Opinion ID: 394827
Heading Depth: 1
Heading Rank: 1

Heading: purchase power

Text: 3 I&M purchases, pursuant to a cost of service tariff, all of the power produced by its wholly-owned subsidiary, Indiana and Michigan Power Company (I&MP). The tariff provides both for complete reimbursement for I&MP's operating expenses and for a margin of return on the subsidiary's common equity. It is a portion of this equity component of I&M's purchase-power expense that is at issue. 4 On October 8, 1975, the Commission accepted, as an initial rate schedule, 8 a purchase-power agreement between I&M and its generating subsidiary. The agreement specified a twelve percent rate of return on I&MP's equity. In Opinion No. 27, dated September 15, 1978, the Commission determined that the twelve percent rate was excessive and fixed eleven percent as the lawful return on equity I&MP could receive from the date of the decision. 9 Thus, during most of the locked-in period at issue in I&M's rate hearing (July 26, 1976 through December 22, 1978), I&M paid an excessive amount to its subsidiary for power. On this, all agree. Further, no one contends that the Commission erred in giving only prospective effect to its one percent reduction in I&MP's rate of return on equity. Rather, the cornerstone of the dispute arises from the Commission's decision below to apply its Opinion 27, prospective-only order in the context of I&M's rate hearing to prevent the indirect retroactivity that would result if I&M were not allowed to pass the one percent excess on to its customers during the locked-in period. As the Commission stated: 5 Upon review of this matter, the Commission is unable to agree with the judge's decision. It is not disputed that IMP's initial rates in Docket No. ER76-5 were not subject to modification until September 15, 1978, the date of Opinion No. 27. Prior to that time IMP's filed rates were lawful rates under the statute. To allow I&M to recover only the lower Opinion No. 27 rates from its customers during the locked-in period (prior to September 15, 1978) has the practical effect of making the Opinion No. 27 rates applicable to the Cook plant sales in lieu of the initial rates accepted for filing and made effective in Docket No. ER76-5. The difference between the filed initial rates and the Opinion No. 27 rates must be absorbed, under the judge's decision, either by IMP or I&M. In either case the effect is a retroactive reduction of the initial rates in Docket No. ER76-5. 6 FERC Opinion No. 79, at 4. 7 The Commission predicates the legitimacy of its decision to permit I&M to include the full twelve percent in its purchase-power expense on sections 205 and 206 of the Federal Power Act, 16 U.S.C. §§ 824d(d) & (e). Section 206 empowers the Commission to determine and to fix by order the just and reasonable rates of utilities falling within its jurisdiction. Section 206 places, however, a significant restriction on the Commission's regulatory power by providing that the just and reasonable rates set by the Commission are to be thereafter observed and in force. Although Congress rendered this retroactive-ratemaking prohibition less significant by qualifying it with section 205(e), which authorizes the Commission to suspend the operation of any changed rate and to permit the proposed change to go into effect subject to refund, these suspension and refund powers apply only to changed rates and thus do not extend to I&MP's initial-rate filing. See, e. g., Florida Power & Light Company v. FERC, 617 F.2d 809 (D.C.Cir.1980); Otter Tail Power v. FERC, 583 F.2d 399 (8th Cir. 1978). As this court stated in Florida Power & Light, supra, at 812-13: 8 Thus, the Act empowers the Commission to scrutinize, and if necessary to change, any rate filed, whether it is a changed rate or the first rate a utility has ever filed. However, only if the filed rate is a changed rate may the Commission also suspend its operation or allow it into effect subject to refund. It is the fact that the Commission has greater power over changed rates than it has over initial rates that lies at the heart of this suit. 9 Although petitioners do not dispute this basic statutory scheme, and thus concede that section 206 would bar the Commission from ordering I&MP to refund directly the one percent excess to I&M, they contend that, given the affiliated relationship involved, the thereafter observed limitation does not preclude the Commission from ordering I&M to refund the excess to its customers, since I&M's changed rates came into being subject to refund. 10 Courts afford great deference to agency constructions of the statutes they were created to administer. See, e. g., Florida Power & Light, supra; Public Service Company of New Hampshire v. FERC, 600 F.2d 944 (D.C.Cir.1979); Otter Tail Power, supra; Gulf Oil Corporation v. FPC, 563 F.2d 588 (3d Cir. 1977); cf. Maine Public Service Company v. FPC, 579 F.2d 659, 665 n.10 (1st Cir. 1978) (distinguishing between agency interpretation of judicial precedent and interpretation of the agency's own enabling statute). In order to reject the Commission's reading of section 206, we must find that its judgment cannot be rationally reconciled with the terms of the Act. Florida Power & Light, supra, at 814; Otter Tail Power, supra, at 404. We find the Commission's reading of section 206 in accord with the statutory language and structure. 10 Congress simply chose not to permit retroactive ratemaking in the initial rate context and thus decided to permit electric utilities to retain the unjust and unreasonable portion of the initial rate collected prior to Commission action. From this statutory premise, it follows reasonably that once the Commission decided to accept, and all the parties acceded to, the classification of I&MP's rate as an initial rate, the Commission acted reasonably in following through with the consequences of that determination. Since petitioners cannot gainsay that factoring an eleven percent equity figure into I&M's purchase-power expense for the locked-in period would accomplish, in essence, a retroactive reduction in I&MP's initial rate schedule, we think it rational for the Commission to resolve that Congress did not intend it to elevate form over substance by distinguishing between direct and indirect retroactive ratemaking. 11 Petitioners' argument that section 206 does not bar the Commission from indirect retroactive ratemaking, if accepted, would, of course, largely eviscerate the thereafter observed limitation in the affiliated-company context. Thus a less circuitous means to the end sought would be to carve an exception to section 206, giving the Commission the authority to order refunds whenever fund transfers between affiliated companies were at issue. Although such an extension of Commission power might be wise legislation, our limited role is to determine whether the Commission interpreted and applied the statute in a rational way. Since section 206 on its face draws no distinction between affiliated and non-affiliated entities, and since petitioners have failed to show that Congress must have intended the distinction to be implicitly understood, 11 we must affirm the Commission's application of section 206, requiring the inclusion of the twelve percent figure in I&M's purchase-power expense.