Reasonable v. Fantastic

With obvious misgivings, the U.S. Supreme Court last week okayed the new yardsticks which the Federal Power Commission has fashioned to fix wholesale natural-gas rates. In three separate decisions, FPC came out on top. But it had only a legal victory to crow over. A court majority looked on the rate yardstick with so little enthusiasm that one justice flatly called it a "fantastic" way to regulate the gas industry.

Fantastic or not, the yardstick had been used by FPC to cut $7,800,000 annually off the wholesale rates of four companies: Panhandle Eastern Pipeline Co., whose pipeline system, stretching from Texas to Michigan, is the world's longest; Colorado Interstate Gas Co.; Canadian River Gas Co.; and Colorado-Wyoming Gas Co.

In laying out its yardstick, FPC had simply lumped together all the properties of each company, including its producing wells, leases and gas lines used to transport gas intrastate (over which FPC actually has no control). Then FPC allocated the costs between each phase of the business, set rates on a basis of a 6 1/2% return on interstate transactions.

The companies hotly protested that FPC had no right to 1) count in facilities used in intrastate commerce which is beyond FPC's control or 2) set valuations on the basis of the low original cost rather than the higher present values.

For Want of a Law. In his majority decision on Colorado Interstate Gas Co. and Canadian River Gas Co. which set the pattern for the other cases, Justice William Orville Douglas brushed these objections aside. He held that as long as Congress has failed to set up a yardstick, FPC can use any "just and reasonable" one it wants--the same reasoning used in the famed Hope natural-gas case (TIME, Jan. 17, 1944).

On this, the fireworks came not, as usual, from the dissenters. They came from Justice Robert H. Jackson, who gave FPC its slim five-to-four majority in the Colorado and Canadian River case. New Dealer Jackson also gave the gas industry hope that the court was becoming so split on natural-gas regulation that it might soon force a clarification of the freehanded rate-making powers of FPC.

The FPC yardstick, said Justice Jackson, is a "fantastic" one which has had "delirious results." It has often resulted in unrealistic valuations on gas-company property for rate purposes, has also favored one consumer group against another. Chiefly, he argued that gas, as a limited natural resource, should be regulated to conserve it, rather than with a strict eye on a high or low return on a company's investment.

Said he: "The real inwardness of the gas business, as it affects the future, has been obscured by the Commission's preoccupation with bookkeeping and historical matters. Such considerations will not be very satisfying to a coming generation that will look back and judge our present regulatory methods in the light of an exhausted and largely wasted gas supply."

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