice Byron R. White: Well, that's the case the Attleboro case relied upon, wasn't it?
Mr. Boris H. Lakusta: Yes.
Justice Byron R. White: Rationale?
Mr. Boris H. Lakusta: It -- it did rely upon the Kansas Natural case and it did find, as this Court held later in Attleboro, that a national interest was involved.
Now, in each of those cases, in the Kansas Natural case and in the Attleboro case, factually, there certainly was a conflict of interest between states.
And, it may -- it may be fair to say, that in the generality of wholesale sale situations, there is a multiplicity of interests between the states and therefore, those sales would fall clearly within the preview of the Federal Power Act today and outside of the constitutional power of the state.
Now, factually, the Ninth Circuit was very much directing its attention to whether this particular sale, this second wholesale sale in a chain, did involved the interests of other states in California.
The States of Arizona and Nevada were the only other two that couldn't find concern.
They were notified and informed of the proceeding before the Power Commission, neither of them appeared, neither of them has shown any direct interest.
The Ninth Circuit pointed out that the initial sale of Hoover energy to the Edison Company is a sale under contract -- under firm contract with Edison and the other LRTs and that the allotments are wholly independent of anything which Edison or other LRTs might do later with the energy once they receive it.
And also, that the price which the government gets for the power is wholly independent of any subsequent price which Edison may charge to the City of Colton.
And the Ninth Circuit went on to say then that the initial wholesale sale had the effect of protecting the government completely and of insulating the California sales by Edison to the City of Colton from any interest by any other state.
I don't think that that fact can be controverted.
The Ninth Circuit even went on to consider the possibility of multistate interest in the event that Edison might be selling energy outside the state and there could be a possibility of multistate interest there but upon the facts, there was no such thing.
The Ninth Circuit proceeded to consider the purpose of Section 201 (a), the limitation clause, reserving to the states whatever power they had, and it was convinced that Congress must have intended to keep out of Federal Power Commission jurisdiction the very kind of sale that we have here in issue.
Quoting from the words of Solicitor Evaine who was a Chief Draftsman for the Act, “The wholesale rates governed by this decision,” and he was referring to the Attleboro decision, “Are the only rates which, under this title, are to be fixed by the Power Commission.”
I think the logic of the position which the Ninth Circuit took is beyond question.
The senate committee report in 1935 made this remark, “The revision referring to the amendments as we have them in the Act today and including the limitation clause preserving state authority, the revision has also removed every encroachment upon the authority of the states.”
The revision referred to was that which John Benton, the General Solicitor for the National Association of Railroad and Utilities Commissioners, had advocated and which Congress subsequently adopted.
And it consisted of the words which I have already quoted namely, “Such regulation, however, to extend only to those matters which are not subject to regulation by the states.”
Now, the Government contends that the words used by Congress are so clear that the matter is settled.
I -- we believe that, in order to achieve that result, the Government strains to find meaning which is not there and when it reads the words in Section 201 (b) that Power Commission Regulation shall extend to, “The sale of electric energy of wholesale in interstate commerce,” it in effect, has to interpolate the word “every” and to give the Power Commission jurisdiction over every wholesale sale.
And as we see it, the Government tries very hard to diminish the significance and indeed, eliminate the significance of a clause in the preceding subsection of the initial section of the Power Act which states that such federal regulation, and it refers back in the same sentence to wholesale interstate commerce sales, such federal regulation, however, to extend only to those matters which are not subject to regulation by the states.
Now, the Government, in its argument before Your Honors, has referred to a number of decisions and has quoted language which, out of context, appear to support its position.
We have examined each of those decisions and are convinced that, in every case which has come before this Court and has been decided by this Court, there was a multiplicity of state interest, so that the rights of the states, as a matter of constitutional law, to exercise rate regulation did not exist.
This we believe is the first case which has come before this Court where, when it's faced with the situation of a wholesale sale in interstate commerce, where it is unmistakable that the interest of one and only one state are involved.
The only decision which we find in conflict with that of the Ninth Circuit is the case of Wisconsin versus Federal Power Commission.
That is a Court of Appeals decision, and that decision is very brief.
It goes into no discussion on the subject and relies wholly upon the Court of Appeals decision decided a year or two before that, namely Wisconsin-Michigan Power Company versus Federal Power Commission.
And the court states that the fact is strikingly similar.
We've examined the facts in the two cases and they are strikingly dissimilar.
In the earlier case, there was indeed a multistate interest and we would not question that the Power Commission would have jurisdiction in those premises.
In the second, there was no apparent conflict of interest but the Court passed the question off without really discussing it.
Now, that is the only decision which we have found which might be said to be in conflict.
The Commission and the federal government have contended, that unless they are able to have jurisdiction over sales of this character, in other words over all wholesale sales regardless of the national or local interest, their efforts in administration will be jeopardized.
And they say that it is a simple distinction between wholesale, retail on the one hand, and that it is a very difficult distinction to make between national and local.
