Kentucky Utilities Co. v. U.S. F.E.R.C.

• Decision Date: 10 September 1985
• Docket Number: No. 84-3014,84-3014
• Citation: 766 F.2d 239
• Parties: KENTUCKY UTILITIES COMPANY, Petitioner, v. The UNITED STATES FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Barbourville, Bardstown, Benham, Corbin, Falmouth, Madisonville, and Providence, Kentucky; the Electric & Water Plant Board of Frankfort, Kentucky; and Berea College in Berea, Kentucky, Intervenors.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 239

766 F.2d 239

KENTUCKY UTILITIES COMPANY, Petitioner, v. The UNITED STATES FEDERAL ENERGY REGULATORY COMMISSION, Respondent,

Barbourville, Bardstown, Benham, Corbin, Falmouth,

Madisonville, and Providence, Kentucky; the

Electric & Water Plant Board of

Frankfort, Kentucky; and

Berea College in

Berea,

Kentucky,

Intervenors.

No. 84-3014.

United States Court of Appeals, Sixth Circuit.

Argued Nov. 6, 1984.

Decided June 28, 1985.

Rehearing and Rehearing En Banc Denied Sept. 10, 1985.^*

Malcolm Y. Marshall (argued), Garrison R. Cox, Ogden, Robertson & Marshall, Louisville, Ky., for petitioner.

Joseph Feit, Office of the Gen. Counsel, F.E.R.C., Joseph S. Davies, Mike Small (argued), Washington, D.C., for respondent.

James N. Horwood, Thomas C. Trauger, Patricia E. Stack, Spiegel & McDiarmid, Washington, D.C., for intervenors.

Before KENNEDY, KRUPANSKY and MILBURN, Circuit Judges.

KRUPANSKY, Circuit Judge.

The Kentucky Utilities Company has petitioned this court to review two orders issued by the respondent Federal Energy Regulatory Commission (F.E.R.C./ Commission.) Specifically, the utility has requested review of the cancellation notice provisions which the F.E.R.C. has mandated for the Kentucky Utilities Company contracts with the intervening parties.

The intervenors, the Kentucky municipalities of Barbourville, Bardstown, Benham, Corbin, Falmouth, Madisonville and Providence, the Electric & Water Plant Board of Frankfort, and Berea College (Berea, Ky.), each purchase electricity from the Kentucky Utilities Company and distribute it to their residents. None of the intervenors are currently capable of generating their own electricity and they now, as always purchase their total electricity requirements from the Kentucky Utilities Co.

In 1978, the contracts between Kentucky Utilities and the municipal intervenors, although entered into individually, incorporated a cancellation provision requiring a three-year notice. In May 1978, Kentucky Utilities notified the intervenors of its intent to cancel their contracts effective May 31, 1981. Concurrently the utility company filed with the F.E.R.C. a proposed wholesale power contract to govern the supply of power to the intervenors. As relevant to this appeal, the proposed contract increased the cancellation notice period to five years. The intervenors objected and an administrative hearing was conducted.

An administrative law judge concluded that Kentucky Utilities had proved the need for a five-year cancellation notice. However, the a.l.j. limited application of the five-year provision to the two largest municipal intervenors. As to the remaining municipalities, the a.l.j. ordered a cancellation clause requiring only a three-year notice. Pursuant to the a.l.j.'s "compromise" solution, should municipalities with aggregate requirements of 25MW tender three-year notices of cancellation within any consecutive two-year period the remaining municipalities would be precluded from cancelling their contracts except on a five-year notice to Kentucky Utilities.

Kentucky Utilities excepted to other aspects of the a.l.j.'s decision but agreed "to live with" the three-year/25 MW limit provision for the small municipalities. The Commission, upon review, determined that the distinctions incorporated in the a.l.j.'s solution were unduly discriminatory and removed the preclusive effect of the 25 MW limit and permitted the larger municipalities to cancel "up to" 25 MW of demand on three years notice. Kentucky Utilities filed a petition for rehearing following which the Commission reinstated the aggregate limit of 25 MW cancellation on three years notice within any consecutive two-year period. The Commission declined to rescind the authority of the two large municipal systems to cancel "up to" 25 MW of demand on a three-year notice.

There followed this appeal.

Judicial review of an order of the Federal Energy Regulatory Commission (F.E.R.C./Commission) is limited in scope. Ohio Power Co. v. F.E.R.C., 668 F.2d 880, 886 (6th Cir.1982) (quoting Ashland Oil Co. v. Federal Power Comm'n, 421 F.2d 17, 22-23 (6th Cir.1970)). The Federal Power Act, creating the F.E.R.C., specifically provides that the Commission's findings of fact "shall be conclusive" "if supported by substantial evidence". 16 U.S.C. Sec. 825l(b).

