Opinion ID: 408190
Heading Depth: 1
Heading Rank: 3

Heading: Automatic Adjustment Clauses :

Text: 9 16 U.S.C. § 824d(a) requires FERC to review public electric utility rates for reasonableness. However, § 824d(f) authorizes the use of an automatic adjustment clause in the computation of utility rates when the use of such a clause would result in the efficient use of resources and the economical purchase and use of fuel, electric energy, and other items. 16 U.S.C. § 824d(f) (1976). Additionally, FERC is required to review periodically the use of such clauses for efficiency and to determine: 10 whether any such clause reflects any costs other than costs which are- 11 (i) subject to periodic fluctuations and 12 (ii) not susceptible to precise determinations in rate cases prior to the time such costs are incurred. 13 16 U.S.C. § 824d(f)(1)(B). Although the statute specifies criteria to be used by FERC in reviewing the use of automatic adjustment clauses, the statute does not state that the use of such clauses is restricted to unstable, unpredictable expenses. In fact, in 1978 Congress specifically recognized FERC's practice of authorizing an automatic adjustment formula to operate as a rate. Under § 208 of the Public Utility Regulatory Policies Act of 1978 (PURPA), FERC is required to review the use of automatic adjustment clauses. Public Utility Regulatory Policies Act of 1978, Pub.L. No. 95-617, 92 Stat. 3117 et seq. (1978). Significantly, however, the Conference Report accompanying PURPA states that the conferees do not indicate any preference for inclusion or exclusion of any item in an automatic adjustment clause. H.R.Rep. No. 95-1750, 95th Cong. 2d Sess. 96 (1978) U.S.Code Cong. & Admin.News 1978, pp. 7659, 7830. Therefore, this Court, recognizing that FERC's order is the product of expert judgment which carries a presumption of validity...., holds that FERC's decision to utilize the automatic adjustment clause in the instant case is not invalid. FPC v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 288, 88 L.Ed. 333 (1944); United Gas Pipe Line v. FERC, 618 F.2d 1127 (5th Cir. 1980), cert. denied, 450 U.S. 911, 101 S.Ct. 1349, 67 L.Ed.2d 335 (1981). However, our inquiry does not end here. 16 U.S.C. § 824d provides that: 14 Unless the Commission otherwise orders, no change shall be made by any public utility in any such rate, except after sixty days notice to the Commission and to the public. The Commission, for good cause shown, may allow changes to take effect without requiring the sixty days' notice herein provided for by any order specifying the changes so to be made and the time when they shall take effect and the manner in which they shall be filed and published. 15 16 U.S.C. § 824d (Supp.1982). Louisiana Commission contends that FERC erred in finding good cause to extend the scope of expenses computed under the automatic adjustment clauses. In response, FERC maintains that its decision to extend the scope of expenses allowed under an automatic adjustment clause is supported by the decision in Central Power and Light Co., 11 FERC P 61,101 (1980), wherein FERC noted its decision to allow the use of automatic adjustment clauses, without conditions, in full cost of service tariffs for unit sales and sales to affiliates. This Court affirms FERC's decision that good cause has been demonstrated to support an exception to the general notice requirement of § 824d. 16 U.S.C. § 824d (Supp.1982). 16 As FERC noted in its decision, the use of automatic adjustment clauses in the instant proceeding is particularly appropriate because the proposed formula provide(s) for upward and downward adjustments ... and because the sales involved are among affiliates operating on a pool basis. Middle South Services, Inc., FERC Opinion No. 124 at 5. Moreover, as FERC contends, under the automatic adjustment clause formula, ratepayers can be assured that they will be required to pay only for actual increases and decreases in cost. This is true because the automatic adjustment formula itself, rather than an estimated unit charge, constitutes the rate. It should be noted that the accuracy of the costs included under the formula could be verified by FERC audit, or by an investigation instituted under § 206 of the FPA. Therefore, this Court concludes that FERC's decision that good cause exists to allow deviation from the general notice provisions of § 824d is supported by substantial evidence. See 16 U.S.C. § 825l (b) (1976); and In re Permian Basin Area Rate Cases, 88 S.Ct. at 1372.