488 U.S. 299 (1989)
In 1967, Duquesne Light Company and Pennsylvania Power Company joined the Central Area Power Coordination Group venture with three other utilities to construct seven nuclear generating units.1
By 1980, the companies had canceled plans for four of the units following the Arab oil embargo and the accident at Three Mile Island, which altered projections for demand growth and the viability of nuclear power. At cancellation, Duquesne had expended $34,697,389 and Penn Power $9,569,665 on the halted projects.2
A Pennsylvania Public Utility Commission investigation concluded that the decisions to initiate and later cancel the plants were reasonable and prudent at each stage.3 In subsequent rate proceedings in 1982 and 1983, the Commission authorized the utilities to amortize these costs over ten years as part of rate increases, including $3.5 million annually for Duquesne and $956,967 for Penn Power in the first year.4
The Pennsylvania Office of the Consumer Advocate challenged these orders after the enactment of Act 335 in late 1982. The Commonwealth Court upheld the Commission's interpretation allowing amortization, but the Supreme Court of Pennsylvania reversed in 1987 and remanded for revised rate orders.5
Duquesne and Penn Power appealed to the United States Supreme Court, which noted probable jurisdiction in 1988.6
Whether the Supreme Court has appellate jurisdiction under 28 U.S.C. § 1257(2) when the Pennsylvania Supreme Court has remanded the rate proceedings to the Public Utility Commission for further action?7
Under 28 U.S.C. § 1257(2) this Court may review final judgments from the highest state court when the validity of a state statute is questioned on federal constitutional grounds and the decision sustains its validity. In Cox Broadcasting Corp. v. Cohn the Court recognized that the finality requirement is applied flexibly and permits review in four circumstances including when the state court's adjudication of the federal issue leaves the outcome of further proceedings preordained.8
Yes. The Pennsylvania Supreme Court finally adjudicated the constitutionality of Act 335 in the context of otherwise completed rate proceedings and thereby left the outcome of further proceedings preordained.9 In 1967 Duquesne Light Company and Pennsylvania Power Company joined the Central Area Power Coordination Group venture with three other utilities to construct seven nuclear generating units. By 1980 the companies had canceled plans for four of the units following the Arab oil embargo and the accident at Three Mile Island which altered projections for demand growth and the viability of nuclear power.
At cancellation Duquesne had expended $34,697,389 and Penn Power $9,569,665 on the halted projects. A Pennsylvania Public Utility Commission investigation concluded that the decisions to initiate and later cancel the plants were reasonable and prudent at each stage. In subsequent rate proceedings in 1982 and 1983, the Commission authorized the utilities to amortize these costs over ten years as part of rate increases, including $3.5 million annually for Duquesne and $956,967 for Penn Power in the first year. The Pennsylvania Office of the Consumer Advocate challenged these orders after the enactment of Act 335 in late 1982.
The Commonwealth Court upheld the Commission's interpretation allowing amortization but the Supreme Court of Pennsylvania reversed in 1987 and remanded for revised rate orders. Duquesne and Penn Power appealed to the United States Supreme Court which noted probable jurisdiction in 1988. The Pennsylvania Supreme Court's interpretation of the Act does not leave its effect in doubt. The CAPCO related costs may not be otherwise included in the rates charged.10
All that remains is the straightforward application of the statute's clear directive to otherwise complete rate orders. The Court therefore possesses jurisdiction under the first Cox exception.11
The Supreme Court has appellate jurisdiction to decide the case on the merits.12
Related opinions on this issue
Justice Blackmun dissented from the finding of jurisdiction. He maintained that the Court was strong-arming the finality concept and finding a Cox exception that does not exist.13 With all respect he disagreed because this case concerns rates and there is no rate order whatsoever before this Court.14
The Supreme Court of Pennsylvania invalidated the rate orders set by the Pennsylvania Commission and remanded the cases for further ratemaking.15 The Court deludes itself when it speaks of preordination of the Commission's further action.16 New rates will be set based upon factors we do not as yet know and only then will a final judgment possibly emerge in due course.17
He therefore would dismiss the appeal for want of the final judgment that section 1257 requires.18
Whether Act 335, by prohibiting recovery through amortization or rate-base inclusion of a utility's prudently incurred expenditures on generating facilities that were planned but never built, raises a question under the Takings Clause of the Fifth Amendment made applicable to the States by the Fourteenth Amendment?19
The Constitution protects utilities from being limited to a charge for their property serving the public which is so unjust as to be confiscatory.20 In FPC v. Hope Natural Gas Co., the Court held that it is not theory but the impact of the rate order which counts and that if the total effect of the rate order cannot be said to be unreasonable, judicial inquiry is at an end.21 A state scheme of utility regulation does not take property simply because it disallows recovery of capital investments that are not used and useful in service to the public.22
No. Neither Duquesne nor Penn Power alleges that the total effect of the rate order arrived at within Pennsylvania's modified historical cost system is unjust or unreasonable.23 In fact the overall effect is well within the bounds of Hope even with total exclusion of the CAPCO costs.24 Duquesne was authorized to earn a 16.14 percent return on common equity and an 11.64 percent overall return on a rate base of nearly $1.8 billion.25 Its $35 million investment in the canceled plants comprises roughly 1.9 percent of its total base.26
The denial of plant amortization will reduce its annual allowance by 0.4 percent.27 Similarly Penn Power was allowed a charge of 15.72 percent return on common equity and a 12.02 percent overall return.28 Its investment in the CAPCO plants comprises only 2.4 percent of its $401.8 million rate base.29 The denial of amortized recovery of its $9.6 million investment in CAPCO will reduce its annual revenue allowance by only 0.5 percent.30
Given these numbers, the PUC would have acted within the constitutional range of reasonableness if it had allowed amortization of the CAPCO costs but set a lower rate of return on equity.31 The result would be that Duquesne and Penn Power received the same revenue they will under the instant orders on remand.32 The overall impact of the rate orders is not constitutionally objectionable.33 No argument has been made that these slightly reduced rates jeopardize the financial integrity of the companies either by leaving them insufficient operating capital or by impeding their ability to raise future capital.34 Nor has it been demonstrated that these rates are inadequate to compensate current equity holders for the risk associated with their investments under a modified prudent investment scheme.35
It cannot seriously be contended that the Constitution prevents state legislatures from giving specific instructions to their utility commissions.36 An otherwise reasonable rate is not subject to constitutional attack by questioning the theoretical consistency of the method that produced it.37 The economic judgments required in rate proceedings are often hopelessly complex and do not admit of a single correct result.38 The Constitution is not designed to arbitrate these economic niceties.39
Errors to the detriment of one party may well be canceled out by countervailing errors or allowances in another part of the rate proceeding.40 The Constitution protects the utility from the net effect of the rate order on its property.41
Act 335 does not raise a valid question under the Takings Clause.42
Related opinions on this issue
Joined by White, J., And O’connor, J.
Justice Scalia filed a concurring opinion. He joined the Court in reaffirming the established rule that no single ratemaking methodology is mandated by the Constitution which looks to the consequences a governmental authority produces rather than the techniques it employs.43 He thought it important to observe, however, that while prudent investment by which he meant capital reasonably expended to meet the utility's legal obligation to assure adequate service need not be taken into account as such in ratemaking formulas.44 It may need to be taken into account in assessing the constitutionality of the particular consequences produced by those formulas.45
We cannot determine whether the payments a utility has been allowed to collect constitute a fair return on investment and thus whether the government's action is confiscatory unless we agree upon what the investment at issue is.46 For that purpose all prudently incurred investment may well have to be counted.47 As the Court's opinion describes that question is not presented in the present suit which challenges techniques rather than consequences.48