Kansas Cities v. F.E.R.C., 81-2248

• Decision Date: 13 December 1983
• Docket Number: No. 81-2248,81-2248
• Parties: KANSAS CITIES, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Kansas Gas and Electric Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 82

723 F.2d 82

232 U.S.App.D.C. 379

KANSAS CITIES, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Kansas Gas and Electric Company, Intervenor.

No. 81-2248.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 25, 1983.

Decided Dec. 13, 1983.

Petition for Review of an Order of the Federal Energy Regulatory commission.

Charles F. Wheatley, Jr., Washington, D.C., with whom Don Charles Uthus, Washington, D.C., was on brief, for petitioners. William Steven Paleos, Washington, D.C., also entered an appearance for petitioners.

Norma J. Rosner, Atty., F.E.R.C., Washington, D.C., with whom Jerome M. Feit, Sol., and Charles A. Moore, Gen. Counsel, F.E.R.C., Washington, D.C., was on brief, for respondent.

Barbara J. Weller, Deputy Sol., and George H. Williams, Jr., Atty., F.E.R.C., Washington, D.C., also entered appearances for respondent.

J. Michael Peters and Ralph Foster, Wichita, Kan., were on brief, for intervenor.

Before EDWARDS and SCALIA, Circuit Judges, and VAN DUSEN, ^* Senior Circuit Judge of the United States Court of Appeals for the Third Circuit.

Opinion for the Court filed by Circuit Judge SCALIA.

SCALIA, Circuit Judge:

Cities from the state of Kansas petition under 16 U.S.C. Sec. 825l(b) (1982) for review of a Commission order approving increased electricity rates to be charged by their supplier, Kansas Gas and Electric Company ("KG & E"). The principal issues are what standard the various supply contracts established for Commission-prescribed rate changes, and whether the Commission could fix rates before determining that the new rates did not create a so-called price squeeze.

The basic facts are as follows: On September 6, 1977, KG & E filed proposed new electric rate schedules under Sec. 205 of the Federal Power Act ("FPA"), 16 U.S.C. Sec. 824d (1982), for services rendered to 24 municipal systems. A number of cities moved to reject the increased rates on various grounds, two of which bear on this appeal. First, they argued that they had bargained for "fixed rate" contracts not subject to producer-initiated increases in Sec. 205 proceedings under FPC v. Sierra Pacific Power Co., 350 U.S. 348, 76 S.Ct. 368, 100 L.Ed. 388 (1956). Second, relying on FPC v. Conway Corp., 426 U.S. 271, 96 S.Ct. 1999, 48 L.Ed.2d 626 (1976), they claimed that the new schedules would cause a price squeeze, i.e., that the difference between KG & E's wholesale rates to them and its retail rates to customers for whose business they and KG & E are in competition does not adequately reflect differing costs and thereby places them at a competitive disadvantage. On December 8, 1977, the Commission accepted the filing subject to determination of the Sierra issue, and directed the administrative law judge to convene a hearing on the lawfulness of the proposed rates and in particular on the alleged price squeeze. Kansas Gas and Electric Co., Order Conditionally Accepting for Filing and Suspending Proposed Increased Rates, 1 FERC (CCH) p 61,225, at 61,573.

On February 1, 1978, the Commission issued Kansas Gas and Electric Co., Order Granting in Part and Denying in Part Motion to Reject, 2 FERC (CCH) p 61,095 ("1978 Order"), in which it held that contracts of the type held by the cities Bronson, Neodesha, and Iola ("Bronson contracts," The administrative law judge applied the standards established by the Commission in his Kansas Gas and Electric Co., Initial Decision, 7 FERC p 63,051 (May 29, 1979) ("ALJ Decision"). He approved changes for the Bronson and Neodesha contracts and apparently denied them for the Iola contracts. He also found that the price squeeze allegation failed because no credible evidence existed to sustain a price discrimination finding.

"Neodesha contracts" and "Iola contracts," respectively) had eliminated Sec. 205 changes, and instituted its own rate determination under Sec. 206 of the FPA. It found that the Bronson and Neodesha contracts would require application of a just-and-reasonable standard for rate changes, and the Iola contracts a public-interest standard.

In Opinion No. 80, Kansas Gas and Electric Co., Opinion and Order on Application for Rate Increase, 10 FERC (CCH) p 61,243 (Mar. 19, 1980), the Commission reviewed the ALJ's findings. It modified slightly the approved changes for the Bronson and Neodesha contracts and rejected changes for the Iola contracts. The Commission did not affirm the ALJ's disposition of the price squeeze issue but deferred remand until KG & E filed its cost of service under the approved rate, its current retail rate and other information, and until the cities determined whether, in light of that data, they still wished to assert a price squeeze.

