Public Utilities Commission v. Attleboro Steam & Electric Co.
273 U.S. 83, 47 S. Ct. 294, 1927 U.S. LEXIS 684 (1927)
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Rule of Law:
A state cannot regulate the rate for electricity sold in wholesale quantities in interstate commerce because such regulation imposes a direct burden on interstate commerce, a power reserved for Congress under the Commerce Clause.
Facts:
- In 1917, Narragansett Electric Lighting Company (a Rhode Island corporation) entered into a 20-year contract to sell all the electricity required by Attleboro Steam & Electric Company (a Massachusetts corporation).
- Under the contract, Narragansett would deliver the electric current to the Rhode Island-Massachusetts state line, where Attleboro would receive it for use and resale in Massachusetts.
- The contract rate was initially approved by the Public Utilities Commission of Rhode Island.
- Years later, due to increased generating costs, Narragansett began suffering an operating loss on the electricity it sold to Attleboro under the contract rate.
- In 1924, Narragansett filed a new schedule with the Rhode Island Commission seeking to establish a higher rate for the electricity sold to Attleboro, which was its only customer affected by the proposed increase.
Procedural Posture:
- The Public Utilities Commission of Rhode Island initiated an investigation into the contract rate between Narragansett and Attleboro.
- After a hearing, the Commission found the existing contract rate to be unreasonable and issued an order putting a new, higher rate into effect.
- The Attleboro Company appealed the Commission's order to the Supreme Court of Rhode Island.
- The Supreme Court of Rhode Island reversed the Commission's order, holding that it imposed a direct burden on interstate commerce and was therefore invalid.
- The Public Utilities Commission of Rhode Island then brought the case to the U.S. Supreme Court for review.
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Issue:
Does an order by a state public utilities commission that sets the rate for electricity sold by a domestic utility company to an out-of-state company for resale impose a direct burden on interstate commerce, thereby violating the Commerce Clause?
Opinions:
Majority - Justice Sanford
Yes, a state's regulation of wholesale electricity rates sold in interstate commerce imposes a direct burden on that commerce. The sale of electricity from a company in one state to another for resale is a transaction in interstate commerce. This case is controlled by Missouri v. Kansas Gas Co., which held that the sale of natural gas in wholesale quantities across state lines is national in character and cannot be regulated by an individual state. While states may regulate local, retail sales of energy that crosses state lines, as in Pennsylvania Gas Co. v. Pub. Serv. Com., they cannot regulate wholesale transactions. The paramount interest in this interstate business is national, not local, and requires uniformity of regulation that only Congress can provide. If Rhode Island were allowed to raise the rate to benefit its local consumers, Massachusetts could, by the same logic, lower the rate to benefit its consumers, creating interstate conflict.
Dissenting - Justice Brandeis
No, the regulation does not impose a direct burden on interstate commerce. The business of the Narragansett Company is overwhelmingly intrastate, with over 70,000 customers in Rhode Island and less than 3% of its electricity sold to Attleboro. The problem is essentially local in character, as the state commission acted to prevent Narragansett from suffering losses that would ultimately harm its thousands of local customers through higher rates or poorer service. This regulation is a valid exercise of the state's police power to prevent unjust discrimination against its own citizens. The burden on interstate commerce is indirect, akin to a state tax or safety regulation that increases production costs, and is permissible in the absence of congressional action.
Analysis:
This decision established a bright-line rule distinguishing between state regulation of retail versus wholesale sales of energy in interstate commerce. By declaring that states could not regulate interstate wholesale rates, the Court created what became known as the 'Attleboro gap'—a sphere of economic activity that was beyond the regulatory power of the states but had not yet been regulated by the federal government. This gap in oversight was a primary motivation for Congress to pass the Federal Power Act of 1935, which created the Federal Power Commission (now FERC) to regulate precisely these types of interstate wholesale electricity transactions.
