Opinion ID: 566757
Heading Depth: 3
Heading Rank: 2

Heading: ECAC Adjustments

Text: 50 Next, the Cities challenge in both cases the Commission's acceptance of Edison's ECAC adjustments. They argue that because the fuel costs affected by the ECAC and ECAC balancing accounts were not actually billed to retail customers during the months at issue, they should not be considered part of the retail rates in the comparative rate-of-return analysis. The Cities maintain that these adjustments are impossible to reconcile with the Commission's treatment of tax normalization and the FCBA credit. We uphold the adjustments as within the Commission's discretion and not arbitrary or capricious. 51 In refining the comparative rate-of-return analysis, the Commission has decided to focus on the effective retail rate against which the wholesale customers are actually competing--that is, the rate authorized by the state and in effect during the relevant period. See Opinion 62, 8 F.E.R.C. at 61,690. The Commission could reasonably conclude that the fuel cost increases subject to recovery under the ECAC were part of the effective rate from the point of view of the retail customers. The ALJ found that the ECAC and ECAC balancing accounts were integral parts of the rate tariffs authorized by the CPUC; therefore, rational purchasers, especially the A-8 customers, would presumably have known that their rates were highly sensitive to fluctuations in Edison's costs. See 34 F.E.R.C. at 65,272. We refuse to impose on the Commission a rigid definition of effective that would include only the amounts of electricity bills actually mailed to retail customers in a particular period. 52 Furthermore, the Commission acted within its discretion in treating the retail and wholesale rates alike with respect to the fuel cost/revenue relationship. Both rates included similar adjustment clauses that allowed the utility to recoup fuel and purchased power cost increases in the short term. In determining the just and reasonable wholesale rate of return in Phase I, the Commission included the FCA amounts as revenue; in Phase II, the parties similarly synchronized R-2 fuel costs and revenues in their various rate-of-return studies. See id. at 65,271. Because both the FCA and the ECAC operated to make Edison whole for actual costs incurred and both were designed to insulate Edison's profit margins from uncontrollable changes in fuel costs, the ALJ concluded that the methods for deriving the wholesale and retail rates of return should be consistent, even though the lag in recovery of fuel expenses on the wholesale side was shorter. Id. at 65,271-72. 53 We recognize that the price squeeze doctrine is meant to remedy discrimination caused by the imperfections of regulation, Cities of Batavia, 672 F.2d at 91, and the paradox of dual ratesetting, Boroughs of Ellwood City, 731 F.2d at 974. We also recognize that matching fuel costs with revenues eliminated any short-term wholesale/retail disparity caused by the different cost recovery schedules for the FCA and ECAC. But the rate-of-return analysis also suffers from imperfections and discrepancies, and it is largely within the Commission's discretion to refine that analysis from case to case. Thus, the Commission could conclude that erasing the disparity by disregarding both the FCA and the ECAC lags was preferable to aggravating it by eliminating the FCA lag alone, as [291 U.S.App.D.C. 329] the Cities proposed in their study. See 53 F.E.R.C. at 61,318. 54 The ECAC adjustment is also consistent with the Commission's handling of the FCBA credit. In Opinion 128, the Commission found that the overcollections associated with the later FCBA credit should be included in calculating the retail revenues in the earlier period. The overcollections were part of the effective rates because the charges were not interim or subject to refund when collected; the CPUC had authorized them as final and lawful. 16 F.E.R.C. at 61,422. Because there was no ECAC balancing account in the authorized rates, the excess billings could only be credited prospectively, following an investigation by the CPUC. See id. at 61,420, 61,423; Opinion 347, 51 F.E.R.C. at 61,883. Thus, taking account of the credits later ordered by the CPUC would produce retail rates against which the Cities had never actually competed. 16 F.E.R.C. at 61,422. In contrast, the ECAC mechanism was part of the final rate actually in effect at the relevant times; retail charges were continually subject to automatic fine tuning without separate action by the CPUC. 55 Nor is the ECAC decision at odds with rejection of the tax normalization adjustment. Under the required flow-through accounting, the effective retail rate(s) did not include charges for tax costs until Edison actually paid them. Edison elected to take advantage of the tax normalization option permitted by FERC to raise R-2 revenues. This decision caused a rate disparity that could have affected the purchasing decisions of retail customers during the locked-in period because the tax costs might not have passed to the retail customers for another ten to twenty years, if at all. See 34 F.E.R.C. at 65,274-75. Moreover, we have said that price discrimination generally exists where a rate disparity results from the utility's manipulation of its administrative options, as opposed to a difference in cost of service. See Boroughs of Ellwood City, 731 F.2d at 977-79. It was thus appropriate for the Commission to consider the tax normalization issue in step three of the price squeeze analysis, in determining whether the discrimination was undue, rather than in step one. See 40 F.E.R.C. at 62,174-75.