That was their position in speaking orally on this subject and yet they have recognized in their brief that it is, in fact, simple enough to determine whether there is a multistate interest.
What they fail to tell us is that, with their test it is essential to have a case by case determination of a tracing of power to the sale in question.
This particular proceeding is an instance in point where, if the constitutional test which we advocate had been applied, this case probably could've been disposed of without going to hearing.
Nine days of hearing were occupied almost entirely in trying to trace power flows.
If the parties had sat down around the table and had considered whether or not there was a multistate interest or a purely local interest, no one could've questioned that the interest lay with California and that neither Arizona nor Nevada nor any other state could be concerned.
The Government is suggesting that since we are admitting for argument that interstate sales are here concerned, therefore, it must be national in character.
Well, that may be the test under the Sherman Act, as the Government states in its brief.
That certainly is not the constitutional test which Congress was thinking about when it relied upon the Attleboro decision and the gap which needed to be closed by that decision.
We believe that this case represents a reaching out for jurisdiction in an area where no national interest lies and where there is no evil to be cured by the intervention of the Federal Power Commission, and we believe that the Ninth Circuit decision is entirely logical and is not only good law but good sense.
Chief Justice Earl Warren: Mr. Bury.
Argument of John R. Bury
Mr. John R. Bury: Mr. Chief Justice and may it please the Court.
Boulder Canyon Project legislation of course provides an additional independent ground for affirming the Court of Appeals.
The significance of the Boulder Canyon Project legislation in this case is two-folds.
First, it provides the legal basis for federal jurisdiction over the sale to Edison of its only source of out-of-state energy.
Second, it, by its terms, precludes FPC jurisdiction over the subsequent resale of such energy by Edison in California.
As to the first matter, the only interstate aspect of Edison's business is its purchase of electric energy from the Secretary of the Interior.
Edison's rights to purchase that energy are fixed by a contract executed pursuant to that legislation.
Now, the allotments of power to Hoover and the rates to be charged are fixed by those contracts and by the terms of the Act, and all must concede that the States of Arizona, Nevada, and California have a very vital interest in those allotments of power and the price which the United States will charge.
However, each of those matters had been and still are under the full effective and exclusive control of the Secretary of the Interior pursuant to that legislation.
So that under these circumstances, every aspect of Edison's business which could possibly affect the interest of the States of Nevada or Arizona or the United States are fully subject to existing federal control.
Now, as to the subsequent sale of such energy by Edison in California, Boulder Canyon Project Act provides by Section 6, quoted by Mr. Cragun, that the Secretary of the Interior shall prescribe and enforce regulations for the control of rates and other matters to be exercised, however, only in the absence of state regulation.
Justice Potter Stewart: How about this question of whether or not some Davis Dam power got into it?
Mr. John R. Bury: I think this can best be answered this way, although I would grant you there is a factual dispute which has not yet been subject to judicial review as to the existence of Davis energy.
And with respect to that I might say, that the government or the Federal Power Commission has never offered any proof that those sales have occurred subsequent to a date back in 1956 and at that time, wherein quantities so small as to be below the margin of error of the values of the devices used to measure those flows.
But, I think the key answer, perhaps, to Davis is this.
Edison's only contract for out-of-state energy with the Secretary of the Interior is for Hoover energy.
In addition, Edison acts as an agent for the United States in the operation of Hoover Power Plant.
Pursuant to the terms of that agency contract, the United States has reserved the right to integrate its plants on the Colorado River, so that if the United States, in the exercise of that right of integration, has substituted Davis energy for Hoover energy, and we do not concede factually that this had been done.
But if it has been done, it was done pursuantly only to that contract by which Edison acts as an agent of the United States and not as a contractor or purchaser for such energy.
Now, by Section 6, the authority to regulate rates for the resale of energy purchased by the Sec -- from the Secretary of the Interior has been reserved to the states and only in the absence of state regulation to the Secretary.
It is amply clear that the regulatory authority vested in the Secretary by Section 6 is the same authority which FPC is here trying to claim for itself.
Some historical background to put this in perspective would probably be helpful.
I won't take the Court's time with that now but I would commend to the Court's attention an exchange of correspondence between Edison and the Federal Power Commission back in 1953 and 1954.
This will be found in the record, commencing at about page 673 and, in there, contains a memorandum rest -- residing the pertinent historical facts in the legislative history behind Section 6 and its effect on the authority of the Federal Power Commission.
Now, the passage of the Boulder Canyon Project Act and the execution of Edison's contracts were all based upon the understanding that the power was being sold by the Secretary for transmission into California and for resale by Edison in California for that was the only market for that power.
And that such sales in California had been and would continue to be regulated by the Public Utilities Commission of California.
And I believe it is fair to state that the petitioners concede the authority of the Secretary of the Interior to regulate such sales, at least prior to the enactment of Part II of the Federal Power Act in 1935.
Their argument then appears to be that, one, the Secretary's authority under Section 6 of the Project Act is somewhat comparable.
I think, to claim that it is substantially identical would not bear scrutiny if the Act's sections were compared.
