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

Heading: The Second Proceeding

Text: 30 In January 1979, Edison filed for another increase in the R-2 rate. FERC accepted the new rate for filing effective August 16, 1979, and scheduled a hearing in which the Cities and Vernon intervened. The challenged rate was locked in for a period of twenty-three months, until a superseding rate became effective July 16, 1981. See Phase II Initial Decision, 37 F.E.R.C. p 63,005, at 65,010-11 (1986). 31 In Phase II, the parties introduced rate-of-return analyses that compared Edison's just and reasonable but for price squeeze wholesale rate of return with a composite rate of return derived from a time-weighted average of the various retail rates effective during the locked-in period. Edison and FERC staff identified two different effective retail rate levels, and they maintained that no price discrimination occurred with respect to either of the two subperiods or with respect to the locked-in period as a whole. See id. at 65,013-15. The Cities and Vernon identified seven subperiods of differing retail rates; they claimed price squeeze only during the first two of these subperiods, which constituted the initial five-and-a-half months of the locked-in period. See id. at 65,021, app. A; Opinion 347, 51 F.E.R.C. at 61,878. 32 In its rate-of-return analysis, Edison once again proposed a tax normalization adjustment to the retail rate of return and an ECAC adjustment to retail revenues. The ALJ relied on the initial decision in the earlier proceeding to reject tax normalization and accept the ECAC adjustment, which in this instance also included similar adjustments for interim tax changes and conservation expenses. 37 F.E.R.C. at 65,017-19; see 51 F.E.R.C. at 61,879 & n. 14. 33 The ALJ refused the Cities' proposal to decrease retail revenues to account for a fuel collection balance adjustment (FCBA) credit. The CPUC had required Edison to pay the FCBA credit to its retail customers during the locked-in period to make up for overcollections in 1972-1976 resulting from unusually wet weather, which had caused greater-than-expected production at Edison's hydroelectric plants. See 37 F.E.R.C. at 65,017. 34 The ALJ ultimately rejected the Cities' and Vernon's Phase II claims. He concluded that [c]ommon sense and logic ... compel a finding that the entire locked-in period must be considered for price squeeze and price discrimination purposes. Id. at 65,019. He accepted Edison's argument that because Vernon's retail load was ninety percent industrial, the only justifiable comparison for Vernon was between the R-2 rate of return and Edison's large power/very large power (LP/VLP) retail rate of return; this comparison revealed no price discrimination. Id. 35 On review, the Commission found that the Cities had established price discrimination for the first five-and-a-half months of the wholesale rate. The important consideration for the Commission was whether the period of price discrimination could have created potential anticompetitive effects, not whether it comprised the entire locked-in period. The Commission stated that it is conceivable that a severe price discrimination lasting for 5 1/2 months could have an anticompetitive effect, while a minimal price discrimination lasting over an entire 23-month locked-in period might not. Opinion 347, 51 F.E.R.C. at 61,884. It found the amount of the discrimination to be approximately $1 million, which was sufficient to support a finding of price squeeze. Id. at 61,884-86 (relying on City of Groton v. Connecticut Light & Power Co., 662 F.2d 921, 934 (2d Cir.1981)). 36 The Commission summarily affirmed the ALJ's use of test year data and his treatment of the ECAC and tax normalization adjustments. 51 F.E.R.C. at 61,880. But it overruled the ALJ's decision on the FCBA credit. The Commission included the credit in the effective retail rates because it was substantial and of adequate duration to affect the decisions of retail customers. The Commission also reasoned that it would be unfair to recognize the associated overcollections as revenue in the prior period (which had benefited Edison in an earlier [291 U.S.App.D.C. 326] price squeeze case brought by the Cities) but not to include the later refunds as part of retail costs. Id. at 61,882-83 (discussing Southern Calif. Edison Co., 16 F.E.R.C. p 61,185, at 61,420 (1981) (Opinion 128 )). 37 Following its decision in Opinion 284, the Commission then invoked the presumption of anticompetitive effects. It found that Edison had failed to rebut the presumption of potential effects because Edison's evidence did not show how the rate disparity affected retail customers from day to day. 51 F.E.R.C. at 61,890. That the Cities had absorbed the price discrimination while still offering a competitive rate was irrelevant because the diminution of a municipal customer's competitive advantage caused by the discriminatory rate itself is an anticompetitive effect. Id. The Commission again rejected Edison's offset argument. Id. 38 After determining that no significant policy considerations or factual circumstances mitigated the discrimination, the Commission ordered Edison to submit a compliance filing to establish precisely the amount of the price squeeze for the five-and-a-half month period. Contrary to the ALJ, the Commission found that Vernon was entitled to a refund on the same basis as the Cities, as were all of Edison's wholesale customers. Id. at 61,891-93. 39 On rehearing, the Cities submitted an affidavit from their expert purporting to show that if the Commission adopted the ECAC and other adjustments approved in Opinion 347, there would be three subperiods of price discrimination: the first two-and-a-half months of the locked-in period (but not the remainder of the five-and-a-half months previously alleged) and two later subperiods. The affidavit calculated the amount of discrimination that purportedly occurred during each subperiod. On the basis of this submission, the Cities urged the Commission to amend its findings and increase the amount of the refund to approximately $2.6 million. 40 The Commission refused to accept the affidavit as proof of price discrimination during additional subperiods. It held that the Cities had had ample opportunity to raise the new claims at an earlier stage and that it was now too late to expand the scope of the proceeding. The Commission did, however, accept the affidavit as a concession by the Cities that price squeeze had occurred only during the first two-and-a-half months and only in the amount of $518,000. It stated that even though the period and amount of this discrimination were small, the discrimination could still have harmed competition, and Edison had not rebutted the presumption of anticompetitive effects created by the shortened period. See Opinion 347-A, 53 F.E.R.C. at 61,318-20.