## Facts

- Jersey Central Power & Light Co., an electric utility, invested about $397 million in a nuclear generating project at Forked River, New Jersey, before the project was abandoned.
- Jersey Central filed rate schedules under the Federal Power Act to recover costs associated with the canceled project.
- FERC modified the proposed schedules and required Jersey Central to file reduced rates, limiting recovery of certain canceled-plant costs.
- FERC allowed recovery of the principal investment over a period of years but disallowed recovery of the interest (cost-of-capital) component on the ground the canceled plant was not “used and useful.”
- Jersey Central alleged the reduced rates were confiscatory and violated statutory and constitutional standards as stated in *FPC v. Hope Natural Gas Co.*.
- Jersey Central alleged severe financial distress: no common-stock dividends for four years, inability to raise capital through bond sales, and reliance on a cancellable revolving-credit facility.
- FERC denied Jersey Central an evidentiary hearing and acted summarily on the rate filings.
- Jersey Central petitioned for judicial review; the matter proceeded to an en banc decision after earlier panel dispositions were vacated.

## Issues

1. Whether FERC could summarily require reduced filed rates without granting an evidentiary hearing where the utility alleged facts that, if proven, would show the rates were confiscatory.
2. Whether FERC’s “just and reasonable” determination complied with *Hope*’s end-result test, including attention to the utility’s financial integrity and ability to attract capital.
3. Whether disallowing the interest component of prudently incurred but canceled plant costs, while treating the utility’s financial distress as irrelevant, exceeded statutory or constitutional limits on rate regulation.

## Decision

- The D.C. Circuit (en banc) granted the petition in part and vacated the challenged summary rate reduction in relevant part.
- The court held FERC erred by refusing an evidentiary hearing despite allegations that, if true, would likely establish unlawful confiscation under the Federal Power Act and constitutional standards.
- The court remanded for further proceedings requiring FERC to consider, through an appropriate hearing, whether the resulting rates were confiscatory in light of the utility’s investment and overall financial condition.

## Legal Principles

- Under the Federal Power Act, a “just and reasonable” rate must satisfy *Hope*’s end-result standard, including the regulated utility’s ability to maintain financial integrity, attract capital, and provide a reasonable return for risks assumed.
- When a utility makes detailed, plausible allegations that a rate order is confiscatory, the agency may not resolve the matter summarily; procedural fairness requires an evidentiary hearing to test those allegations.
- A “used and useful” rationale cannot be applied in a manner that ignores the *Hope* inquiry into whether the overall rate result unlawfully forces shareholders to bear losses that render the utility unable to operate and finance service.
- In ratemaking, the regulator must treat evidence of financial distress as relevant to whether the end result is lawful, rather than dismissing it as irrelevant or relying on unsupported characterizations.

## Conclusion

The en banc court required FERC to provide an evidentiary hearing where Jersey Central plausibly alleged that FERC’s summary disallowance of key canceled-plant financing costs produced confiscatory rates, reinforcing that *Hope* demands attention to the utility’s overall financial integrity rather than conclusory, formula-driven outcomes.


Jersey Cent. Power & Light Co. v. FERC, 810 F.2d 1168 (D.C. Cir. 1987) (en banc)