But anyway, they claim there is a comparability and that this Court has held, in U.S. versus P.U.C., that when in 1935, the Federal Power Commission's authority overrates was expanded, the new sections superseded the prior sections which were then inconsistent.
And then try to make from that the more radical assertion that it not -- that the enactment of Part II not only superseded the Federal Power Commission prior to -- prior authority over rates but went so far as to revoke the authority of an entirely independent branch of the government which -- in which power was granted by a separate piece of legislation.
I don't believe that there is any basis for holding that Section 6 has been repealed by implication or otherwise.
Back to the contrary, Congress has periodically reviewed the Boulder Canyon Project Act and, in 1940, some-five years after the Federal Power Act, substantially amended Section 6.
The Congress left intact and without change the Secretary's authority over the rates of resale of energy of Hoover Power Plant.
Your Honor, as Mr. Cragun related, this is an issue which has been litigated or have been present in this case from its inception.
The presiding examiner of the Federal Power Commission which heard this case disposed it on this ground and ruled that the Federal Power Commission was without authority.
It was then reversed by the Commission.
The Court of Appeals did not pass upon this.
However, petitioner, City of Colton, raised it in its petition for certiorari, and the Court's order granting certiorari of course was in no way limited.
Unknown Speaker: (Inaudible)
Mr. John R. Bury: No sir.
No, Your Honor.
I do not make that concession because I believe the Secretary's authority springs from the contractual relationship between the parties, and the only contractual relationship here between Edison and the Secretary of the Interior is with respect to Hoover power.
Unknown Speaker: Do you think that (Inaudible)
Mr. John R. Bury: Yes, sir.
I believe that is correct.
Unknown Speaker: (Inaudible)
Mr. John R. Bury: The Court of Appeals found, and quite properly, that this case could be disposed of solely on the ground that the Federal Power Act reserved to the states the full regulatory power which they had under the Commerce Clause and that, of course, is dispositive to the case.
Unknown Speaker: (Inaudible)
Mr. John R. Bury: The Commission -- I would not concede that the Commission really made a finding.
They spoke on the subject and the evidence indicates that the witness who testified on this subject said there was a connection between Davis and Hoover Power Plants and that energy coming over a given line could have come from Hoover or Davis.
But nowhere in that record did any witness testify that it was Davis energy or even in his opinion was it Davis energy.
Unknown Speaker: (Inaudible)
Mr. John R. Bury: Well, I think the two basic grounds are independent to that extent if they --
Unknown Speaker: (Inaudible)
Mr. John R. Bury: Well, I think that's correct.
As I say, they only -- they speak of this in somewhat inexact -- in a somewhat inexact manner.
There is only one other -- two minor points with respect to the Boulder Canyon Project legislation I would like to get upon.
One is that petitioners claim that perhaps this unique statute, if given effect according to its terms, would create some kind of a substantial white area in FPC's jurisdiction.
I think the answer to that is that the Southern California Edison Company is the only party which would be affected by this particular statute for the reason that all other LRTs of Hoover power happen to be public agencies which are exempt from rate regulation by FPC or by the states.
(Inaudible) and that indicated this case -- this particular statute is not only -- or this issue was not only uniquely narrow, it naturally must be somewhat novel in this case.
It's not novel to the Commission, as I say, because this matter was explored with them over 10 years ago when they first made claims of jurisdiction.
And Edison furnished them with the comprehensive statement of the legislative history and it's reasonable.
I believe this Act precluded FPC jurisdiction and, at time, the Commission seized its demand until such time as Colton filed its complaint some-four or five years later which initiated this proceeding.
Justice Potter Stewart: As I understand you to say, as a matter of fact, that the Southern California Edison Company is the only private purchaser of Hoover Dam power?
Mr. John R. Bury: The only -- we're now speaking as of today.
I believe, as of the time that the record was closed in this case, the California Electric Power Company was also an LRT of Hoover power.
I might explain --
Justice Potter Stewart: And all the --
Mr. John R. Bury: -- that there are others who are indirect purchasers because the States of Arizona and Nevada have created public entities to purchase their full state's allotments and that the Colorado River Commission of Nevada purchased the entire state's allotment and the Arizona Power Authority purchasing the entire allotment of the State of Arizona.
Justice Potter Stewart: I see.
Mr. John R. Bury: The private companies, being subsequent purchasers, do not have this contractual relationship and the direct control and regulation by the Secretary of the Interior which does exist with respect Edison.
Justice Potter Stewart: But the private companies in Arizona and Nevada buy it from the state-created identities?
Mr. John R. Bury: That's right, at least I believe this is true.
I'd like to pass on one other matter briefly and that is that the Federal Power Commission in its reply brief filed the other day, raised this question of mootness, and this related to Edison's offer to prove upon rehearing that its purchases of out-of-state energy, upon which FPC based its case, had seized early in 1961.
Now, Edison does agree that there is a live controversy here, primarily because of Colton's claim to be entitled to refunds for a substantial past period.
