Southern California Edison Co. v. F.E.R.C.

• Citation: 770 F.2d 779
• Decision Date: 03 September 1985
• Docket Number: Nos. 83-7841,83-7942 and 84-7182,s. 83-7841
• Parties: SOUTHERN CALIFORNIA EDISON COMPANY and Pacific Gas and Electric Company, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. P.U.C. State of California, Bonneville Power Administration, Congressman Jim Weaver and Direct Service Industrial Customers (DSI), Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 779

770 F.2d 779

SOUTHERN CALIFORNIA EDISON COMPANY and Pacific Gas and Electric Company, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent P.U.C. State of California, Bonneville Power Administration Congressman Jim Weaver and Direct Service Industrial Customers (DSI), Intervenors.

Nos. 83-7841, 83-7942 and 84-7182.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 4, 1985.

Decided Sept. 3, 1985.

John D. McGrane, Floyd L. Norton, IV, Matthew W.S. Estes, Reid & Priest, Washington, D.C., Richard K. Durant, Frank J. Cooley, Mark A. Frazee, Rosemead, Cal., for petitioners.

Jack F. Fallin, Jr., Joshua Bar-Lev, Harry W. Long, Jr., San Francisco, Cal., for Pacific Gas & Elec. Co.

Robert M. Greening, Jr., Tooze, Kerr, Marshall & Shenker, Portland, Or., for Pacific Northwest Generating Co.

Eric Redman, Matthew Cohen, Heller, Ehrman, White & McAuliffe, Seattle, Wash., for Direct Service Indus. Customers.

William H. Satterfield, Gen. Counsel, Barbara J. Weller, Deputy Solicitor, Joel M. Cockrell, Atty., F.E.R.C., Washington, D.C., for F.E.R.C Charles H. Turner, U.S. Atty., Jack G. Collins, Chief, Civ. Div., Thomas C. Lee, Asst. U.S. Atty., Harvard P. Spigal, Gen. Counsel, John A. Cameron, Jr., Asst. Gen. Counsel, R. Elaine Hallmark, Atty., B.P.A., Portland, Or., for Bonneville Power Admin.

Petition for Review of a Final Rule by the Federal Energy Regulatory Commission.

Before CHAMBERS, BOOCHEVER, and BEEZER, Circuit Judges.

BEEZER, Circuit Judge:

Petitioners Southern California Edison Company (SCE) and Pacific Gas and Electric Company (PG & E) seek review of a final rule promulgated by the Federal Energy Regulatory Commission (FERC). The final rule established procedures for the approval of interim rates submitted by the Bonneville Power Administration (BPA) under the Pacific Northwest Electric Power Planning and Conservation Act.

We affirm in part, reverse in part, and remand.

I Background

A. Statutory Framework

In 1980, Congress passed the Pacific Northwest Electric Power Planning and Conservation Act (the Regional Act), 16 U.S.C. Secs. 839-839h (1982), in response to increasing demand for inexpensive hydroelectric power generated on the Columbia River system. The Bonneville Power Administration (BPA) is a federal power marketing agency, authorized by Congress to sell federal power in the Pacific Northwest region.

Under the Regional Act, only "surplus energy" and "surplus peaking capacity" may be sold outside the region. Central Lincoln Peoples' Utility District v. Johnson, 735 F.2d 1101, 1112 (9th Cir.1984); see 16 U.S.C. Secs. 839c(f), 839f(c). Power resources are considered "surplus" when there is no market or demand for them at any established rate within the region. 16 U.S.C. Sec. 839f(c). The sales generally are to the Southwestern states, principally California. The majority of power sold outside the region is "nonfirm" energy, or energy in excess of that which the BPA can reliably plan on producing at a critical water level. Id.

BPA must submit its rate schedules to FERC for confirmation and approval. 16 U.S.C. Secs. 839e(a)(2) and 839e(k). FERC conducts its review pursuant to substantive standards set forth in the Regional Act. The Regional Act defines two separate review standards, one for BPA's regional rates and one exclusively for BPA's rates for nonfirm energy sold outside of the region. 16 U.S.C. Secs. 839e(a)(2), 839e(k).

B. Facts

The effective date of the Regional Act was December 5, 1980. Within one year of that date, FERC was required to establish procedures for granting interim approval of BPA rates. See 16 U.S.C. Sec. 839e(i)(6). On December 4, 1981, FERC issued a rule establishing procedures for the acceptance of BPA rates on an interim basis, subject to change after notice and opportunity for comment. 46 Fed.Reg. 60,813 (1981).

FERC issued a final rule in August 1983. The final rule revised the interim rule and established procedures for final rate approval. FERC noted that the procedures "were not previously published in the interim rule." 48 Fed.Reg. 37,006 (1983). The final rule stated that FERC's "General Rules of Practice and Procedure ... other than Rule 2201 (Ex Parte Communications), will apply to any filings, hearings, or other procedures under this Part." 18 C.F.R. Sec. 300.1(a) (1983). FERC emphasized, however, that it would ensure the fairness of its on-the-record proceedings in a manner consistent with the case law and applicable statutes dealing with ex parte communications. 48 Fed.Reg. 37,01 1 (1983). FERC also articulated the different standards it would apply in reviewing BPA's rates. 18 C.F.R. Sec. 300.21(c).

FERC further stated that the Regional Act did not require applications for rehearing as a jurisdictional prerequisite to obtaining judicial review of the promulgated rules. Nevertheless, submission of written comments was permitted on the changes made with respect to the procedures for interim approval. The comments received were treated as petitions for reconsideration. 48 Fed.Reg. 37,011 (1983).

In November 1983, SCE and PG & E filed their petitions for review with this court. SCE also submitted comments to FERC. SCE objected to the lack of opportunity to comment on the new sections before the rule was promulgated, and claimed that the rule did not comply with Federal Power Act procedures. On December 15, 1983, FERC issued a subsequent order granting in part and denying in part the petitions for reconsideration. 48 Fed.Reg. 56,365 (1983). FERC reiterated that its role in reviewing the overall BPA rates was appellate in nature, while its role in reviewing nonregional rates was not clear. FERC concluded that it would resolve the question by reviewing nonregional rates either on a case-by-case basis or through subsequent rulemaking.

On December 21, 1983, the December 15th order was amended in response to SCE's comments. The revised order provided that the review hearing required under 16 U.S.C. Sec. 839e(k) would "be held in accordance with the procedures established for ratemaking by the Commission pursuant to the Federal Power Act." 18 C.F.R. Sec. 300.21(b). However, FERC concluded that it was not required to adopt every filing requirement and administrative procedure that would be followed under the Federal Power Act. 48 Fed.Reg. 56,366-67 (1983). FERC indicated that it had not yet taken a position whether its ex parte rule should apply to power marketing proceedings. Id.

SCE timely petitions for review of the final order.

C. Issues

SCE and PG & E ask us to determine whether FERC promulgated its final rule regarding interim approval of BPA rates in accordance with the formal rulemaking procedures of the Administrative Procedure Act (APA). We must also decide whether the Regional Act requires FERC to follow all Federal Power Act ratemaking procedures when it reviews BPA nonfirm, nonregional rates. The intervenors assert that the final rule is not ripe for judicial review. Finally, we shall address FERC's consideration of review standards for nonfirm, nonregional rates.

II Standard of Review

In reviewing an agency decision, we apply the standard set forth in 5 U.S.C. Sec. 706(2)(A): whether the administrative action was "arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law." Garrett v. Lehman, 751 F.2d 997, 999 n. 1 (9th Cir.1985). We give deference to the interpretation of a statute by the agency charged with administering it. NLRB v. Bell Aerospace Co., 416 U.S. 267, 274-75, 94 S.Ct. 1757, 1761-62, 40 L.Ed.2d 134 (1974); Markair, Inc. v. Civil Aeronautics Board, 744 F.2d 1383, 1385 (9th Cir.1984). However, the courts are the final authorities on issues of statutory construction. Federal Election Commission v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 32, 102 S.Ct. 38, 42, 70 L.Ed.2d 23 (1981); Markair, 744 F.2d at 1385. We must reject administrative constructions of a statute that are inconsistent with the statutory mandate or that frustrate the policy that Congress sought to implement. Id.

III Notice and Comment Requirements

5 U.S.C. Sec. 553(d) requires publication of an agency rule in the Federal Register at least 30 days before its effective date. Persons subject to the proposed rule must be given notice of and an opportunity for comment. 5 U.S.C. Sec. 553(c). However, the notice and comment requirements do not apply to "interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice...." 5 U.S.C. Sec. 553(b)(3)(A).

For purposes of the APA, substantive rules are rules that create law. These rules usually implement existing law, imposing general, extrastatutory obligations pursuant to authority properly delegated by Congress. Alcaraz v. Block, 746 F.2d 593, 613 (9th Cir.1984). Interpretative rules merely clarify or explain existing law or regulations and go " 'to what the administrative officer thinks the statute or regulation means.' " Id. (quoting Gibson Wine Co. v. Snyder, 194 F.2d 329, 331 (D.C.Cir.1952) ).

FERC adopted 18 C.F.R. Sec. 300.21 in 1983. The new rule established procedures for final confirmation and approval of BPA rates and adopted review standards for rate approval. FERC concluded that because the new procedural provisions did not affect the substance of the rate proceedings, they were "clearly matters of agency organization, procedure or practice" and did not require notice and comment. 48 Fed.Reg. 37,011 (1983).

Petitioners maintain that the procedures adopted in 18 C.F.R. Sec. 300.21 dealing with intervention, requests for final confirmation and approval, and refunds for interim rates would have a substantive effect on parties to BPA final rate approval proceedings. Petitioners therefore urge us to find that FERC violated the APA by adopting the revised rule without adequate opportunity for new comment. We disagree.

Section 553(b)(3)(A) of the APA exempts "rules of agency...