Arkansas Elec. Energy Consumers v. F.E.R.C.

• Decision Date: 17 May 2002
• Docket Number: No. 94-1495.,No. 94-1469.,No. 94-1480.,No. 94-1509.,No. 94-1461.,No. 94-1508.,94-1461.,94-1469.,94-1480.,94-1495.,94-1508.,94-1509.
• Citation: 290 F.3d 362
• Parties: ARKANSAS ELECTRIC ENERGY CONSUMERS, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Arkansas Public Service Commission, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

290 F.3d 362

ARKANSAS ELECTRIC ENERGY CONSUMERS, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Arkansas Public Service Commission, et al., Intervenors.

No. 94-1461.

No. 94-1469.

No. 94-1480.

No. 94-1495.

No. 94-1508.

No. 94-1509.

United States Court of Appeals, District of Columbia Circuit.

Argued April 8, 2002.

Decided May 17, 2002.

On Petitions for Review of Orders of the Federal Energy Regulatory Commission.

Mary W. Cochran argued the cause for petitioners. With her on the briefs were Paul R. Hightower, Zachary David Wilson, Brian Donahue, Mitchell F. Hertz, George M. Fleming and Frank Spencer. William B. McKinley and James D. Senger entered appearances.

David H. Coffman, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were Cynthia A. Marlette, General Counsel, and Dennis Lane, Solicitor.

Michael R. Fontham argued the cause for intervenors Entergy Services, Inc. and Louisiana Public Service Commission. With him on the brief were Noel J. Darce and John N. Estes III.

Before: EDWARDS, ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

Arkansas Electric Energy Consumers and others¹ petition for review of Opinion Nos. 385 and 385-A of the Federal Energy Regulatory Commission. In those opinions the Commission approved the merger of the Entergy and Gulf States systems under § 203 of the Federal Power Act ("FPA"), 16 U.S.C. § 824b, and an amendment to the Entergy System Agreement under FPA § 205, 16 U.S.C. § 824d, to add Gulf States as an Entergy Operating Company upon approval and consummation of the merger. See Entergy Servs., Inc., Opinion No. 385, 65 FERC ¶ 61,332, 1993 WL 609691 (1993) ("Opinion No. 385"); Entergy Servs., Inc., Opinion No. 385-A, 67 FERC ¶ 61,192, 1994 WL 196212 (1994) ("Opinion No. 385-A"). Petitioners principally contend that Opinion No. 385 violates § 205's prohibition against undue discrimination because the System Agreement treats Gulf States, which has no history of cost-sharing with respect to the Entergy system generating facilities, similarly to the four electric operating companies ("EOCs") — Arkansas Power & Light Company, Louisiana Power & Light Company, Mississippi Power & Light Company, and New Orleans Public Service, Inc. — which have long cost-sharing histories. Petitioners also contend that the Commission erred in not holding an evidentiary hearing on wholesale electric competition before approving the merger. We deny the petition.

I.

Opinion Nos. 385 and 385-A respond to the 1992 filing by Entergy and Gulf States of a joint application under § 203 for authorization to merge their adjacent systems. Entergy simultaneously filed, pursuant to § 205, a proposed amendment to the System Agreement to add Gulf States as an EOC upon approval and consummation of the merger. The background to these proceedings need not be repeated. See City of New Orleans v. FERC, 875 F.2d 903 (D.C.Cir.1989); Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 108 S.Ct. 2428, 101 L.Ed.2d 322 (1988); Mississippi Indus. v. FERC, 808 F.2d 1525 (D.C.Cir.1987), on rehearing, 822 F.2d 1104 (D.C.Cir.1987); Louisiana Pub. Serv. Comm'n v. FERC, 688 F.2d 357 (5th Cir.1982). We therefore turn directly to the Commission's threshold contention that petitioners have waived their § 205 challenge to Opinion Nos. 385 and 385-A.

II.

The FPA provides for rehearing of a Commission order, provided the request is filed within 30 days of the order. 16 U.S.C. § 825l(a). Thereafter, a party or other person aggrieved has 60 days from the denial of rehearing to seek judicial review. Id. § 825l(b). Application for rehearing by the Commission is a prerequisite to seeking judicial review. Id. § 825l(a). No objection to the Commission's order may be raised on appeal to the court unless it was urged before the Commission on rehearing "unless there is reasonable ground for failure to do so." Id. § 825l(b). See FPC v. Colorado Interstate Gas Co., 348 U.S. 492, 497-98, 75 S.Ct. 467, 470-71, 99 L.Ed. 583 (1955). The Commission contends that petitioners have waived their undue discrimination challenges to Opinion Nos. 385 and 385-A by failing to raise them on reconsideration of the Hearing Order. Upon review of the record of the proceedings, we conclude that, pursuant to § 825l(b), petitioners preserved their contentions for judicial review.

