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Regulatory Law Keyed to Shapiro, 4th Ed.
Federal Power Commission v. Hope Natural Gas Company
Citation:
320 U.S. 591 (1944)Facts
Hope Natural Gas Company, a wholly-owned subsidiary of Standard Oil Co. (N.J.), was engaged in producing, purchasing, and marketing natural gas in West Virginia. Hope sold some gas to local consumers in West Virginia, but the bulk was sold to five customer companies that distributed it in Ohio and Pennsylvania. In 1938, the cities of Cleveland and Akron filed complaints with the Federal Power Commission alleging that Hope’s rates were excessive. The Commission initiated an investigation and ultimately ordered Hope to reduce its rates by approximately $3.6 million annually.
The Commission established a rate base of $33.7 million, representing the “actual legitimate cost” of Hope’s interstate property less depreciation and plus working capital. Hope had argued for a rate base of $66 million based on reproduction cost. The Commission also rejected Hope’s request for an 8% return, determining that 6.5% was reasonable. Hope had been earning over 20% annually on its capital stock for many years and had paid substantial dividends. The Commission excluded from the rate base about $17 million in well-drilling costs and other expenditures that had previously been charged to operating expenses. The Circuit Court of Appeals set aside the Commission’s order, holding that the rate base should reflect “present fair value” including reproduction cost.
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