Opinion ID: 406396
Heading Depth: 2
Heading Rank: 2

Heading: Substantive Issues Concerning the Rate Design

Text: 28 CMEGA contends that FERC's treatment of the proposed demand ratchet for the partial requirements customers was an unjustified departure from prior Commission precedent. While the Commission may change policies, it may not do so without reasoned explanation. E.g., Hatch v. FERC, 654 F.2d 825, 834 (D.C.Cir.1981) (agency may alter past policies in adjudicatory context if it provides reasoned explanation for the departures). In this case, we find that FERC's treatment of the demand ratchet was consistent with evolving FERC policy on the ratchet issue. 29 FERC has identified several difficulties in the design of an appropriate demand ratchet. In the first place, ratchets may discourage conservation; if a customer knows he will be billed at a ratcheted amount, he will have little incentive to curb use during periods of lower demand. E.g., Carolina Power & Light Co., Opinion No. 19, 15 Fed. Power Serv. 5-619 (1978). This disadvantage can be overcome, however, if it is desirable to encourage a customer to reduce levels of peak usage, or if it is unlikely that usage patterns are such that off-peak use will expand in response to the ratchet. 30 Secondly, when combined with the 12-CP method of allocating demand costs among customer classes, a billing ratchet may not track actual costs of service. For example, suppose that some members of the customer class have high noncoincident peak demand which is picked up by the ratchet. Then, members of the customer class will pay a lower demand charge per unit than if the demand charge were unratcheted, because the total demand charge will be divided up among a larger number of units. Customers whose demand occurs at peak will pay a lower total demand charge than they would without the ratchet, whereas customers with high noncoincident peaks will pay a larger overall charge because of their total usage amounts. Customers with high noncoincident peaks will, therefore, be subsidizing customers whose usage coincides with the system peak. See Central Illinois Light Co., Opinion No. 81, 10 FERC P 61,248 (1980) (CILCO ), reversed and remanded on other grounds, Villages of Chatham and Riverton, Illinois v. FERC, 662 F.2d 23 (D.C.Cir.1981). This difficulty, too, can be obviated by characteristics of customer demand; for example, if customers' usage levels tend to peak with the system peak, no such subsidy will materialize. 31 Recognizing these difficulties, FERC has recently rejected a number of proposed ratchets in combination with the 12-CP method of allocating demand costs. See, e.g., Minnesota Power & Light Co., Opinion No. 86, 11 FERC P 61,312 (1980); CILCO, 10 FERC P 61,248 (1980); Indiana & Michigan Electric Co., Opinion No. 79, 10 FERC P 61,238 (1980). FERC has, however, permitted the combination where a utility can show that the ensuing disadvantages to consumers of an additionally imposed demand ratchet are outweighed by any benefits to be derived by the utility itself, or by the consuming public. CILCO, 10 FERC P 61,248 (1980); see also Kansas Gas & Electric Co., Opinion No. 80-B, 17 FERC P 61,180 (1981); Union Electric Co., Opinion No. 94, 12 FERC P 61,239 (1980). The municipalities seek to elevate this rule to a presumption against the combination of a ratchet with the 12-CP method of allocation, but it is not. Throughout, FERC has emphasized that the acceptability of a proposed ratchet must rest with the facts of the particular case. In considering whether the ratchet would prove beneficial to Connecticut Light, therefore, FERC did not depart from its evolving precedent with respect to ratchets. 13 There remains, however, the question of whether substantial evidence supported FERC's determination that the application of the demand ratchet to the partial requirements customers would prove beneficial in this case. 32
33 FERC approved the demand ratchet for the partial requirements customers because 34 On the basis of the record in which both CL&P (Connecticut Light) and the staff have demonstrated some need for the 100% demand ratchet for cost recovery, we shall permit the Company to include this provision in its partial requirements rate. 35 Opinion No. 114, J.A. at 835-36. The Commission in addition noted that both staff and the Company had relied on the ability of partial requirements customers to utilize their own generating facilities and reduce their amounts of peak demand. Id. at 835. 36 Evidence in the record, although somewhat sketchy, supports this contention. The Company submitted evidence to show that load shapes of the wholesale customers paralleled those of the system as a whole, which bolsters the contention that it will be beneficial to the Company to encourage the customers to decrease their amounts of peak demand. J.A. 77-78 (Rebuttal Testimony of Richard Brown). A Company witness testified that the ratchet was needed to encourage the customer to define how much of its demand will occur at times of peak usage. J.A. 176 (Testimony of Richard Brown). 14 A staff witness also testified that the ratchet was warranted for the partial requirements customers, who can plan to reduce their demands at the system peak, unlike the full requirements customers for whom the ratchet was disallowed. J.A. 276-77 (Testimony of James Gilliam). 15 The possibility that the partial requirements customers might utilize alternative power sources was not a mere hypothetical; the Company described in detail the variety of sources available in New England, where power is in oversupply. J.A. 86-88. CMEGA did not reply to this testimony. Finally, although CMEGA suggests the hypothetical of a partial requirements customer with a high noncoincident peak, J.A. 181, it gives no examples of customers who might be expected to bear more than their fair share of demand costs because of the operation of the ratchet. Indeed, the similar climate of the area served by the Northeast system suggests that all of the wholesale customers will have load shapes parallel to the system as a whole, J.A. 199; and record evidence suggests that the ratchet will not substantially redistribute among customers the burden of meeting Connecticut Light's demand costs. J.A. 70. 37 We conclude, therefore, that there is sufficient record support for the determination that the ratchet would prove useful in encouraging reductions in demand at the time of the system peak, when the burden on the system capacity is the greatest. Moreover, it also appears from the record that the ratchet will not redistribute costs unfairly. 16 FERC's decision to approve the ratchet for the partial requirements customers was reasonable, and we affirm. 38
39 Connecticut Light's previous efforts to develop a rate with different demand and energy charges for peak and off-peak usage were rejected. The rejections rested solely on the Commission's determination that the Company had not made an adequate showing that the stratifications tracked actual costs of service. CMEGA contends that the Company's evidence once again falls short, but we find substantial record evidence in support of the Commission's decision that this time Connecticut Light's case for the stratified rate passed muster. 40 The ALJ found that in R-4, Connecticut Light had succeeded in overcoming the chief difficulties in its earlier efforts to show that the stratified rate accurately reflected actual costs of service, see supra note 7. First, the Company had submitted more extensive evidence backing up the correlation between the load of the Northeast system and the loads of the wholesale customers: a comparison of loads on the day of peak usage in summer and winter, a similar comparison for the week of peak usage in summer and winter, and a statistical analysis of hour-by-hour load shapes in 1978. J.A. 656. Second, the Company had provided further evidence in support of the point at which it had drawn the dividing line between service to be classified as peak and off-peak. J.A. 663. The record as it stands supports the ALJ on these points, and we, like FERC, affirm. 41