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Wisconsin-Michigan Power Co. v. Federal Power Commission .

June 9, 1952


Author: Lindley

Before KERNER, DUFFY and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

These are separate petitions, one by the State of Wisconsin and the Public Service Commission of Wisconsin in No. 10480 and the other by Wisconsin-Michigan Power Company in No. 10475, seeking review under Section 313(b) of the Federal Power Act, 16 U.S.C.A. § 825l(b), of an order of the Federal Power Commission of June 1, 1951 and a later one, overruling petitions for rehearing. Though the separate petitions do not rest upon exactly the same premises, the two appeals were argued together and we shall dispose of both in one opinion.

The Commission's order directed the power company to cease and desist from charging certain municipalities and other wholesale purchasers of electric energy for resale rates other than those on file with the Commission, unless and until such charges shall have been superseded by properly corrected new rates filed with and approved by the Commission, and to establish a reserve out of the earned surplus of the company to protect the purchasers against the over-charges.

The petitioners assert that, for the purposes of this litigation, the company is not a public utility within the intent of the Federal Power Act, 16 U.S.C.A. § 791a et seq.; that the Commission should have found that the sales were not made in interstate commerce within the meaning of the Act but that they constituted distribution from facilities used in local distribution; that the sales made to the municipalities were not at wholesale within the intent of the Act but were within the regulatory power of the Wisconsin Commission, in so far as Wisconsin sales are concerned, and that of the Michigan Commission, in so far as the sales in Michigan are involved, and that the requirement of creation of a contingent reserve is beyond the Commission's powers.

The facts are not largely in dispute. The power company operates two divisions, the northern and the southern. The northern includes, as its principal part, territory in the upper peninsula of Michigan adjoining Wisconsin and the southern, areas to the south entirely within Wisconsin. It operates four steam and hydro-electric plants in Wisconsin, eight in Michigan and a Diesel plant at Iron River, Michigan, all generating electric energy. The two divisions are inter-connected by a 132 K.V. line extending from the Michigan plants to a substation near Stiles, Wisconsin, and thence, with reduced voltage, south to Appleton, Wisconsin. The entire system is operated to produce, transmit, coordinate and distribute electric energy in such manner and in such volume as to insure continuity of service, maximum economic stability and adequate voltage throughout the two divisions in accord with the management's concept of efficient utility standards. Thus, when the Michigan plant's production falls short, it is supplemented by energy transmitted over the inter-connecting line from Wisconsin to Michigan and when the Wisconsin supply is inadequate, energy is transmitted from Michigan to Wisconsin to supplement the latter production. The percentage of the total distribution of each division supplied from without the state varies from time to time over the year, depending largely upon water conditions and partly upon other factors entering into the coordinated operation.

The examiner found that, of the energy distributed in Wisconsin, 17% is imported from Michigan and that the energy transmitted to Michigan from Wisconsin is 13% of the northern's total distribution. In certain seasons these percentages are very substantially increased and at other times, decreased. The essential fact in this respect is that, in this coordinated operation, electric energy is transmitted from Michigan to Wisconsin and from Wisconsin to Michigan in appreciable amounts by the power company and by it commingled with energy generated in the two respective districts and then delivered to the customers here involved. Before the energy reaches the wholesale purchasers, however, the voltage is stepped down by transformers in accord with general practice, in some instances, if not all, more than once. Obviously the energy thus transmitted in interstate commerce is not changed in form or in character except that the voltage is reduced to an extent consistent with efficient economic management and operation.

Shortly after passage of the Act in 1935, the power company asked for determination by the Commission of whether the then proposed merger of its interstate electric facilities and those of another company required Commission approval under Section 203 of the Act and, if so, that such approval be granted. Upon his application, the Commission held that the company is a public utility within the meaning of the Act and that, because of the transmission and sale in interstate commerce, all energy sold for resale is subject to federal regulation, and granted the approval requested. This determination was never reviewed; in compliance with it, the company filed its rates covering sales to wholesalers, that is, sales for resales, except as to the Oconto Electric Cooperative, the rate for which was filed in 1947. From time to time, as other contracts of sale with wholesalers were made, rates were filed, and, when changes were made, supplements reflecting the amended rates were filed with the Commission.

Between January 11, 1949 and April 8 of the same year, the power company submitted certain amendments to its rate schedules which, in substance, effectuated an increase of something over 10% on the basis of its 1948 sales for resale. These amended rates were suspended by the Commission; whereupon, on May 27, 1949, the power company withdrew the proposed increased rates, saying that revised suggestions would be made as soon as they could be prepared. The Commission consented to the withdrawal. However, notwithstanding the suspension and withdrawal of the proposed increases, the company continued to bill the customers at the increased rates, beginning January 1, 1949, the invoices in each instance bearing a legend that the increase had been questioned and that if it should prove to be unjustified, the customer would be given an appropriate refund. This legend also included a recital that the Wisconsin Public Service Commission had approved the rates but that its regularity had been questioned by the Federal Power Commission and that each Commission claimed jurisdiction. At this stage, the Commission, on February 10, 1950, issued its order initiating a proceeding for determining the controverted question and set the matter for hearing. The power company resisted the order and the State of Wisconsin and the Wisconsin Public Service Commission intervened in support of this resistance.