In fact indeed, it's for this reason that Edison believed it was improper to consider matters such as the recent merger with California Electric Power Company which occurred subsequent to the closing of the record.
It should be noted however, that Colton's claim to refunds is not based on any claim that the rates which were charged by Edison were unreasonable.
They are based solely, as Mr. Spritzer mentioned, upon Edison's failure to file.
As a matter of fact, Colton participated in the California proceedings, fixing those rates and, at no time before that Commission, ever challenges jurisdiction.
But it wasn't as Edison's contention that the termination of its out-of-state purchases, upon which FPC based this jurisdiction, occurred before the end of the period for which the FPC ordered an accounting for refunds and before the end of the period for which Colton claims refund, and that this case has become moot from and after that time and that it was erred for the Federal Power Commission to refuse to consider this change of circumstances at that time.
Chief Justice Earl Warren: Mrs. Pajalich.
Argument of Mary Moran Pajalich
Ms Mary Moran Pajalich: Mr. Chief Justice and may it please the Court.
I'm Mary Pajalich, representing the California Public Utilities Commission which speaks for the people of the State of California in matters involving public utilities.
The Court is aware that the National Association of Railroad and Utilities Commissioners, which represents other state commissions, has filed an amicus curiae brief with the Court in support of the position of the California Commission.
The California Commission Your Honor, subscribes fully to the legal arguments advanced by Edison with regard to the decision of the Ninth Circuit and to the additional reason for sustaining it under the Boulder Canyon legislation.
The burden of the Federal Power Commission argument has been that Congress has given it jurisdiction over every sale at wholesale in interstate commerce.
I'd like to point out some of the practical considerations that would ensue if FPC has jurisdiction of all wholesale sales in interstate commerce.
Now, I'm assuming, for the purpose of this argument, that the FPC is successful in proving that there is interstate energy in this -- in all wholesale sales as they were not able to do in the Colton proceeding.
Throughout the United States Your Honors, electric companies sell energy at wholesale or resale to cooperatives, shopping centers, office buildings, apartment houses, and trailer courts.
These are just as much a sale at wholesale or resale as is the sale to the City of Colton or to any other municipality.
There is no distinction between sales and wholesale made in the Federal Power Act.
Now, the agency -- the administrative agency which has jurisdiction over a wholesale sale also has jurisdiction over the service performed by the utility which makes the sale, even though Congress exempted from FPC jurisdiction local distribution facilities over which sales, such as I have just mentioned, are customarily made.
If the FPC has jurisdiction, it must entertain complaints relative to the service of the electric companies making these wholesale sales.
And there are several hundred thousand customers in the United States which buy energy at wholesale from the electric companies for resale to their own tenants.
The Federal Power Commission, Your Honors, has described its own facilities as limited facilities in the gas producer cases, and the area rate cases were its effort to utilize its limited facilities in the most effective way.
If FPC has jurisdiction over every wholesale in interstate commerce, the Court can just envision the difficulties that would ensue if a trailer court operator, let's say, in California tries to get a little expeditious action out of the FPC because his master meter is running too fast or an apartment house owner who says he has a disputed bill.
What chance would he get, with FPC's backlog of unconsidered and undisposed of cases which involved multistate concern of ever getting heard?
Congress never could have intended that the agency that it created to deal with problems of national concern would ever try to handle these matters which the states can handle and handle expeditiously.
Justice Potter Stewart: Now, Colton sells this electric power to -- at retail, doesn't it?
Ms Mary Moran Pajalich: It sells its electric power at retail to the inhabitants of Colton, yes, Your Honor.
Justice Potter Stewart: And if some householder's meter begins running too fast, it's Colton, he calls up, doesn't he?
Ms Mary Moran Pajalich: Not always, Your Honor.
We got --
Justice Potter Stewart: Well, he may make a mistake and call the wrong person, but isn't it --
Ms Mary Moran Pajalich: No, we have lots of complaints from tenants of an apartment house who say, “I've got a bill from X Utility Company and I know they're billing me too much.”
So, more or less, as a courtesy to the complainants, we do investigate that matter in California, although of course, the proper person for them to go to see would be the utility but we have jurisdiction over the utility.
Now, there's another matter.
If the Federal Power Commission has jurisdiction over every wholesale sale in interstate commerce, it would be inundated by the filing of thousands and thousands of rate schedules, which it doesn't have to cope with now, for resale schedules for sales to coops, apartment house owners, retail, shopping centers, and so on.
There is another aspect to this, too.
A -- an apartment house owner, just for an example, who sells energy at wholesale, and let's assume it's in interstate commerce, the rate which he is charged by the utility comes under the jurisdiction of the Federal Power Commission.
But, he can change his mind over night and say, “I don't want --I don't want this wholesale sale anymore.
I'm going to just buy energy at retail from the local utility and I'll recover the cost of the electric energy that I buy in rates to my tenants.
I won't sub-meter to them.”
Then that becomes a retail sale then the jurisdiction switches back to the state commission.
