Cities of Anaheim, Riverside, Banning, Colton and Azusa, Cal. v. F.E.R.C.

• Citation: 723 F.2d 656
• Decision Date: 09 January 1984
• Docket Number: No. 82-7478,82-7478
• Parties: CITIES OF ANAHEIM, RIVERSIDE, BANNING, COLTON AND AZUSA, CALIFORNIA, Petitioners, and City of Vernon, California, Intervenor, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, and Southern California Edison Co., Intervenor.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 656

723 F.2d 656

CITIES OF ANAHEIM, RIVERSIDE, BANNING, COLTON AND AZUSA, CALIFORNIA, Petitioners, and City of Vernon, California, Intervenor, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, and Southern California Edison Co., Intervenor.

No. 82-7478.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 7, 1983.

Decided Jan. 9, 1984.

James N. Horwood, Spiegel & McDiarmid, Washington, D.C., for petitioners.

Arnold Fieldman, Washington, D.C., David B. Brearley, Vernon, Cal., for City of Vernon, Cal.

Joshua Rokach, Barbara Weller, Thajauna Miller, FERC, Washington, D.C., for respondent.

Brian J. McManus, Reid & Priest, Washington, D.C, for So. Cal. Edison.

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

Before FARRIS and REINHARDT, Circuit Judges, and SOLOMON, ^* District Judge.

FARRIS, Circuit Judge:

On March 31, 1982, Southern California Edison applied to the Federal Energy Regulatory Commission for a rate increase. Five California cities, wholesale customers of Edison, intervened in opposition. ¹ When a utility files a new rate schedule with FERC (formerly the Federal Power Commission), the Commission can take one of three actions:

1) It can reject the filing outright, a prerogative not explicitly provided by statute, but assumed by FERC regulation, 18 C.F.R. Sec. 35.5, and approved in Municipal Light Boards v. FPC, 450 F.2d 1341, 1345-7 (D.C.Cir.1971), cert. denied, 405 U.S. 989, 92 S.Ct. 1251, 31 L.Ed.2d 455 (1972).

2) It can order a hearing and, in addition, may suspend the new rate for up to five months. 16 U.S.C. Sec. 824d(e). ² Should the new rate go into effect before the hearing concludes, the utility may be required to refund amounts later found to be excessive. Id. The utility bears the burden of showing the reasonableness of its new rates. Id.

3) It can accept the rate schedule immediately. Then an aggrieved customer would have to file a complaint under 16 U.S.C. Sec. 825e challenging the validity of the rates. Under this procedure the customer bears the burden of proof and has no clearly defined right to refund.

FERC has 60 days to decide which course to follow. 16 U.S.C. Sec. 824d(d) (West Supp.1983); Indiana & Michigan Electric Co. v. FPC, 502 F.2d 336, 341 (D.C.Cir.1974), cert. denied, 420 U.S. 946, 95 S.Ct. 1326, 43 L.Ed.2d 424 (1975).

In this case FERC chose the second of the three options. On May 28, 1982, the Commission suspended step one of the proposed rate increase, the portion at issue in this appeal, for one day only. FERC also scheduled a hearing on the merits of Edison's proposal and preserved the cities' right to a refund if the rates were ultimately found excessive. Southern California Edison Co., 19 FERC p 61,209 (May 28, 1982). In fixing the suspension at one day, FERC purported to follow the policy set out in West Texas Utilities Co., 18 FERC p 61,189 (Feb. 26, 1982).

The cities petitioned for rehearing claiming that Edison's filing should have received the maximum, five-month suspension. Their petition was denied on August 2, 1982 and they filed a timely appeal.

The cities raise several issues, two of which merit extended discussion: 1) whether FERC's West Texas policy ought to have been adopted via rulemaking, and 2) whether FERC applied the policy improperly in this case. We hold that the West Texas policy was properly adopted and decline to review its application to Edison's rate proposal.

A. The recent history of FERC's suspension policy

West Texas was the culmination of three years of doctrinal development triggered by the District of Columbia Circuit's opinion in Connecticut Light and Power v. FERC, 627 F.2d 467 (1980). There the court criticized FERC's inadequate explanation of its suspension decisions and remanded for the Commission to "establish standards for the exercise of its discretion," either by rulemaking or in "individual cases." Id. at 473. FERC responded by announcing in Kansas City Power & Light Co., 12 FERC p 61,118 (Aug. 1, 1980), that:

[R]ate filings should normally be suspended and the status quo ante preserved for the maximum period permitted by statute in circumstances where preliminary study leads the Commission to believe that there is substantial question as to whether a filing complies with applicable statutory standards....

Particular circumstances may warrant shorter suspensions.

Identical language appears in subsequent FERC opinions. See, e.g., Alabama Power Co., 12 FERC p 61,210 (Aug. 29, 1980); Boston Edison Co., 12 FERC p 61,211 (Aug. 29, 1980).

