Indiana & Michigan Electric Company v. Federal Power Commission, Richmond Power and Light of the City of Richmond, Indiana,intervenors

502 F.2d 336, 163 U.S. App. D.C. 334

Opinions

WILKEY, Circuit Judge:

Indiana & Michigan Electric Company (hereinafter I&M) filed proposed changes in its tariff schedule with the Federal Power Commission on 13 June 1972. By letter of 3 July 1972, the Secretary of the Commission acknowledged I&M’s filing and advised the company that “[t]he earliest effective date for the increase consistent with [Section 35.13(b) (4) (i)] of the Regulations would be August 13, 1972.”¹ This section of the Commission’s regulations² requires that, whenever a filing calls for a rate increase, certain cost-of-service data and a summary of the proposed rates be filed 60 days prior to the date the rates are to take effect. On 18 July 1972 I&M applied to the Commission for an order making its new rate schedule effective as of 14 July, or 31 days after' the date on which I&M had previously filed. On 11 August 1972 the Commission accepted I&M’s rates for filing but designated 13 August as their effective date; it then suspended their use for five months thereafter, or until 13 January 1973.³ By order dated 6 October 1972 the Commission denied I&M’s application for rehearing.⁴

I&M’s petition for review of the Commission’s order was originally consolidated with petitions by two of I&M’s customers, Richmond Power and Light and Anderson Power and Light. On 25 May 1973 this court held that I&M’s rate filing was unlawful with respect to Richmond and Anderson because it violated the terms of their contracts with I&M.⁵ However, since the parties here have represented to the court that I&M’s contract with at least one of its other 22 customers ^{6 7}is' different from the Rich: mond and Anderson contracts, I&M’s petition to have the effective date of its new rate schedule retroactively altered to 14 July 1972 remains viable.¹

Because the Commission lacked statutory authority to delay the effective date of I&M’s filing until 13 August 1972 and to suspend the new rates until 13 January 1973, we vacate the Commission’s order of 11 August 1972 and remand to the Commission with instructions that I&M’s 13 June rate filing be given effect as of 14 July 1972.⁸

I. JURISDICTION OF THE COURT TO CONSIDER THE VALIDITY OF THE COMMISSION’S 60-DAY REGULATION

The liminal question here is whether this court can, consistent with section 313(b) of the Federal Power Act, consider I&M’s contention that the Commission’s 60-day prefiling regulation is invalid. Section 313(b) provides, in relevant part: “No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure so to do.” ⁹

While I&M did not expressly raise the legality of the 60-day regulation in its application for rehearing, it did challenge the Commission’s statutory authority to set an effective date 60 days after I&M’s filing.¹⁰ The Commission characterized I&M’s position in seeking a rehearing as follows: “I&M asserts that the Commission has no authority to require a notice in excess of the thirty days specified in Section 205(d) of the Federal Power Act.”¹¹ Apparently perceiving I&M’s position as a challenge to the 60-day regulation, the Commission devoted two of the five pages of its order denying rehearing to an attempted justification of the regulation.¹² Commissioner Moody joined issue with the majority and attacked the validity of the regulation in his dissent.¹³ Clearly, then, I&M brought sufficient attention to the issue to stimulate the Commission’s consideration of it.

The rationale of the requirement that an aggrieved party exhaust its administrative remedies, as provided by section 313 of the Federal Power Act, is “ ‘that orderly procedure and good administration require that objections to the proceedings of an administrative agency be made while it has an opportunity for correction . . . ¹⁴ I&M gave the Commission an opportunity to correct its alleged error in setting the effective date of I&M’s rates. Furthermore, I&M suggested the possibility that the 60-day regulation is invalid by inviting the Commission to construe the regulation in a manner “compatible with the Commission’s statutory authority.”¹⁵ The Commission declined to correct its alleged error and explicitly defended the validity of its regulation. Thus, I&M should be permitted to assert the regulation’s invalidity in this court.