The sale which was formally under FPC jurisdiction then comes under the California Commission.
Now, surely Congress could never have intended that the Federal Power Commission's jurisdiction could rise and fall on the whim of an apartment house manager.
Then there is the matter of rates.
Both the Federal Power Commission and the California Commission fix rates, in fixing rates, make allocations of costs and revenues and expenses between interstate and intrastate plant.
If a number of wholesale customers switched from wholesale to retail, this could disrupt the allocations made by each agency.
We'd never know whether enough plant was in the interstate pot or in the intrastate pot, and the companies might not earn.
There might be a gap in their return on their total plant.
Then the California Commission fixes rates differently from the Federal Power Commission.
The Federal Power Commission considers the costs, makes an allocation of the costs between users of the system.
The California Commission considers competition by competing fuels, such as Mr. Spritzer said, natural gas or oil.
It considers the ability of a customer to pay, the historical rate pattern, and the impact of rates on development of an industry or of an area.
Now, these are purely local considerations.
The California Commission, in accordance with the provisions of the California Public Utilities Code, has an unvarying policy of fixing resale rates to cities as low as possible without burdening other customers.
So the rates will never be the same.
If they're fixed by the California Commission or the FPC, they can't be the same and there can be no duality of this type of regulation.
This switching back and forth, I think, is illustrated by what the City of Colton did.
First, it paid the increased rates which the California Commission authorized.
Then in 1961, the Federal Power Commission ordered Edison to file as its schedule its 1945 contract with the City of Colton.
And thereafter, Colton paid Edison on the basis of those 16-year-old extremely low rates.
Then Edison filed its schedule of rates with the Federal Power Commission pursuant to the Federal Power Commission's order, calculated or -- calculated, on the basis of Federal Power Commission practice, the allocation of cost method.
These rates are considerably higher than the rates which California had fixed for the sale.
Colton paid those higher rates until the Ninth Circuit's decision came out.
Then that being the last word out of the judicial hopper, it paid California rates again, they being lower.
If customers go back and forth like this between jurisdictions, neither agency could ever make a smooth and workable rate structure.
Claims of discriminations between cities and between customers would inevitably arise.
Electric utilities which are not under the jurisdiction of the Federal Power Commission would have their rates fixed by the California Commission in accordance with California standards.
Cities would get a break in that fixing of the rates.
Other cities whose rates would be fixed by the Federal Power Commission at a higher level would inevitably complain.
Now, the American Public Power Association says, Mr. Spritzer repeated their language today, that there could be no certainty about a forum unless the Federal Power Commission gets the regulation.
The only certainty, absent a determination of flow of interstate energy, would be if the Federal Power Commission had jurisdiction over all wholesale sales, whether in interstate commerce or in intrastate commerce, but Congress hasn't given them that jurisdiction.
Another difficulty that the Federal Power Commission would have, a very practical difficulty if it gets regulation over every wholesale sale in interstate commerce, is to trace interstate energy into that interstate sale.
And the Federal Power Commission would find it mighty burdensome and vexatious to try to trace out-of-state energy through distribution facilities which serve wholesale customers.
They'd have to trace energy through facilities which serve thousands of customers in order to get some trailer court's master meter.
Yet, this would be necessary for the Power Commission to do for Section 201 (a) of the Federal Power Act gives FPC jurisdiction only, “Of that part of such business which consists of the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce.”
So, the Federal Power Commission cannot assume or speculate that, because there is some out-of-state energy in the an -- in the whole system, that there is out-of-state energy in a particular sale.
Now, the Federal Power Commission, in its brief, urged that there would be a detriment to Federal Power Regulation unless it gets jurisdiction over all wholesale sales.
I think the detriment is quite the other way.
The Federal Power Commission's limited facilities would best be devoted to those matters which do concern the national interest.
California has a big stake, and all the other states have a big stake, in the adequate regulation by the Federal Power Commission of matters of multistate concern.
California is definitely interested in the area gas rate cases, in certification of gas pipeline cases.
And if California utilities ever get into an interstate power pool, which they don't belong to now, California will be very interested in the court -- in the costs which the Federal Power Commission will determine.
These are proper areas of FPC concern and it would be to the detriment of the Federal Power Commission and the states and to all the consumers of the nation if Federal Power Commission is permitted to further away the powers which it has in the area of national interest to adjudicate matters of state concern while a growing backlog of cases rises steadily around them.
Now, with regard to the interstate power pools, as I have said, there are none in California.
But if Edison or any other California utility should join an interstate power pool, certainly, the Federal Power Commission would have jurisdiction over the costs of every member of the federal -- of this interstate power pool.
The Federal Power Commission has the power and the jurisdiction to do that and that's an es -- their essential function.
If the Federal Power Commission does its duty in this respect, its cost determinations will not become outdated, as they appear to fear, and there will be no reason why the states can't rely on cost determinations in interstate power pools, at least until the determinations are changed by the Federal Power Commission.