Since Kansas City Power and Light, FERC has found "particular circumstances" justifying a one-day suspension when preliminary analysis suggests that the proposed rates are not excessive. Cleveland Electric Illuminating Co., 12 FERC p 61,184 (Aug. 22, 1980); Indiana & Michigan Electric Co., 13 FERC p 61,241 (Dec. 18, 1980); Appalachian Power Co., 14 FERC p 61,027 (Jan. 16, 1981). This consistent exception to the general policy of five-month suspensions was formalized in West Texas Utilities Co., 18 FERC p 61,189 (Feb. 26, 1982). FERC not only made clear that the exception would continue to hold, but clarified its meaning:

Under our restated electric rate suspension policy, a utility's increased rates will be suspended for only one day instead of the five-month maximum in those cases where our preliminary analysis indicates that no more than ten percent of the increase appears to be excessive.

No court has yet ruled on the legality of the West Texas policy, but Judge Robinson of the District of Columbia Circuit cited it approvingly in his concurrence in Southern California Edison Co. v. FERC, 686 F.2d 43, 47-8 (D.C.Cir.1982).

B. Adjudication and rulemaking by agencies

Administrative agencies are free to announce new principles during adjudication. NLRB v. Bell Aerospace Co., 416 U.S. 267, 290-5, 94 S.Ct. 1757, 1769-72, 40 L.Ed.2d 134 (1974); Saavedra v. Donovan, 700 F.2d 496, 499 (9th Cir.1983). Two exceptions qualify this general proposition. First, agencies may not impose undue hardship by suddenly changing direction, to the detriment of those who have relied on past policy. See Ruangswang v. INS, 591 F.2d 39 (9th Cir.1978), where the plaintiff qualified as an investor under the letter of the regulation, but faced deportation because of an adjudicatory opinion that further restricted the definition of investor status. The adjudicatory opinion cited by the INS was published after Mrs. Ruangswang had made her initial investment. The present case stands in sharp contrast. The cities have not taken any particular action in reliance on FERC's pre-West Texas suspension policy. Also, West Texas did not abruptly change but rather strengthened and clarified a previously recognized exception to the general rule of five-month suspensions. Further, even if the cities had relied on prior policy and even if West Texas were a radical policy change, the hardship would be minimal because FERC preserved the cities' right to a refund.

The second limiting doctrine is that agencies may not use adjudication to circumvent the Administrative Procedure Act's rulemaking procedures. NLRB v. Wyman-Gordon Co., 394 U.S. 759, 89 S.Ct. 1426, 22 L.Ed.2d 709 (1969); Montgomery Ward & Co. v. FTC, 691 F.2d 1322 (9th Cir.1982); Patel v. INS, 638 F.2d 1199 (9th Cir.1980); Ruangswang, supra. This exception is inapplicable to the present case. FERC has not used West Texas to amend a recently adopted rule, as in Montgomery Ward, Patel, and Ruangswang, or to supplant a pending rule-making proceeding, as in Ford Motor Co. v. FTC, 673 F.2d 1008 (9th Cir.1981), cert. denied, --- U.S. ----, 103 S.Ct. 358, 74 L.Ed.2d 394 (1982).

The cities, seizing upon broad language in Ford Motor Co., 673 F.2d at 1009-10, argue that any agency principle of general application that changes existing law must pass through formal rulemaking procedures. Even if this were an accurate statement of the law, FERC's clarification of its suspension policy in West Texas was a minor adjustment, a fine tuning of doctrine that does not require rulemaking unless it imposes severe hardship or circumvents existing rules. By contrast, Ford Motor Co. involved a new interpretation of the Uniform Commercial Code that would have changed long-standing creditor practices. ³

C. Judicial review of preliminary dispositions in rate cases

The Federal Power Act permits review in the court of appeals for "any party ... aggrieved by an order issued by the Commission." 16 U.S.C. Sec. 825 l (b). Soon after the Act was enacted, the Supreme Court narrowed the literally broad scope of judicial review by excluding procedural orders from those reviewable. FPC v. Metropolitan Edison Co., 304 U.S. 375, 58 S.Ct. 963, 82 L.Ed. 1408 (1938). The Court has never ruled on the reviewability of suspension orders or other preliminary dispositions under the Federal Power Act, but there is a wealth of precedent under analogous provisions of the Interstate Commerce Act. ⁴ Arrow Transportation Co. v. Southern Railway Co., 372 U.S. 658, 83 S.Ct. 984, 10 L.Ed.2d 52 (1963), held that courts may not enjoin rates from taking effect after the expiration of the maximum statutory suspension period. The Court said that "Congress meant to foreclose a judicial power to interfere with the timing of rate changes." Id. at 668, 83 S.Ct. at 989 (emphasis in original). United States v. SCRAP, 412 U.S. 669, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973), reversed the district court for enjoining a rate increase the Interstate Commerce Commission had declined to suspend. "Arrow was grounded on the lack of power in the courts to grant any injunction before the Commission had finally determined the lawfulness of the rates," wrote the Court. Id. 372 U.S. at 691, 93 S.Ct. at 2417. In Southern Railway Co. v. Seaboard Allied Milling Corp., 442 U.S. 444, 99 S.Ct. 2388, 60 L.Ed.2d 1017 (1979), the ICC's decision not to investigate a proposed rate schedule was...