Public Service Co. of Indiana, Inc. v. Federal Energy Regulatory Commission, s. 77-1238
| Decision Date | 27 April 1978 |
| Docket Number | 77-1349,Nos. 77-1238,77-1351,77-1391 and 77-1586,s. 77-1238 |
| Citation | 575 F.2d 1204 |
| Parties | PUBLIC SERVICE COMPANY OF INDIANA, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Crawfordsville, Frankfort, Logansport, Peru, and Washington, Indiana, and Indiana Municipal Electric Association and "IMEA Cities," Intervenors. CITY OF CRAWFORDSVILLE, INDIANA, City of Frankfort, Indiana, City of Logansport, Indiana, City of Peru, Indiana and City of Washington, Indiana, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Hoosier Energy Division of Indiana Statewide Rural Electric Cooperative, Inc. and Public Service Company of Indiana, Inc., Intervenors. WABASH VALLEY POWER ASSOCIATION, INC., et al., Petitioners, Hoosier Energy Division of Indiana Statewide Rural Electric Cooperative, Inc., Intervenor, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Public Service Company of Indiana, Inc., Intervenor. INDIANA MUNICIPAL ELECTRIC ASSOCIATION et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Public Service Company of Indiana, Hoosier Energy Division of Indiana Statewide Rural Electric Cooperative, Inc., Intervenors. PUBLIC SERVICE COMPANY OF INDIANA, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Wabash Valley Power Association, Inc., et al., Intervenors. |
| Court | U.S. Court of Appeals — Seventh Circuit |
William C. Wise, George F. Bruder, Washington, D. C., for Public Service of Indiana.
Before CUMMINGS, SPRECHER and BAUER, Circuit Judges.
At issue in this appeal is the validity of various Federal Power Commission (FPC) 1 decisions that served as bases for its determination of the "just and reasonable" wholesale rate that could be charged by an Indiana electric utility company, the Public Service Company of Indiana, Inc. (PSCI). Although a large number of issues are raised by the various parties, some of the more important ones are how the FPC should treat disparities in contractually-fixed versus FPC-imposed rates charged to different members of a class of customers, what constitutes a reasonable rate of return on equity and what the FPC should do about estimated future costs submitted by a utility under new Commission regulations that actual experience proves were not incurred by the utility.
Involved in this case are five consolidated appeals from the FPC's determination of the "just and reasonable" rates that PSCI could charge its wholesale customers under sections 205 2 and 206 3 of the Federal Power Act, 16 U.S.C. §§ 824d and e. PSCI is a large electric utility that provides retail service to 69 counties in Indiana and wholesale service to 60 utility customers. Wholesale customers are divided into four groups, each of which was represented both before the FPC and in this appeal.
The first and largest wholesale customer is the Hoosier Energy Division of the Indiana Statewide Rural Electric Cooperative, Inc. (Hoosier). The cooperative generates some of the electrical power that it distributes to its members, but it also purchases partial requirements service from PSCI for resale to its members.
The second and third customers are the Wabash Valley Power Association (Wabash) and the Indiana Municipal Electric Association (IMEA). Both customers have no electrical generating facilities and therefore both purchase full requirements service from PSCI.
The fourth customer is a class of municipal purchasers each of which has some generating capacity, but each purchases partial requirements from PSCI. The cities involved are Crawfordsville, Logansport, Peru, Washington and Frankfort, Indiana.
On January 8, 1974, PSCI in two separate proceedings 4 filed proposed rate increases for services to its wholesale customers that ranged from 14 percent for Wabash to 32 percent for the Cities. In support of these increases, PSCI filed all data required by the FPC's then newly-promulgated regulations, 18 C.F.R. § 35.13(b)(4)(iii), which included actual cost data for 12 months ending June 30, 1973 (Period I) and estimated cost data for the calendar year 1974 (Period II). 5
It would unduly extend the length of this opinion to attempt to describe with any specificity the administrative proceedings conducted in response to PSCI's proposed rate increase that led to the decisions at issue in this appeal. Therefore, we will merely sketch the various proceedings at this point and will describe more fully the specific facts necessary to decide each issue as we review them in the subsequent sections of this opinion.
On March 7, 1974, the FPC approved, subject to refund, the rate increase to Hoosier; rejected the rate increase for four of the five Cities based on their fixed-rate contracts with PSCI, but instituted a proceeding under section 206 of the Act to determine whether the contracts were in the public interest; and suspended the rate increase to all other wholesale customers for the statutory maximum of five months, 16 U.S.C. § 824d(e), after which the rates would go into effect subject to refund.
In November 1974, a consolidated hearing was held before an administrative law judge (ALJ), with all of the parties in this appeal participating. The ALJ's initial decision was issued in March 1976. In that decision the ALJ essentially approved PSCI's proposed rate increase and held that the fixed-rate contracts of the four Cities violated section 206.
In response to various exceptions taken to the ALJ's opinion, the FPC held oral argument in July 1976. On November 10, 1976, the FPC in Opinion No. 783 disallowed, in part, PSCI's proposed rate increase and reversed the ALJ's modification of the fixed-rate contracts held by the four Cities. Petitions for rehearing were filed by various of the parties and on February 25, 1977, the FPC issued Opinion No. 783-A which generally denied rehearing, but did eliminate certain of PSCI's estimated power costs that in fact were not incurred.
In September 1975, PSCI tendered for filing a superseding proposed rate increase to its wholesale customers with a proposed effective date of October 24, 1975. The FPC suspended the proposed rate increase until March 31, 1976, when it was to go into effect subject to refund. Thus, the rates under review in this proceeding apply to the locked-in period of October 15, 1974, to March 31, 1976.
As noted earlier, five separate appeals were taken from the FPC's two opinions and they have been consolidated into a single appeal. This court properly has jurisdiction over these appeals based on section 313 of the Federal Power Act, 16 U.S.C. § 825l.
Quite a few issues have been raised in these consolidated appeals, some of which are basically unrelated to others and many of which are discussed by several parties. In reviewing these issues we will initially consider the problems created by the fixed-rate contracts held by the Cities. Second, we will review the propriety of the rate of return on equity the FPC approved. Finally, we will review the various FPC cost-of-service decisions about which complaints are raised by the various parties.
One cluster of issues surrounds the FPC's treatment of the fixed-rate contracts between PSCI and the Cities. The Cities contend that the FPC erred in holding that PSCI could unilaterally seek a rate change from the Commission for electricity sold to Frankfort, Indiana because the sale of that electricity was subject to a fixed-rate contract within the meaning of United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956). Alternatively, the Cities argue that, even if Frankfort did not have a fixed-rate contract with PSCI, it was an undue discrimination in violation of section 205(b) of the Federal Power Act, 16 U.S.C. § 824d(b), to permit PSCI to increase its rates to Frankfort above what the other four Cities were paying. PSCI responds that the FPC properly permitted the rate increase for Frankfort, but erred in refusing to reform the fixed-rate contracts of the other four Cities so as to put their rates in line with Frankfort's. We will consider each contention in turn.
The general rule with regard to fixed-rate contracts is that they are valid unless clearly contrary to the public interest and that they preclude a utility from unilaterally seeking to increase its rates under section 205 of the Federal Power Act to customers with such contracts. United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 337, 76 S.Ct. 373, 100 L.Ed. 373 (1956); FPC v. Sierra Pacific Power Co., 350 U.S. 348, 353, 76 S.Ct. 368, 100 L.Ed. 388 (1956). Thus, in a case such as this where the customer claims to have a fixed-rate contract, our focus must be on the terms of the contract, United Gas Pipe Line Co. v. Memphis Light, Gas & Water Division,358 U.S. 103, 79 S.Ct. 194, 3 L.Ed.2d 153 (1958), based on the standard that "(r)ate filings consistent with contractual obligations are valid; rate filings inconsistent with contractual obligations are invalid." Richmond Power & Light v. FPC, 156 U.S.App.D.C. 315, 318, 481 F.2d 490, 493 (1973). 6 See also Appalachian Power Co. v. FPC, 174 U.S.App.D.C. 100, 529 F.2d 342 (1976).
Applying that test to this case, it seems to us that a unilateral rate filing under section 205 was unambiguously provided for in the contract between PSCI and Frankfort. In Article 12.1 of the contract, it is provided:
The terms and conditions of this Agreement, and the provisions of the rates attached hereto and made a part hereof, may be changed by the Company from time to time by filing such change(s) with the Federal Power Commission and upon receipt of such Commission's acceptance for filing will supersede and cancel...
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