Law of the Jungle; J. Semmens

John Semmens LAW OF THE JUNGLE Vs. THE JUNGLE OF LAW THE PROBLEM of uncertainty is en demic to any business venture. The more uncertainty there is, the greater the risk for the would-be entrepreneur. A rational response to such uncertainty is to seek to reduce it through either an improvement of one's knowledge about, or an in crease in one's control over, the con ditions pertaining to a prospective field of endeavor. This urge to rationalize the va garies of the business environment has frequently been manifested in a resort to law as a means of control ling uncertainty. With laws to regu late the prices and supplies of a good or service and with the vast information-gathering resources of the government at hand, the num ber of uncontrolled or unknown var iables in the uncertainty equation ought to be reduced. Reasoning like this inspired the Mr. Semmens Is an economist for the Arizona Department of Transportation and Is studying for an advanced degree In business administration at Arizona State University.

creation of the Federal Power Com mission (FPC) in 1930. Its objective was to control various aspects of the energy industry and thereby promote business prosperity and so cial justice. The agency was given a broad grant of authority to insure its capability for a flexible response to changing conditions~ Its rulemaking was restricted only by the proviso that its actions be (Just and reason able." With all this ulogic" going for it, it should come as no surprise that the government's venture into energy regulation has been a disaster. Rather than the certainty promised by the imposition of deliberated pol icy upon the erstwhile fluctuations of free market (Jungle," the resort to regulation has piled confusion on uncertainty with a result that is often incomprehensible. If the market treats you H un fairly," there's not much you can do about it. If you can't make a profit in your present trade, you change your occupation. You don't petition to LAW OF THE JUNGLE VS. THE JUNGLE OF LAW 559 have the law of supply and demand set aside. Such impersonal ((injus tice" has no remedy. One might as well complain about the law of grav ity. However, let the Hinjustice"

come at the hands of an agency of the government such as the FPC and we have a whole new ballgame on our hands. The ((injustices" made by law can be unmade by law as well. The av enues open to the ttvictims" in these instances include recourse to all three branches of government. First, the ((wronged" party can go to the legislature and get the law changed. This is, at best, a long-range option. While it cannot be neglected, it is not as promising as efforts to influ ence the decisions of theCommis sion itself. This may prove more effective on a costlbenefit basis, but it, too, is future-oriented. The most immediate avenue to relief is our third option: appealing the decision to the next echelon of government officials, in this case, the courts. Reliance upon the judicial system to Uright" the ttwrongs" of the FPC has been largely misplaced. The er ratic gyrations of the Commission's attempts to grapple with forces of supply and demand have been matched by judiciary inconsistency.

The jurisdictional issue, to take just one area of concern for those inter ested in what to expect in the way of energy regulation, has been ttde_ cided" three different ways since World War II. In 1946, the court settled on concurrent federal and state jurisdiction.! By 1963 the courts had shifted to a position up holding a doctrine of federal su premacy. 2 It was only two years later that the whole question was unsettled once and for all by a decla ration that the precise boundaries between state and federal jurisdic tion could only be adjudicated on a case-by-case method. 3 This unfortunate course of events has effectively multiplied the uncer tainties faced by business firms at tempting to deal in services regu lated by the FPC and various state agencies. Whenever the rules prom ulgated by these competing regula tory authorities differ, the prospect of litigation in order to resolve the jurisdictional boundary is virtually inevitable.

The potential for confusion is by no means limited to disputed juris diction. The history ofjudicial inter pretations of FPC powers is not of a nature to relieve business anxieties over what rules will be applied even in situations clearly within the realm of federal control. As the law now stands, the FPC may (1) modify existing contracts when it deems such action to be in the public inter est, 4 (2) make rate revisions retroac tivelY,5 (3) change its policy at its own discretion, 6 (4) define the phrase t)ust and reasonable" in dif ferent terms on different occasions, 7 560 THE FREEMAN (5) decide who shall bear the burden of proof in any given case,s (6) re quire individual companies to suffer losses.9 It should be apparent by now, that the attempt to supplant the ttchaos" of the unregulated market with a system of Hjust and reasonable" man-made rules has produced dis concerting consequences for busi nessmen' investors, and ultimately consumers. In the less than 50 years since the creation of the FPC, the courts have bestowed their blessings on at least eleven different pricing formulas for natural gas.

None of this has been very helpful in solving our energy uproblem." In place of the law of supply and de mand (which a court declared non binding on FPC policies 10), we have instead a shifting collage of rules and regulations. Far from reducing the number of uncontrolled vari ables in the uncertainty equation, this collage has added new dimen sions of unpredictability to the basic task of meeting consumer needs with scarce resources. The ambiguity of the initial enabling legislation must bear some of the blame for the resultant mess. The vague grant of power bounded only by the undefined structure that its exercise be tJust and reasonable," is an invitation to contentious wrangling. A more fundamental error, though, is the mistaken belief that the problems of material sustenance can be overcome by legislative fiat. The energy problem is the product of, on the one hand, resource scar city and the technical difficulties of coping with such scarcity, and, on the other hand, the usefulness of energy products in satisfying ever increasing human wants. In short, it's the same old supply and demand problem that has confronted man kind from the beginnings of the species. The only way it has been adjusted to our satisfaction has been through production. And, disappoint ing as it is, the invention of law isn't, hasn't been, and never will be a substitute for hard work. @ -FOOTNOTESlMemphis Natural Gas Company v. McCan less, 194 S.W. 2d 476.

2Northern Natural Gas Company v. State Corporation Commission of Kansas, 83 S. Ct. 646. apeopleof the State of California v. Lo Vaca Gathering Company, 85 S. Ct. 386. 4United Gas PiPeline Company v. Mobile Gas Service Corporation, 1956, 76 S. Ct. 373 5Mississippi River Fuel Corporation v. Fed eral Power Commission, 1960, 281 F 2d 919. 6Atlantic Seaboard Corporation v. Federal Power Commission, 1968, 404 F 2d 1268. 7City of Chicago v. Federal Power Commis sion, 1971, 458 F 2d 73l. 8Commonwealth of Pennsylvania v. U.S., D.C. Pa. 1973, 361 F Supp. 208. 9Federal Power Commission v. Texaco, D.C. 1974, 94 S. Ct. 2315. lOSouthernLouisiana Area Rate Case v. Fed eral Power Commission, CA Tex, 1970,428 F 2d 407.