Duquesne Light Co. v. Barasch
Headline: Court upholds state law blocking utilities from recovering costs of canceled power plants, allowing states to exclude unbuilt-project costs from electricity rates and making cost recovery harder for utilities.
Holding: The Court ruled that a state law barring recovery of prudently incurred costs for unbuilt power plants does not violate the Constitution’s protection against uncompensated takings because the overall rates remain reasonable.
- Allows states to bar recovery of canceled project costs in utility rates.
- Makes utilities bear some losses from prudently made but unused investments.
- Permits legislatures to direct utility commissions’ rate-making choices.
Summary
Background
Two electric utilities joined a regional project in 1967 to build several nuclear power plants. Four of those plants were canceled in 1980 after events changed demand and the economics of nuclear power. The utilities had spent tens of millions of dollars ($34,697,389 and $9,569,665) and sought to recover those sunk costs by amortizing them over ten years. Pennsylvania then adopted Act 335, which barred including construction costs in the rate base until a facility was "used and useful," and the Pennsylvania Supreme Court held the utilities could not recover those costs; the utilities appealed to this Court.
Reasoning
The central question was whether forbidding recovery of those prudently incurred but unused investments violated the Constitution’s protection against government taking property without fair compensation. The Court said judges must look at the overall impact of the rate orders, not the precise method used to reach them. Pennsylvania uses a modified historical-cost system and, in these cases, the utilities were still allowed substantial returns (for example, Duquesne’s authorized returns and the small percentage that the canceled costs represented). Given the small effect on total revenue and the established rule that no single ratemaking formula is constitutionally required, the Court held the law did not amount to an unconstitutional taking. The Court also found it had authority to review the state court decision under exceptions for finality.
Real world impact
The decision permits states to enforce "used and useful" rules that can block recovery of canceled-project costs through rates, so utilities may have to absorb some prudent but unused investments. The ruling preserves constitutional protection against truly confiscatory rates but allows legislatures to shape ratemaking methods within broad limits.
Dissents or concurrances
Justice Blackmun dissented on jurisdiction grounds, arguing the case was not final; Justice Scalia concurred, noting that counting all prudent investments might matter when evaluating actual confiscatory consequences.
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