On January 2, 1981, the Commission accepted KG & E's revised rate filing, finding it in compliance with Opinion No. 80. Kansas Gas and Electric Co., Order Accepting Compliance Filing, 14 FERC (CCH) p 61,006. On February 2, certain cities filed a Request for Rehearing and Clarification, which complained that the approved rate changes for certain interchange services (namely, emergency and economy services) and for transmission services under the Iola contracts were not authorized by the Commission's prior opinion and were barred by the contracts, and that changes under the Bronson and Neodesha contracts should have been limited to those in the public interest. That same day, they filed a Request for Expedited Price Squeeze Determination, in which they realleged a price squeeze and requested that the Commission remand for hearing before the due date of the January bills.

In a May 1, 1981 order, the Commission held that the cities would have to make a prima facie showing of a price squeeze to obtain remand of that issue. Kansas Gas and Electric Co., Order on Request for Remand of Price Squeeze Issue, 15 FERC (CCH) p 61,114A. On June 1, 1981, the cities sought reconsideration of this determination, requesting remand and immediate refund and rate reduction pending final resolution of the price squeeze issue. Petition for Rehearing of May 1, 1981 Order.

In Opinion No. 80-B, Kansas Gas and Electric Co., Order on Petitions for Rehearing, 17 FERC (CCH) p 61,180 (Nov. 24, 1981), the Commission held that the Iola contracts established a just-and-reasonable standard for rate changes in interchange and transmission services. The Commission also held that the cities had not yet made a prima facie showing of a price squeeze and that it would not remand on the issue absent such showing. However, it reserved final judgment on whether to remand until KG & E filed a consistent cost of service analysis. Finally, it held that the rates approved on January 2 had been authorized to be implemented immediately, but required KG & E to stipulate that it would make refund should a price squeeze be found to exist. The cities filed a petition for review in this court on November 30, 1981. On September 20, 1982, the Commission finally found the price squeeze issue not worthy of remand and on November 18 reaffirmed this determination. Opinion No. 80-D, Kansas Gas and Electric Co., Opinion and Order on Request for Rehearing, 21 FERC p 61,086.

On appeal, the cities make three arguments: first, that the Commission erred in applying a just-and-reasonable standard to rate changes in the Bronson and Neodesha contracts; second, that application of that standard to rate changes for interchange

and transmission services in the Iola contracts is both procedurally precluded and substantively wrong; and third, that the Commission cannot prescribe rates without first resolving the price squeeze issue.

JURISDICTION

Before entertaining the merits, we must determine whether we have jurisdiction to consider the issues raised by petitioners. Section 313(a) of the Federal Power Act provides

Any person ... aggrieved by an order issued by the Commission in a proceeding under this chapter to which such person ... is a party may apply for a rehearing within thirty days after the issuance of such order. The application for rehearing shall set forth specifically the ground or grounds upon which such application is based.... No proceeding to review any order of the Commission shall be brought by any person unless such person shall have made application to the Commission for a rehearing thereon.

16 U.S.C. Sec. 825l(a) (1982). Section 313(b) of the same Act says:

No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure so to do.

16 U.S.C. Sec. 825l(b) (1982). Compliance with these provisions is a prerequisite to judicial review. See FPC v. Colorado Interstate Gas Co., 348 U.S. 492, 498 & n. 4, 75 S.Ct. 467, 471 & n. 4, 99 L.Ed. 583 (1955) (identical section of Natural Gas Act read to preclude judicial review when objection not preserved before agency).

Despite its obvious interest in protecting the integrity of its processes by assuring that rehearings are sought, the Commission neither raised the jurisdictional issue here nor suggested in its own opinions any failure by petitioners to comply with rehearing requirements. ¹ KG & E, intervenor on appeal, asserts that because of the cities' failure to seek timely rehearing, the issues of whether the Bronson and Neodesha contracts permit just-and-reasonable changes and of whether the Commission may establish an interim rate change pending resolution of the price squeeze issue are not properly before this court. It is clear that these issues were timely raised in the cities' Request for Rehearing and Clarification (Feb. 2, 1981) and their Petition for Rehearing of May 1, 1981 Order (June 1, 1981), respectively. ² The crux of KG & E's complaint is that these petitions did not address the proper order.

KG & E contends that we cannot consider the Sierra issue for the Bronson and Neodesha contracts because the cities...