Upon the facts which we have outlined to such extent as we believe essential, the contentions of the petitioners are based. They insist first that the company is not a public utility for the purpose of regulation under Section 205 but is such only for certain other purposes and that the sales are, therefore, not subject to the Commission's jurisdiction. This is part of the broader question involved, i.e., whether the sales involved are subject to regulation under 205 of the Act. Section 205(b) of the Act grants to the Commission jurisdiction to impose rates where the seller of electric energy is a public utility and the sales are "subject to the jurisdiction of the Commission" and Section 205(c) provides that every public utility shall file rates and charges for any transmission or sale subject to the jurisdiction of the Commission and that no change by any public utility in any such rate shall be made except after compliance with prescribed conditions. Section 201(e) defines a public utility as "any person who owner or operates facilities subject to the jurisdiction of the Commission." Subsection (b) provides that the Act shall apply to "the transmission of electric energy in interstate commerce and to the sale of electric energy at wholesale in interstate commerce" and that the Commission shall have jurisdiction over all facilities used in such transmission and sales.

We conceive of no ground upon which the power company, under these provisions, can be properly classed as other than as a public utility. Apparently the company recognized this when it originally applied to the Commission for interpretation, for, after the Commission had found and determined that the company was a public utility, it sought no judicial review. Nor did petitioners in their application for rehearing of the order here involved urge any such objection. This latter fact in itself should be conclusive, for Section 313(b) provides that no objection to an order of the Commission shall be considered by the court, unless it shall have been urged before the Commission in the petition for rehearing, unless there is reasonable ground for failure so to do. The petitioners' contention that the power company is not a public utility for the purpose of this litigation is, we think, without merit. Indeed, the reasoning underlying this contention is, as we have said, essentially merely a part of another question, namely, whether the sales are subject to the jurisdiction of the Commission.

It is undisputed that electric current is generated in Michigan and transmitted to Wisconsin and generated in Wisconsin and transmitted to Michigan in interstate commerce. A company so transmitting energy from one state to another has been authoritatively held to be a public utility. Jersey Central P. & L. Co. v. F.P.C., 319 U.S. 61, 63 S. Ct. 953, 87 L. Ed. 1258; Connecticut L. & P. Co. v. F.P.C., 324 U.S. 515, 65 S. Ct. 749, 89 L. Ed. 1150. Inasmuch as the jurisdiction attaches when the transmission from one state to another and sales in interstate commerce occur and then only, it can not be denied that the subject matter is within the power of Congress to regulate interstate commerce. However, the State of Wisconsin denies that all its sales of electric energy in interstate commerce for resale are subject to federal jurisdiction. Yet that the states have no power to regulate sales made directly from interstate energy carried from state to state and delivered to wholesalers, that is, for resale, had been long established prior to passage of the Act. Missouri ex rel. Barrett v. Kansas Natural Gas Co., 265 U.S. 298, 44 S. Ct. 544, 69 L. Ed. 1027; P.U.C. v. Landon, 249 U.S. 236, 39 S. Ct. 268, 63 L. Ed. 577. It has been made equally clear that retail sales to consumers are local matters and that over them the states have complete jurisdiction. Thus the Supreme Court held in the earlier cases that the transportation of gas through pipe lines from one state to another is interstate commerce and that, as part of such commerce, it may be sold and delivered to local distributing companies free from interference by the state; that until the commodity transmitted in commerce reaches one for resale by him, the paramount interest is not local but national, admitting of and requiring uniformity of legislation.

In view of this absence of jurisdiction of the states in such situations, there was, prior to the enactment of the Federal Power Act, no regulation of a public utility, so far as its transmission and sales of electric energy at wholesale for resale were concerned. The states being without power and the federal government not having legislated in that respect, there was a no-man's land wherein operations by utility companies in such interstate operations were unregulated.The legislative history, House of Representatives 1318, 74th Cong., 1st Sess. pages 7, 8 and 27, discloses that the Congressional Committee intended that the provisions of the Act should apply to the tramsmission of electric energy in interstate commerce, i.e. the sale of energy at wholesale in interstate commerce, but not to the retail sale of any such energy in local disgribution; that the Act left to the state the authority to fix local rates where the energy is brought in from other states, and that the rate making power of the Federal Power Commission was to be confined to those wholesale transmissions which the Supreme Court had held, in Public Utility Commission v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S. Ct. 294, 71 L. Ed. 549, to be beyond the reach of the state. Under that decision, said the committee, the rates charged in interstate commerce wholesale transactions could not be regulated by the states. It defined a wholesale transaction as the sale of electric energy for resale.

Since that time the courts have interpreted the Act in accord with this expressed intent of the Congress. Thus, in Illinois Natural Gas Co. v. Central Illinois P.S. Co., 314 U.S. 498, at page 508, 62 S. Ct. 384, at page 388, 86 L. Ed. 371, the court said: "We think it plain that these provisions, read in the light of the legislative history, were intended to bring under federal regulation wholesale distribution * * *. After the gas is brought into the state appellant makes the first sale to distributors for resale, to which the Act in terms applies." The statute "cut sharply and cleanly between sales for resale and direct sales for consumptive uses." Panhandle Eastern P.L. Co. v. P.S.C. of Indiana, 332 U.S. 507, 517, 68 S. Ct. 190, 195, 92 L. Ed. 128. "Congress occupied only a part of the field. As to sales, only the sale of gas in interstate commerce for resale was covered. Direct sales for consumptive use were designedly left to state regulation." Panhandle Eastern P.L. Co. v. Michigan P.S.C., 341 U.S. 329, 334, 71 S. Ct. 777, 780, 95 L. Ed. 993. See also Colorado-Wyoming Gas Co. v. ...

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