The Act further strictly limits the issues cognizable upon judicial review to those issues explicitly joined before the F.E.R.C. during the course of the administrative proceedings: "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 to do so." 16 U.S.C. Sec. 825l(b) (emphasis added). Judicial review of any issue not particularized in objections submitted to the agency is simply not available. ¹ This is not an unfamiliar doctrine; it was explicated in clear terms by the Supreme Court in Federal Power Comm'n v. Colorado Interstate Gas Co., 348 U.S. 492, 500-501, 75 S.Ct. 467, 472, 99 L.Ed. 583 (1955) (quoting United States v. L.A. Tucker Truck Lines, 344 U.S. 33, 36-37, 73 S.Ct. 67, 68-69, 97 L.Ed. 54 (1952)):

"We have recognized in more than a few decisions, and Congress has recognized in more than a few statutes, that orderly procedure and good administration require that objections to the proceedings of an administrative agency be made while it has the opportunity for correction in order to raise issues reviewable by the courts."

The necessity for prior administrative consideration of an issue is apparent where, as here, its decision calls for the application of technical knowledge, and experience not usually possessed by judges. The Federal Power Commission is an administrative agency the decisions of which involve those difficult problems of policy, accounting, economics and special knowledge that go into public utility ratemaking. For reviewing a rate made by the Federal Power Commission, the Court of Appeals has no inherent suitability comparable to that which it has for reviewing the judicial decisions made by a United States District Court.

(Citations omitted). See also In re Permian Basin Area Rate Cases, 390 U.S. 747, 766, 88 S.Ct. 1344, 1359, 20 L.Ed.2d 312 (1968) (court's review "authority is essentially narrow and circumscribed"); Villages of Chatham and Riverton, Illinois v. F.E.R.C., 662 F.2d 23, 30 (D.C.Cir.1981); Rhode Island Consumers' Council v. F.P.C., 504 F.2d 203, 212 (D.C.Cir.1974).

Judicial review has accorded great deference "to the informed judgment of the Commission", In re Permian Basin Area Rate Cases, 390 U.S. at 767, 88 S.Ct. at 1360, "as a specialized agency created by the Congress to deal with complex problems". Ohio Power v. F.E.R.C., 668 F.2d at 886 (quoting Ashland Oil, supra; citing California Gas Producers Ass'n v. F.P.C., 383 F.2d 645 (9th Cir.1967)).

"Deference" is not, however, tantamount to mechanical acceptance by the reviewing forum. In this circuit the F.E.R.C. order must survive what amounts to a three pronged attack:

As to matters other than the issue of whether there is substantial evidence to support the Commission's findings, this court reviews to determine whether a rational basis exists for a conclusion; or whether there has been an abuse of discretion; or to determine whether the Commission's order is arbitrary; or capricious or not in accordance with the purpose of the Act.

Ashland Oil v. F.P.C., supra, quoted in Ohio Power v. F.E.R.C., supra (citations omitted). This, too, is a familiar standard, summarized by the Supreme Court in Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86, 95 S.Ct. 438, 442, 42 L.Ed.2d 447 (1974), reh'g denied, 420 U.S. 956, 95 S.Ct. 1340, 43 L.Ed.2d 433 (1975):

Under the "arbitrary and capricious" standard the scope of review is a narrow one. A reviewing court must "consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.... Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency." The agency must articulate a "rational connection between the facts found and the choice made." While we may not supply a reasoned basis for the agency's action that the agency itself has not given, we will uphold a decision of less than ideal clarity if the agency's path may be reasonably discerned.

(Citations omitted). See also Film Transit, Inc. v. I.C.C., 699 F.2d 298, 300 (6th Cir.1983).

Where the disputed issue particularly calls into play the special adeptness of the administrative body, there arises "a presumption of validity" which attaches to the administrative decision. In re Permian ... Cases, 390 U.S. at 767, 88 S.Ct. at 1360. The challenger must undertake "the heavy burden of making a convincing showing that it is invalid because it is unjust as unreasonable in its consequences". F.P.C. v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 288, 88 L.Ed. 333 (1944) quoted in In re Permian ... Cases, supra. In prescribing "just and reasonable" terms, the F.E.R.C. may apply its expertise to reconcile "diverse and conflicting interests", In re Permian ... Cases, 390 U.S. at 767, 88 S.Ct. at 1360, and "to make the pragmatic adjustments which may be called for by the particular circumstances". F.P.C. v. National Gas Pipeline Co., 315 U.S. 575, 586, 62 S.Ct. 736, 743, 86 L.Ed. 1037 (1942), quoted in Ohio Power v. F.E.R.C., 668 F.2d at 886.

The standards under which the F.E.R.C. reviews the contract here at issue are described in Sec. 205 of the Federal Power Act. Codified at 16 U.S.C. Sec. 824d, that enactment provides in relevant portion as follows:

(a) All rates and charges made, demanded, or received by any public utility for or in connection with the...