II. THE COMMISSION’S 60-DAY PREFILING REGULATION

The Commission delayed the effective date of I&M’s rate filing pursuant to section 35.13(b) (4) (i) of its regulations.¹⁶ This section requires that if a proposed rate schedule calls for in-, creased rates, the utility must file with the Commission “a statement showing its cost of the service to be supplied under the new rate schedule,” “a summary statement of [the] proposed increased rate,” and certain material on sales and revenue under the old rates and the proposed rates, all “60 days prior to the date that such changed rate is proposed to become effective.” ¹⁷ Much of the data required presupposes the existence of a completed rate schedule. Obviously, a “summary statement of [the] proposed increased rate” cannot be filed unless the thing to be summarized, the rate schedule itself, has been prepared. Included in the cost-of-service items required are “the percentage rate of return claimed,”¹⁸ “the maximum demands of the service under the proposed rate schedules,”¹⁹ and “revenues under the proposed rates.” ²⁰ Accurate calculation of these items would be difficult, if not impossible, in the absence of a detailed schedule of the proposed rates. Similarly, a detailed schedule is a prerequisite to calculation of “[a] statement comparing sales and services and revenues therefrom . . . under both the rate schedule proposed to be superseded or supplemented and the proposed changed rate schedule.”²¹ Finally, section 35.13(b) (5) further requires that “the filing utility shall submit with its rate increase filing 60 days prior to the proposed effective date of such increased rates, testimony and exhibits of such composition, scope and format that they would serve as thé company’s case-in-chief in the event the matter is set for hearing.”²² Again, preparation of such information depends upon the existence of the completed rate schedule.

It seems clear, then, that in order to comply with the requirements of section 35.13(b), a utility must be prepared to make a complete filing of its new rate schedule. Thus, the practical effect of the section is to impose a de facto 60-day notice requirement on utilities seeking to increase their rates. Such a requirement contravenes the terms of section 205(d) of the Federal Power Act, which provides:

Unless the Commission otherwise orders, no change shall be made by any public utility in any such rate, charge, classification, or service, or in any rule, regulation, or contract relating thereto, except after thirty days’ notice to the Commission and to the public. Such notice shall be given by filing with the Commission and keeping open for public inspection new schedules stating plainly the change or changes to be made in the schedule or schedules then in force and the time when the change or changes will go into effect. The Commission, for good cause shown, may allow changes to take effect without requiring the thirty days’ notice herein provided for by an order specifying the changes so to be made and the time when they shall take effect and the manner in which they shall be filed and published.²³

The Supreme Court has interpreted this language to create not only a minimum notice period for the utility’s customers and the Commission, but also a maximum waiting period for the filing utility. In United Gas Pipe Line Co. v. Memphis Light, Gas & Water Division,²⁴ the Court construed section 4(d) of the Natural Gas Act,²⁵ whose language is virtually identical to that in section 205(d) of the Federal Power Act, as providing for “the earliest effectuation of contractually authorized or otherwise permissible rate changes consistent with appropriate Commission review.”²⁶ Thirty days is the maximum a utility can be compelled to wait from the time it files its rate changes until the date the changes take effect unless the Commission properly exercises its suspension power. Under the Commission’s regulations, a utility must make a de facto rate filing 60 days in advance of the effective date. Therefore, the regulations unlawfully extend the statutory waiting period for utilities by 30 days.

The Commission asserts that the 60-day prefiling requirement of section 35.-13(b)(4) (i) is necessary to “the proper exercise of its ratemaking authority under the Federal Power Act.”²⁷ To exercise its authority properly, the Commission must evaluate in each case the advisability of suspending the rate filing pending full hearings on the reasonableness of the proposed rates. The Commission argues that “[t]he difficulty of such evaluations often requires more time than the 30 days to which I&M would restrict the Commission.”²⁸ This statement fixes responsibility for the 30-day “restriction” with the wrong party, for it is Congress that specified 30 days from the filing date as providing for “the earliest effectuation of contractually authorized or otherwise permissible rate changes consistent with appropriate Commission review.”29 If' the Commission cannot properly exercise its ratemaking authority within the 30-day time frame prescribed by section 205(d), it should address its grievance to Congress, not to the judiciary.

The result we reach here is not foreclosed by this court’s decision in Municipal Light Boards v. FPC.³⁰ As Commissioner Moody pointed out in his dissent to the Commission’s denial of I&M’s application for rehearing, the validity of section 35.13(b) of the Commission’s regulations was not really in question in Municipal Light Boards.31 The parties in that case merely assumed the provi sion’s validity and contested the issue of whether the Commission could waive its own regulation by permitting a less-than-60-day waiting period. Consequently, we properly expressed no view on a possible issue never raised by any party, i.e., whether promulgation of the regulation was within the Commission’s statutory authority.

Under section 205(d) of the Federal Power Act, I&M was entitled to an effective date of 14 July 1972 for the rate schedule it filed on 13 June. The Commission therefore acted unlawfully by delaying the effective date until 13 August.³²

III. THE FIVE-MONTH SUSPENSION OF I&M’S RATES

Section 205(e) of the Federal Power Act empowers the Commission to hold hearings on the lawfulness of a proposed rate schedule and, pending such hearings, to suspend use of the schedule for no longer than five months “beyond the time when it would otherwise go into effect.”³³ The Commission recognized in its order denying rehearing that it “does not have statutory authority to issue a suspension order after a proper proposed effective date.”³⁴ Commissioner Moody seconded this observation in his dissent:

Once proposed rates have become effective this Commission is powerless to suspend the effectiveness of, or otherwise modify, those rates under § 205 of the Federal Power Act. Our only recourse is to institute a proceeding under § 206(a) of the Act and after hearing determine just and reasonable rates to be thereafter observed and in force.³⁵

Whenever the Commission, after a hearing had upon its own motion or upon com plaint, shall find that any rate, charge, or classification, demanded, observed, charged, or collected by any public utility for any transmission or sale subject to the jurisdiction of the Commission, or that any rule, regulation, practice or contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order.

