Opinion ID: 406396
Heading Depth: 3
Heading Rank: 1

Heading: Prior Commission Precedent

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