Now, relative to the comment made by Mr. Spritzer and in response to a question from you, Mr. Justice Stewart, relative to Davis energy.
The FPC staff witness, in presenting his case relied only upon the tracing of Hoover energy from Hoover to Hayfield.
But I think if the Court will -- look at the diagram which follows page 12 of the California Commission's brief, it will see the area in question a little bit better.
The staff witness traced energy from Hoover Dam to the Hayfield Substation and then to the Highgrove Substation.
Now, with regard to the stream of commerce mentioned by Mr. Spritzer, this stream consisted of a very small trickle.
In 1958, the so-called stream from Hoover consisted of 1% of all of Edison's energy.
In 1959, it dropped to a fifth of 1%.
Now, of course, there was none coming over that line from Hoover Dam into Highgrove Substation.
Now, as Mr. Bury suggest before me, the Ninth Circuit did not pass upon the matter of the tracing of energy assuming, for the purpose of decision, that the Federal Power Commission's finding of energy from Hoover in the sale to the City of Colton was sustained by adequate proof.
However, as the FPC said in its reply brief related -- in relation to the Bolton C -- Boulder Canyon Project argument, we do not consider that it would inappropriate for the Court to consider this issue inasmuch as the Court did not limit the consideration of matters which are of record, although the -- as I say, the Court below did not pass upon this issue.
Now, the staff witness traced the energy into the Highgrove Substation from Hoover which Edison admitted.
Then he said the energy goes up to the 66kv banks, then up to the 66kv substation, then some of that energy goes through the 11kv bust, all of these are transformer stations which step down the voltage.
Then it goes into the sa -- into the City of Colton and Colton resells it.
He ignored the connection with the Chino Substation.
There is a 220kv line connecting Chino Substation with Highgrove Substation.
Energy which is generated in California, according to the loads and demands of the system, flow through the Chino Substation into the Highgrove Substation.
He ignored also the connection of the Etiwanda Substation with the Highgrove Substation.
Energy from California flows over that line into the Highgrove Substation.
Any energy that gets in the Highgrove Substation flows up to the 66kv banks but, from there, the 66kv lines go off in both directions, serving thousands of customers.
From there, the energy can go up to the 11kv banks where 11kv transmission lines go out and also serve many thousands of customers.
Justice Potter Stewart: The -- as I understand it, we would get in -- we would not get into this as a factual question at all, here in the present posture of the case.
But if -- but only if the Court of Appeals is wrong, then this case would be remanded to the Court of Appeals.
Would it, in your view for a determination of whether or not there was in fact any interstate power as the source of the electricity sold by the City of Colton?
Ms Mary Moran Pajalich: That could be done, Your Honors, but the whole record is before the Court.
I believe the Court could pass upon this factual matter if it chose to do so.
Justice Potter Stewart: The Commission found that there was an interstate source, clearly, here.
Ms Mary Moran Pajalich: Yes, the Commission, basing its decision primarily upon the testimony of the staff witness who included in his showing only a portion of the system, made the finding that there was energy from Hoover Dam in the sale to Colton.
They ignored all the California sources of supply and they ignored all the California loads that could've consumed that Hoover energy before it ever got to Colton.
Justice Potter Stewart: And then the Court of Appeals assumed without deciding that there was Hoover Dam energy sold to Colton.
Ms Mary Moran Pajalich: Yes, Your Honor.
The court based its decision upon another ground which disposed of the case.
Justice Potter Stewart: And which ground, you say, is correct of course.
Ms Mary Moran Pajalich: They're both correct.
Justice Potter Stewart: And -- well, they're both -- but, as I understood it, it only decided one.
Ms Mary Moran Pajalich: They only decided one.
That -- that ground is correctly decided.
Justice Potter Stewart: Right.
Ms Mary Moran Pajalich: This is another ground in addition to the Boulder Canyon Project Act upon which it also could've been decided in favor --
Justice Potter Stewart: I understand.
But now, if by chance, this Court should disagree with you and think that the ground upon which the Court of Appeals decided its case was erroneous, in your view, what should this Court do?
Ms Mary Moran Pajalich: Well, it should remand it, naturally, for --
Justice Potter Stewart: To where, to the Commission?
Do you think the Commission acted improperly?
Ms Mary Moran Pajalich: Yes, Your Honor, I do.
Justice Potter Stewart: In -- in finding -- to the extent that we should remand it to the Commission to reconsider the question of the source of the power?
Ms Mary Moran Pajalich: I think that it should --
Justice Potter Stewart: Or remand it to the Court of Appeals?
Ms Mary Moran Pajalich: If it's to be remanded at all, may it please the Court, it should be remanded to the Court of Appeals since it has not yet had judicial review.
Justice Potter Stewart: That's what I thought.
Ms Mary Moran Pajalich: Now, to conclude.
Justice Hugo L. Black: Can I ask you.
Ms Mary Moran Pajalich: Yes, Mr. Justice Black?
Justice Hugo L. Black: Is it possible for them to tell that whether some of this electric power came from Hoover and from Davis?
