Public Service Commission v. Great Northern Utilities Co.

Background

A long-established local gas company had supplied natural gas to Shelby, Montana, since 1923. A new rival, Citizens Gas Company, began service in 1928 with a lower approved base rate. The first company repeatedly cut its own prices—from 60 cents down to 50, then to 20, and later to 15 cents—while losing many customers. The state commission found the very low rates harmful to service and, after an inquiry, prescribed a 35 cent base rate. The utility sued in federal court, claiming the commission lacked power to set specific rates and that the order violated the state constitution and the Fourteenth Amendment’s due process protection.

Reasoning

The key question was whether the commission’s specific rate order was arbitrary or deprived the utility of just compensation. The Court examined the record and found no sufficient proof that the commission acted arbitrarily or intended confiscation. It emphasized that ordinary business hazards—like loss of customers from competition—do not by themselves make a regulator’s rate order unconstitutional. The utility admitted its rate cuts aimed to drive out the competitor; its later claim that the ordered rates were confiscatory was not supported by specific facts showing denial of a fair return.

Real world impact

The decision affirms a regulator’s authority to prescribe specific rates when the record does not show arbitrary action or confiscation. It limits a utility’s ability to invoke the Fourteenth Amendment to justify predatory pricing to eliminate a rival. In small communities with competing systems, regulators may set rates to protect reliable service rather than allow a firm to underprice to the point of impairing service.