Since we hold that the lawful effective date of I&M’s rate filing was 14 July 1972, the Commission had no authority to suspend use of the new rate schedule on 11 August 1972. Therefore, the Commission’s suspension order of that date must be vacated.

IV. CONCLUSION

The Commission has exceeded its statutory authority by delaying the effective date of I&M’s rate filings beyond the 30 days prescribed by section 205(d) of the Federal Power Act. Therefore, we order that the effective date of I&M’s filing be changed retroactively to 14 July 1972. It inevitably follows that the Commission’s 11 August suspension order was ultra vires and must be invalidated. The orders here in issue are vacated and the case is remanded for implementation of this opinion.

Vacated and Remanded.

Footnotes

1

. Joint App. at 162.

2

. 18 C.F.R. §35.13 (b)(4) (i) (1973):

Except as provided in subdivision (ii) of this subparagraph, if the rate schedule provides for an increased rate, then 60 days prior to the date that such changed rate is proposed to become effective the filing public utility shall submit a statement showing its cost of the service to be supplied under the new rate schedule according to supporting statements A through O as described below. Simultaneously, the public utility shall submit the material on sales and - revenues described in paragraph (a) of this section and, unless the rate schedule containing the proposed increased rate is likewise simultaneously filed, a summary statement of such proposed increased rate: Provided, however, That the submittal of such summary statement of the rate schedule shall not be in lieu of the rate schedule as required to be filed with the Commission pursuant to the regulations in this part.

Supporting statements A through O specify filing of the following data: balance sheet, income statements, earned surplus statement, cost of plant, accumulated depreciation, average working capital, rate of return, debt capital, operating expenses, depreciation expense, income taxes, other taxes, overall cost of service, allocated cost of service, comparison of cost of service, and “fuel adjustment factor.”

In addition, 18 C.F.R. § 35.13(b)(5) (1973) provides:

A utility filing for an increase in rates and charges shall be prepared to go forward at a hearing on reasonable notice on the data which have been submitted and sustain the burden of proof, imposed by the Federal Power Act, of establishing that its proposed charges are just and reasonable and not unduly discriminatory or preferential or otherwise unlawful within the meaning of the Act. The Commission is desirous of avoiding delay in processing rate filings. To this end, if the rate schedule provides for an increase in rate which exceeds $30,000 in revenues for the test period, the filing utility shall submit with its rate increase filing 60 days prior to the proposed effective date of such increased rates, testimony and exhibits of such composition, scope and format that they would serve as the company’s case-in-chief in the event the matter is set for hearing. In addition to whatever material the utility chooses to submit as part of its case, except for increases resulting from changes made in fuel clauses and increases of rates comprising an integral part of coordination and interchange arrangements in the nature of power pooling transactions, the exhibits shall include full cost of service data, as identified in sub-paragraph (4) (iv) of this paragraph, statements A through O, and the accompanying testimony should include an explanation of these exhibits.

3

. Indiana & Michigan Electric Co., F.P.C. Docket No. E-7740, Joint App. at 158.

4

. Joint App. at 196. Commissioner Moody filed a dissenting view.

5

. Richmond Power & Light v. FPC, 156 U.S.App.D.C. 315, 481 F.2d 490 and Anderson Power & Light v. FPC, 156 U.S.App.D.C. 315, 481 F.2d 490, cert. denied, 414 U.S. 1068, 94 S.Ct. 578, 38 L.Ed.2d 473 (1973).

6

. Thirteen of these customers are affiliated in the Indiana and Michigan Municipal Distributors Association, an intervenor in this case. Eight others are rural electric cooperatives.

7

. Counsel for I&M informed the court at oral argument that the city of Auburn, Indiana has the same contract with I&M as Richmond and Anderson. Therefore, the Commission has declared I&M’s filing ineffective as to Auburn. The court will not in the context of this case attempt to determine to which of I&M’s customers the new rate schedule can lawfully apply. We leave such determinations to the Commission, whose orders can then be brought to this court by aggrieved parties through normal review procedures.

8

. This will involve collection by I&M from its customers of the difference between the increased rates and the rates actually charged for the six-month period from 14 July 1972 to 13 January 1973. There is precedent in this circuit for ordering retroactive rate adjustments. See Tennessee Valley Municipal Gas Ass’n v. FPC, 152 U.S.App.D.C. 298, 470 F.2d 446 (1972), a case that arose under the Natural Gas Act, 15 U.S.C. § 717 et seq. (1970).