How can they do that?
Ms Mary Moran Pajalich: Well, it would be possible if the lines which came from California into the Highgrove Substation were metered.
They're not metered.
So, we don't know the amount of energy that came from the --
Justice Hugo L. Black: But they knew the amount.
Ms Mary Moran Pajalich: If they knew the amount --
Justice Hugo L. Black: Does it all get mixed up like drops of water that go to the sea?
Ms Mary Moran Pajalich: Well now Your Honor, one of the most eminent physicists in the United States was asked, “Does electric energy mix?”
And he answered, “That has never been proved.”
Justice Hugo L. Black: Well, has it been proved that it doesn't mix?
It could all get together and go.
Ms Mary Moran Pajalich: It's -- it never was proved in this case that all of the Hoover energy might not have gone out to serve California customers over the -- let's say, the Etiwanda line before it ever got up into the Colton area.
Justice Hugo L. Black: Does it mix somewhere?
Ms Mary Moran Pajalich: No, I don't think energy mixes.
Justice Hugo L. Black: Does -- do you mean that they have different lines that it runs through?
Ms Mary Moran Pajalich: No, it runs through on the same line.
Justice Hugo L. Black: Runs through the same line?
Ms Mary Moran Pajalich: Yes.
Justice Hugo L. Black: Therefore, at some point, this power that comes from Hoover Dam gets in the pipe with power that didn't come from Hoover Dam, is that right?
Ms Mary Moran Pajalich: It gets on the line.
Justice Hugo L. Black: It's on the line?
Ms Mary Moran Pajalich: Yes.
Justice Hugo L. Black: All right.
Now, was there any evidence here that it is possible, maybe it is in the age of electronics?
Ms Mary Moran Pajalich: It could be possible I think Your Honor, if a proper analysis had been made.
The physicist who testified said that vector analysis --
Justice Hugo L. Black: A what?
Ms Mary Moran Pajalich: A vector analysis could be made in order to determine available loads and sources on electric systems.
This wasn't done by the Federal Power Commission.
Justice Hugo L. Black: Can that -- have they found any way yet to divide these electrons up and look through and see which ones --
Ms Mary Moran Pajalich: No.
Justice Hugo L. Black: Flow to the end and which ones stop on the way?
Ms Mary Moran Pajalich: No.
But, in the Jersey Central case, this Court found, and very properly so, that all of the energy which supplied a particular bust on a particular time must have come from out-of-state since at that time, there was no available instate source of supply.
Justice Hugo L. Black: So that's possible --
Ms Mary Moran Pajalich: Now, that can't be said here.
Justice Hugo L. Black: That's possible if you have a stream that has a number of streams coming into it and somewhere, that stream stops flowing so that you, then, pick it up again later, new water comes in you'd know it.
But how are you going to divide those drops of water or electrons when they get together in a line or get -- both of them get in one line?
Ms Mary Moran Pajalich: Well, Your Honor, that was the burden of proof which the proponents of the argument had, not Edison and not California.
Justice Tom C. Clark: Can you prove that it's brought from Hoover?
Ms Mary Moran Pajalich: I beg your pardon, sir?
Justice Tom C. Clark: That if it proves it's brought from Hoover.
Ms Mary Moran Pajalich: Yes, to a certain point.
They didn't prove that it was brought to the City of Colton and that's the only sale that's before this Court.
Justice Tom C. Clark: Do we have the same problem today?
It's quite a mingle, I think, if it proves it and then (Inaudible) together as soon as it the flows together?
Ms Mary Moran Pajalich: Well, that presumption isn't based upon any -- the presumption that electric energy mixes is not based upon anything that was produced in this record, Mr. Justice Clark.
Justice Hugo L. Black: The law doesn't impose impossible burden --
Ms Mary Moran Pajalich: I don't --
Justice Hugo L. Black: On either side, and I -- unless there's some evidence, someway, in here that there's a better way to discover or find out whether the particular electrons that were generated at Hoover didn't go to Colton.
If they had -- somewhere along the line, got in along with some that did, I should think that we would have to assume that the Commission is right.
Ms Mary Moran Pajalich: Well, sir, I don't think that -- I must respectfully disagree with you.
I don't think that any burden was upon either Edison or California to prove that the energy did not get to Colton.
It was on the Federal Power Commission to prove that it did.
Justice Hugo L. Black: But, maybe it's one of those things, I could say, there's a burden on somebody to show that lightning flashes?
Ms Mary Moran Pajalich: Oh, I think that's --
Justice Hugo L. Black: Everybody knows that --
Ms Mary Moran Pajalich: -- demonstrable.
Justice Hugo L. Black: -- it flashes.
Ms Mary Moran Pajalich: Well, you're ask -- you're saying that something is just a matter of common knowledge.
Justice Hugo L. Black: I would --
Ms Mary Moran Pajalich: I --
Justice Hugo L. Black: I would suppose it's a -- it's as much a matter of common knowledge is if water that gets mixed up, its drops gets mixed up and it keeps on flowing, that there's a very difficult way unless you analyze all the drops some way chemically.