In the order setting forth the issues to be addressed at an evidentiary hearing, the Commission stated, in relevant part, that the § 205 inquiry would "focus solely on whether the Operating Companies and their customers will be adversely affected by Gulf States' integration into the existing System Agreement...." Entergy Servs., Inc., Order on Applications, 62 FERC ¶ 61,073, 61,378, 1993 WL 52670 (1993) ("Hearing Order"). The order also stated that the effect of the merger on rates and costs would be taken into account. Id. At this point, petitioners properly could rely on the Commission's adherence, following the evidentiary hearing, to the requirements of §§ 203 and 205 in addressing the merits of the System Agreement amendment. Because a party may be adversely affected if it suffers undue discrimination and the term "adversely affected" has a rather indeterminate meaning in the abstract, it would be unreasonable to expect petitioners to have challenged the standard established in the Hearing Order before the standard had been applied. Put otherwise, petitioners had "reasonable ground[s]" to refrain from raising their contentions regarding undue discrimination until a decision on the merits was rendered. 16 U.S.C. § 825l(b).

Upon determining that, in petitioners' view, the opinion of the Administrative Law Judge ("ALJ") following the evidentiary hearing, Initial Decision, 64 FERC ¶ 63,026, 1993 WL 566270 ("Initial Decision"), had blurred the distinction between §§ 203 and 205, and failed to protect them against undue discrimination in ratemaking, petitioners raised appropriate objections in an initial post-hearing brief and in a brief on exceptions to the Initial Decision. Similarly, petitioners raised these contentions in seeking rehearing by the Commission of Opinion No. 385. Indeed, on rehearing the Commission addressed petitioners' undue discrimination contentions on the merits, never suggesting that petitioners had waived their contentions by failing to raise them in seeking rehearing of the Hearing Order. See, e.g., Opinion No. 385-A, 67 FERC at 61,583.

In now contending that petitioners are making an impermissible collateral attack on the "adverse effects" test established in the Hearing Order, the Commission relies on Bluestone Energy Design, Inc. v. FERC, 74 F.3d 1288, 1293-94 (D.C.Cir. 1996). The waiver issue in Bluestone, however, was not decided under § 825l(b); the petitioner in that case conceded that judicial review was foreclosed under § 825l(b) for failure to file a timely petition for rehearing and sought review under 16 U.S.C. § 823b(d)(2)(B), which provides for judicial review of Commission orders assessing penalties. The court held that § 823b(d)(2)(B) prohibited collateral attacks on findings in prior Commission orders unless the petitioner had raised an appropriate challenge in a petition for rehearing. See Bluestone, 74 F.3d at 1293-94. Although the Hearing Order at issue here was a final order, unlike the liability determination in Bluestone, it did not constitute a ruling on the merits as to the issues that petitioners pursued in their request for rehearing of Opinion No. 385. Similarly, the Commission's reliance on ASARCO, Inc. v. FERC, 777 F.2d 764 (D.C.Cir.1985), is misplaced, for the petitioner in that case failed to raise on rehearing the principal issue for which it sought judicial review and did not argue that it had reasonable grounds for failing to do so. See id. at 773-74.

Because petitioners have argued throughout the proceedings before the Commission, on the appropriate occasions, that its members will be "adversely affected" unless intrasystem adjustments are made, we hold that petitioners have preserved their §§ 203 and 205 contentions for judicial review under 16 U.S.C. § 825l(b).

III.

Section 205(a) of the FPA provides that "[a]ll rates and charges made, demanded, or received by any public utility for or in connection with the sale of electric energy subject to the jurisdiction of the Commission... shall be just and reasonable, and any such rate or charge that is not just or reasonable is hereby declared unlawful." 16 U.S.C. § 824d(a). Section 205(b) provides that it shall be unlawful for a public utility, with respect to any transmission or sale subject to the jurisdiction of the Commission, to "(1) make or grant any undue preference or advantage to any person ... or (2) maintain any unreasonable difference in rates, charges, services, facilities, or in any other respect, either as between localities or as between classes of service." Id. § 824d(b). Petitioners contend that in approving the addition of Gulf States to the System Agreement without modifying the Agreement's rate formulas to reflect Gulf State's lack of prior contribution to the costs of the Entergy system, the Commission acted unlawfully in violation of § 205. Petitioners point to Opinion Nos. 234 and 292² where, they maintain, the Commission set forth the principle that prevention of undue discrimination requires attention to historical patterns of cost-bearing on the Entergy system. Because the EOCs share a common history of planning and cost-sharing for system generation facilities, petitioners maintain that to avoid undue discrimination Gulf States should not be permitted to benefit from the advantageous rate schedules in the System Agreement after most of the depreciation costs have been paid. Specifically, petitioners proposed to the Commission that Gulf States be required to make MSS-1³ payments to the "...