810 F.2d 1168 (D.C. Cir. 1987), 82-2004, Jersey Cent. Power & Light Co. v. F.E.R.C.

Docket Nº:82-2004.
Citation:810 F.2d 1168
Party Name:JERSEY CENTRAL POWER & LIGHT COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Allegheny Electric Cooperative, Inc., et al., Intervenors.
Case Date:February 03, 1987
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

Page 1168

810 F.2d 1168 (D.C. Cir. 1987)

JERSEY CENTRAL POWER & LIGHT COMPANY, Petitioner,

v.

FEDERAL ENERGY REGULATORY COMMISSION, Respondent,

Allegheny Electric Cooperative, Inc., et al., Intervenors.

No. 82-2004.

United States Court of Appeals, District of Columbia Circuit

February 3, 1987

Argued Jan. 30, 1986.

As Amended .

Page 1169

James B. Liberman, Washington, D.C., with whom Ira H. Jolles, New York City, and Leonard W. Belter were on the brief, for petitioner. Daniel F. Stenger and Scott M. DuBoff, Washington, D.C., also entered appearances, for petitioner.

Jerome M. Feit, Sol., F.E.R.C., with whom William H. Satterfield, General Counsel, and Joseph S. Davies, Atty., F.E.R.C., Washington, D.C., were on the brief, for respondent. Barbara J. Weller, Deputy Sol., F.E.R.C., Washington, D.C., also entered an appearance, for respondent.

Charles D. Gray, with whom Paul Rodgers, Washington, D.C., was on the brief for amicus curiae, Nat. Ass'n of Regulatory Utility Com'rs, urging affirmance.

Robert Weinberg, with whom William I. Harkaway and Harvey Reiter, Washington, D.C., were on the brief, for intervenors, Allegheny Elec. Co-op., Inc., et al.

David M. Barasch, Harrisburg, Pa., was on the brief for amici curiae, Pennsylvania Office of Consumer Advocate, et al., urging affirmance.

Daniel P. Delaney, John F. Povilaitis and Charles F. Hoffman, Harrisburg, Pa., were on the brief for amicus curiae, Pennsylvania Public Utility Com'n, urging affirmance.

Before WALD, Chief Judge, ROBINSON, MIKVA, EDWARDS, RUTH B. GINSBURG, BORK, SCALIA, [*] STARR, SILBERMAN and BUCKLEY, Circuit Judges.

Opinion for the Court filed by Circuit Judge BORK.

Concurring opinion filed by Circuit Judge STARR.

Dissenting opinion filed by Circuit Judge MIKVA, with whom Chief Judge WALD and Circuit Judges SPOTTSWOOD W. ROBINSON, III and HARRY T. EDWARDS join.

BORK, Circuit Judge:

Jersey Central Power and Light Company petitions for review of Federal Energy Regulatory Commission orders modifying the electric utility's proposed rate schedules and requiring the company to file reduced rates. Jersey Central charges that it alleged facts which, if proven, show that the reduced rates are confiscatory and violate its statutory and constitutional rights as defined by the Supreme Court in FPC v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944). Though it is probable that the facts alleged, if true, would establish an invasion of the company's rights, the Commission refused the company a hearing and reduced its rates summarily.

Throughout the extensive proceedings before both the Commission and this court, the Commission has steadfastly maintained that its summary dismissal of Jersey Central's filing was justified by prior Commission precedent. Faced with the claim that the rate order was inconsistent with the Commission's statutory responsibility to provide just and reasonable rates and with the constitutional prohibition against uncompensated takings, the Commission briefs advance a legal theory which, if

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adopted by this court, would immunize virtually all rate orders from this type of challenge. The Commission's theory flies in the face of every Supreme Court decision that addresses this subject, and we are bound to reject it.

The intervenors, customers of Jersey Central, advance a quite different rationale for affirming the Commission. They attempt to justify the denial of a hearing with the argument that Jersey Central followed the wrong procedures and therefore lost the opportunity to have its substantive claims heard. Thus, it is said, it was the company's fault, not the Commission's, that no hearing was held.

That reasoning provides no basis for affirming the Commission. It fails to come to grips with the character of the Commission decision we review. That decision does not rest on adjective law. The Commission in fact reached and peremptorily decided the merits of the utility's claim. The substantive Hope Natural Gas issue is, therefore, squarely before us and cannot be avoided by faulting the utility for employing defective tactics. The Commission ruled that Jersey Central's allegations and proffered testimony would not support a higher rate. That substantive ruling means that a hearing would have been pointless. The ruling is inconsistent with Hope as well as with other controlling precedent of the Supreme Court and of this court. Reversal and remand for a hearing are thus required.