9

. 16 TJ.S.C. § 8251(b) (1970).

10

. Joint App. at 169.

11

. Joint App. at 198.

12

. Joint App. at 198-99.

13

. Joint App. at 203.

14

. FPC v. Colorado Interstate Gas Co., 348 U.S. 492, 500, 75 S.Ct. 467, 472, 99 L.Ed. 583 (1955), quoting United States v. Tucker Truck Lines, 344 U.S. 33, 37, 73 S.Ct. 67, 97 L.Ed. 54 (1952).

15

. Application for Rehearing of Indiana & Michigan Electric Co., F.P.C. Docket No. E-7740, Joint App. at 174.

16

. 18 C.F.R. § 35.13(b) (4) (i) (1973), set out in note 2 supra.

17

. ibid.

18

. Ibid. (Statement G).

19

. Ibid. (Statement M (3)).

20

. Ibid. (Statement N).

21

. 18 O.F.R. § 35.13(b)(1) (1973). Section 35.13(b) (4) (i) refers to filing of “material on sales and revenue described in paragraph (a) of this section.” The reference to paragraph (a) is apparently an error since paragraph (a) says nothing about material on sales and revenue.

22

. 18 O.F.R. § 35.13(b)(5) (1973), set out in full in note 2 supra.

23

. 16 U.S.C. §824d(d) (1970).

24

. 358 U.S. 103, 79 S.Ct. 194, 3 L.Ed.2d 153 (1958):

25

. 15 U.S.C.§ 717c(d) (1970).

26

. 358 U.S. at 114, 79 S.Ct. at 200.

27

. Brief for Respondent at 25.

28

. Id. at 26.

29

. United Gas Pipe Line Co. v. Memphis Light, Gas & Water Div., 358 U.S. 103, 114, 79 S.Ct. 194, 200, 3 L.Ed.2d 153 (1958) (emphasis supplied).

30

. 146 U.S.App.D.C. 294, 450 F.2d 1341 (1971).

31

. Joint App. at 203.

32

. The Commission’s staff reached this conclusion in a letter to the Commission captioned “Commission Staff Response to Application of Indiana & Michigan Electric Company” and dated 28 July 1972. The letter stated:

In I & M’s case, if five months’ suspension is ordered and the 60-day rule is invoked, the proposed rates would not go into effect until six months after the proposed effective date. If the rate changes are accepted for filing without suspension, the effective date would be 60 days after the proposed effective date. It may be observed further that the Commission’s Regulations Under the Natural Gas Act do not. prescribe a 60-day filing requirement and that the same threshold decision as to whether to order an investigation and hearing, or a suspension, or both, must be made. Since both Section 4(d) of the Natural Gas Act and Section 205(d) of the Federal Power Act require only 30 days’ notice of rate changes, the staff respectfully submits that it would be inappropriate to require more of I & M.

Joint App. at 87.

33

. 16 U.S.C. § 824d(e) (1970).

34

. Joint App. at 200.' A similar recognition occurred in Central Maine Power Co., F.P. C. Docket Nos. E-7824 and E-8038 (8 June 1973), in which the Commission stated:

With respect to' the request for suspension of Central Maine’s proposed amendment and for refund protection thereunder, we find that the proposed amendment became effective by operation of law on March 16, 1973, thirty days after filiug and prior to the issuance of the Commission’s order on April 10, 1973. We are without authority under the Federal Power Act to rescind or suspend the effectiveness of the proposed amendment.

See also Phillips Petroleum Co. v. FPC, 227 F.2d 470 (10th Cir. 1955), cert. denied, 350 U.S. 1005, 76 S.Ct. 649, 100 L.Ed. 868 (1956).

It is to be observed that I & M’s application of 18 July 1972, asking for a Commission order making the new rate schedule effective retroactively as of 14 July, would possibly have permitted the Commission to issue a suspension order for five months from the valid effective date of 14 July 1972. At least, it is clear that I&M would not have been in a position to challenge such an order as it has now, and that I&M was not seeking a procedural gimmick which would have resulted, as now has occurred, in voiding the Commission’s five-month suspension order. However we do not reach the question suggested by this discussion since the Commission has never asserted that I & M’s 18 July application for a 14 July effective date gave the Commission jurisdiction to suspend I & M’s rates retroactively from 14 July; rather, the Commission has been consistent in contending that 13 August was the effective date and that the 11 August suspension was therefore valid.

35

. Joint App. at 202. Section 206(a) of the Act, 16 U.S.C. § 824e(a) (1970), provides: