Public Utility Regulatory Takings: Should the Judiciary Attempt to Police the Political Institutions
![handle is hein.journals/glj77 and id is 2053 raw text is: Public Utility Regulatory Takings: Should the
Judiciary Attempt to Police the Political
Institutions?
RICHARD J. PIERCE, JR.*
The Court sustains this order as reasonable, but what makes it so or what
could possibly make it otherwise, I cannot learn.'
This was Justice Jackson's criticism of the end result test announced in
Federal Power Commission v. Hope Natural Gas Co. It has proven to be as
prophetic as his remarkably prescient prediction that regulation of gas pro-
ducers would cause a shortage of gas.2 From 1898 until 1944, the Supreme
Court attempted to impose detailed constitutional constraints on utility
ratemaking in scores of cases decided under the takings clause.3 Its 1944
opinion in Hope was widely interpreted as a de facto withdrawal from the
field.4 From 1944 until 1987, neither the Supreme Court nor any lower fed-
eral court held a utility rate unconstitutional under the Hope test.
Yet, the Court's opinion in Hope is ambiguous at best. The Court did not
announce that utility ratemaking was unconstrained by the takings clause. It
purported merely to substitute one constitutional test for another. Prior to
Hope, the Court's approach to review of ratemaking was formulaic; it fo-
cused in meticulous detail on the method by which an agency calculated a
rate, insisting in case after case that government agency ratemaking reflect
the market value of a utility's assets through application of a prescribed
formula.5 The Hope Court formally abandoned this insistence upon specific
* Professor of Law, Columbia University. B.S. 1965, Lehigh University; J.D. 1972, University of
Virginia. I wish to express my appreciation to Neil Komesar, Stefan Krieger, Michael McConnell,
and the participants in the Columbia University Law Faculty Workshop for providing helpful com-
ments on an earlier version of this manuscript.
1. Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 645-46 (1944) (Jackson, J.,
concurring).
2. Id. at 647-60.
3. E. GELLHORN & R. PIERCE, REGULATED INDUSTRIES IN A NUTSHELL 95-101 (2d ed. 1987)
[hereinafter REGULATED INDUSTRIES].
4. Id. at 98-100.
5. Id. at 95-101. In Smytli v. Ames, 169 U.S. 466 (1898), the Court held that a utility's rate base
must be based on fair value. Id. at 546. In ascertaining fair value,
the original cost of construction,... the amount and market value of its bonds and stock,
the present as compared with the original cost of construction, the probable earning ca-
pacity of the property under particular rates prescribed by statute.., are to be given such
weight as may be just and right in each case.
Id. at 546-47. Each of these four methods of valuation, except original cost of construction, is a
surrogate for present market value. In many subsequent cases, the Court reversed agencies for
attaching too much significance to original cost of construction and too little significance to one or
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Public Utility Regulatory Takings: Should the Judiciary Attempt to Police the Political Institutions
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