Though the fact that the Commission reached the merits renders irrelevant the intervenors' procedural rationale, it should be noted that if procedural fault is to be assigned, it should be laid at the Commission's doorstep. In dealing with Jersey Central's rate filings, the Commission applied unclear rules arbitrarily. Moreover, the Commission made plain, contrary to the intervenors' rationale, that no procedure could have been followed that would have guaranteed the hearing sought. The explanation for what has taken place in these convoluted proceedings appears to be less that Jersey Central followed incorrect procedures than that the Commission resists "end result" examination at the agency level, and is deeply antagonistic to court review of ratemaking under the guidelines laid down by Hope.

The decision of the Commission is vacated and the case remanded for a hearing at which Jersey Central may finally have its claim addressed.

I.

This case has already prompted two opinions from this court, both of which we have since vacated. See Jersey Central Power & Light Co. v. FERC, 730 F.2d 816 (D.C.Cir.1984) ("Jersey Central I "); Jersey Central Power & Light Co. v. FERC, 768 F.2d 1500 (D.C.Cir.1985) ("Jersey Central II "). The case has now been reheard en banc, and the court has had the benefit of supplemental briefing and oral argument from the parties, the intervenors, and several amici curiae. 1

On March 31, 1982, Jersey Central filed proposed rate schedules with the Commission for wholesale service to six customers. Jersey Central divided its filing into two separate rate increases designated Phase A and Phase B. Phase A has gone into effect, and Phase B is the subject of this litigation.

At issue is the utility's proposed treatment of the $397 million investment lost when it suspended construction of its nuclear generating station at Forked River, New Jersey. The Forked River project was initiated about a decade and a half ago, when federal and state agencies were encouraging

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utilities to commit substantial amounts of capital to nuclear generating plants that required lead times of eight to twelve years. The consensus prediction was of substantial and steady increases in the demand for electricity and substantial and continued increases in the price of oil due to the operation of an international oil cartel. Regulated public utilities are under statutory obligations to plan and build the facilities necessary to meet the projected needs of their customers. See, e.g., 16 U.S.C. Sec. 824a(g) (1982); N.J.Stat.Ann. 48:3-3 (West 1969). If firms and households were not to face catastrophic energy prices in the future, it was thought essential that nuclear generating plants be built. All parties agree that Jersey Central's investment at Forked River was prudent when made.

The forecasts of both demand and supply proved wrong. Due to conservation, demand did not rise nearly as much as expected, and, with the collapse of the international cartel, the oil market has experienced a world-wide glut and a dramatic decline in prices. Furthermore, the protracted litigation and political controversy which attended the construction of nuclear power projects resulted in extensive delays and dramatic increases in their ultimate cost. Thus, many investments which were prudent, indeed considered essential, when made, have now by necessity been cancelled. Forked River was one, and in 1980 Jersey Central abandoned it, having concluded "that it must devote whatever resources it had available to ... less capital intensive and more politically acceptable alternatives." Testimony of Dennis Baldassari at 7, Joint Appendix ("J.A.") at 34.

Jersey Central sought to recover the cost of the Forked River investment by amortizing the $397 million over a fifteen-year period, a proposal to which the Commission agreed. Jersey Central also requested, however, that the unamortized portions be included in the rate base, with a rate of return sufficient to cover the carrying charges on the debt and the preferred stock portions of that unamortized investment. Jersey Central expressly did not seek a return on that portion of the unamortized investment allocable to its common equity investors.

In support of its proposal, Jersey Central submitted to the Commission the testimony of Dennis Baldassari, its Vice-President and Treasurer. J.A. at 28-39. Baldassari sought to demonstrate that the financial problems faced by Jersey Central made necessary earnings and revenues at the level contemplated by its filing. Baldassari characterized the utility's financial condition as "delicate." Testimony of Dennis Baldassari at 9, J.A. at 36. Jersey Central was wholly dependent for short-term credit, he explained, on a Revolving Credit Agreement which was subject to termination at any time. The only long-term securities it was able to issue were themselves subject to mandatory repurchase by the utility should the short-term credit then available to it be for any reason terminated. Jersey Central's credit standing was, therefore, predictably low. Standard & Poor's Corporation rated its senior debt securities "BB-", i.e., "regarded, on-balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation." Moody's Investors Service had also downgraded Jersey Central's rating, classifying its securities "Ba", i.e., "judged to have...

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