Utilities' Grief

Like the wars in China and Spain, those between the New Deal and U. S. utilities are no less real for being undeclared. Last the Supreme Court took two of conflicts in hand.

Surprise. Few practices arouse more bitterness among utility men than that of Federal money to build municipal plants which compete with private companies. When the PWA made a loan and grant to establish public plants in four small northern Alabama communities, the constitutionality of the project was promptly attacked by Commonwealth & Southern's subsidiary Alabama Power Co. A similar action was brought by Duke Power Co. against Greenwood County, S. C., which obtained a PWA loan and grant for construction of the Buzzard Roost hydro-electric project on the Saluda River. Both companies charged that PWA Administrator Harold L. Ickes was in effect using his program as a "club" to drive down private rates. Denied injunctions, company attorneys brought both cases to the Supreme Court.

When government attorneys last week heard a bewhiskered conservative, Justice George Sutherland, begin to read the majority opinion in the Alabama case, they shuddered. As he continued to read what turned out to be not a majority but a unanimous decision, they could scarcely believe their ears, for it completely upset the companies' contentions.

"While the loan might frustrate complainant's hopes of a profitable investment," droned Justice Sutherland, "it would not violate any legal right. . . . Each of the municipalities in question has authority to construct its proposed plant and distribution system in competition with petitioner, and to borrow money, issue bonds and receive grants for that purpose." The Court further announced that it would dispose of the Duke Case on similar grounds.

Said Secretary Ickes: "The people won."

Said Commonwealth & Southern's Wendell L. Willkie: "It means that the Federal Administration can continue its present policy of making outright gifts to municipalities with which to duplicate the distribution system of existing utilities. Of course no utility company can successfully compete with a municipal plant built with free money. . . ."

Undecided, Although utility men do not contest the right of the Government to fix their rates, they argue lustily about the method used to value their properties for rate-making purposes. Instead of reproduction cost the New Deal would like to have valuations based on what the properties would have cost under a policy of ''prudent investment." For obvious reasons the utilities as a rule favor the former, upheld in a series of Supreme Court decisions since 1898. For reasons equally obvious the New Deal has been trying to get the utilities, either through persuasion or compulsion, to accept the theory of "prudent investment.."

Last week's test case arose out of an unenforced order issued by the California Railroad Commission in 1933 directing the Pacific Gas & Electric Co. to reduce its gas rates by $1,744,681 a year. The company got a three-judge Federal court to enjoin enforcement of the order on the ground that the commission had not properly considered the cost of reproduction in setting the rates. When the injunction was appealed to the Supreme Court last term it was upheld by a 4-to-4 decision, Justice Sutherland not voting. But after Hugo Black succeeded Willis Van Devanter, the Court voted to review its decision.

Last week the Court, in a 6-to-2 decision (Justice Sutherland again not voting) made prudent investment v. reproduction cost nearer to an open question than it has been for 40 years by remanding the case to District Court for further evidence. Chief Justice Hughes's majority opinion declared: "The main issue in this litigation is whether the rates as fixed by the commission's order are confiscatory." At what looked to him less like a decision than a flipflop of indecision, dissenting Justice Pierce Butler spoke a tart word: "Our decisions ought to be sufficiently definite and permanent to enable counsel usefully to advise clients."

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