It is impossible to tell which drop goes to where.
Ms Mary Moran Pajalich: Your Honor, the only evidence in this record concerning the mixing of electric energy was by -- perhaps, the world's foremost electrical physicist who said there's no proof that electric energy does mix.
Justice Hugo L. Black: Well, the proof that it goes along in the same line, isn't it, propelled by some kind of force?
Ms Mary Moran Pajalich: It goes along the same line, but does it mix?
Justice William J. Brennan: Well, there's proof of that (Inaudible)
Ms Mary Moran Pajalich: Yes, some energy.
Justice William J. Brennan: Can you prove that electrical energy entered the (Inaudible) any white line which, in one way or another, came to Colton?
Ms Mary Moran Pajalich: It could get to Colton but there is another equally possible inference that it didn't and that Colton was served wholly by California sources which are more than adequate to serve Colton and which are, the record shows, available to serve Colton at all times.
Justice Arthur J. Goldberg: Who mingled it?
Ms Mary Moran Pajalich: I beg your pardon?
Justice Arthur J. Goldberg: Who mingled it for (Inaudible)
Ms Mary Moran Pajalich: Who can mingled it?
Justice Arthur J. Goldberg: Yes.
Ms Mary Moran Pajalich: It's just the physical setup of the transmission lines.
Justice Arthur J. Goldberg: (Inaudible)
Ms Mary Moran Pajalich: Yes, that's right.
Justice Arthur J. Goldberg: (Inaudible)
Ms Mary Moran Pajalich: No, I don't believe that the burden ever shifted to Edison in that respect, Mr. Justice.
Justice William O. Douglas: You're asking us to decide a question that the Court of Appeals specifically reserved?
Ms Mary Moran Pajalich: Yes, Your Honor.
Justice William O. Douglas: It didn't pass on, is that right?
Ms Mary Moran Pajalich: Yes, Your Honor.
Justice William O. Douglas: And that will be open on remand, whatever happens in this case.
Ms Mary Moran Pajalich: It would be, yes, Your Honor.
Justice John M. Harlan: I think what you said indicate that the Court of Appeals would be much more competent than we would be in passing.
Ms Mary Moran Pajalich: Oh, I don't believe that it would at all, Mr. Justice.
I'm sure that this Court would be at least as competent as the Uni -- the Ninth Circuit.
Justice Byron R. White: Why -- why isn't this rather a unique case, rather a rare burden that has no significance to any other situations?
Ms Mary Moran Pajalich: With regard to the Boulder Canyon Project Acts, it is a rare burden but, with regard to the fact of energy coming from out of the state and then subsequently may be or may be not getting into an instate sale after initial federal regulation, there are many such cases.
Justice Byron R. White: So, in general your proposition is I suppose that -- well, let's assume that the ultimate source here of the power was not with the federal government but with a private company.
Ms Mary Moran Pajalich: If that were the case --
Justice Byron R. White: And -- and at some point along that line, and probably at least on the first sale by that company in an interstate transaction, the Federal Power Commission would have jurisdiction?
Ms Mary Moran Pajalich: It most assuredly would.
Justice Byron R. White: And you would think that's the first and last time that it should regulate the rates?
Ms Mary Moran Pajalich: Well --
Justice Byron R. White: That in all subsequent downstream sales, or whatever direction you people talk about, and once it's crossed the -- once you get across the border and a sale occurs there, that should be a state matter.
Ms Mary Moran Pajalich: Yes, if all of the energy which is the subject of that sale is subsequently consumed within that state.
Now, if some of that energy --
Justice Byron R. White: The entire state.
Ms Mary Moran Pajalich: -- goes out into another state, then you have a multistate concern again.
Justice Byron R. White: I understand.
What if -- where there's an ultimate consumption within the state, if there is a prior regulated sale, regulated by the federal authority, that exhausts all the national interest there is.
Ms Mary Moran Pajalich: If the subsequent sale is wholly within the state, yes, Your Honor.
Justice Byron R. White: And so that this is -- this really is a quite general applicability then, the principle that you're struggling about here?
Ms Mary Moran Pajalich: I think that there are a fair number of cases, in which sales at wholesale are initially federally regulated, go into a state and are resold there and are consumed within the state.
I think that there are numbers of such instances so that --
Justice Byron R. White: Now, wa --
Ms Mary Moran Pajalich: -- this is not unique in that respect.
Justice Byron R. White: Was the purchase by Edison directly from the federal government or was the water district in between?
Ms Mary Moran Pajalich: It was a -- it was a purchase from the federal government of all of the energy which the Metropolitan Water District was not able to use in order for the Hoover Dam to be built.
Justice Byron R. White: But who paid the federal government, the water district or Edison?
Ms Mary Moran Pajalich: Edison.
Justice Byron R. White: I see.
Ms Mary Moran Pajalich: Thank you, Your Honor.