Court Opinion

ID: 8932218
Source: CourtListenerOpinion
Date Created: 2022-11-27 07:13:47.025753+00
Date Added: 2024-06-11T17:09:32.856801
License: Public Domain

KENNEDY, Circuit Judge,
dissenting.
I am unable to agree that the Commission could not except a maximum of 25 MW from the five-year notice requirement and allow cancellations of up to that amount with three years notice. Although the Commission’s decision leaves Kentucky Utilities vulnerable to possible losses deriving from a notice period shorter than the lead time needed to commit capital for new generating facilities, the Commission’s terms are nonetheless reasonable if they represent a balance struck between the possibility of such losses and the benefit to competition derived from a shorter notice period.
*251The Commission found that Kentucky Utilities could suffer a significant loss if it did not have the five-year notice. It made no specific finding, however, as to the significance of that portion of the loss attributable to cancellation of 25 MW with three years notice instead of five. Kentucky Utilities states in its brief that the loss would be at least $10,500,000, using the municipals’ witness’ figures.1 The Commission held that Kentucky Utilities could reduce this loss by either selling more or purchasing less coordination services. The Commission states that Kentucky Utilities bought and sold coordination services consistently and on a significant scale. It relies for this holding on the testimony of Arthur Simon, a witness for the municipals. Simon’s testimony relates only to purchases. He testified that by reducing those purchases a de minimis amount, Kentucky Utilities could eliminate the effect of a loss of 5 MW of load. The Commission concluded that there was a significant possibility that Kentucky Utilities could reduce the financial loss caused by the departure of one of the municipals by adjusting its purchases of coordination services.
The Commission then went on to hold that a sliding scale notice provision would be an ideal balancing of all the relevant factors, but that the record evidence would not permit it to devise a scale and that even if it had the evidence a sliding scale would be too complicated. Thus, a notice period which roughly reflected Kentucky Utilities’ ability to adjust to the loss of a customer was acceptable. The Commission adopted the 25 MW figure because the municipals’ witness had suggested that there should be a longer notice period for loads larger than 25 MW. The Commission went on to hold that there was no evidence that the present three-year notice provision was unreasonable (presumably referring to loads under 25 MW).
If the possible loss to Kentucky Utilities were the only factor in the Commission’s analysis, I would be inclined to agree with the majority. However, the Commission throughout its opinion also considered the rights of the municipals to purchase from Kentucky Utilities’ competitors, or possible competitors, to be an important factor.2 Although the Commission does not state how competition will benefit from a shorter notice period for up to 25 MW, it must be conceded that there will be some benefit. The Commission has previously recognized that long notice provisions are anti-competitive: “There is little question that the termination clauses restrict customer ability to obtain alternative sources of power. However, the courts have held that an anti-competitive provision may be just and reasonable if it serves a legitimate purpose.” Arizona Public Service Co., 18 F.E.R.C. jl 61,197 at p. 61,396 (1982). The question, therefore, is not whether Kentucky Utilities is insulated from losses that might result from the shorter notice period, but rather is whether the possibility of such losses has been reasonably balanced against the benefits to competition that may be achieved.
The Commission’s balancing of these factors is subject to a strict standard of review:
First, [the reviewing court] must determine whether the Commission’s order, viewed in light of the relevant facts and of the Commission’s broad regulatory duties, abused or exceeded its authority. Second, the court must examine the manner in which the Commission has employed the methods of regulation which it has itself selected, and must decide whether each of the order’s essential elements is supported by substantial evidence. Third, the court must determine whether the order may reasonably be *252expected to maintain financial integrity, attract necessary capital, and fairly compensate investors for the risks they have assumed, and yet provide appropriate protection to the relevant public interests, both existing and foreseeable. The court’s responsibility is not to supplant the Commission’s balance of these interests with one more nearly to its liking, but instead to assure itself that the Commission has given reasoned consideration to each of the pertinent factors.
Permian Basin Area Rate Cases, 390 U.S. 747, 791-92, 88 S.Ct. 1344, 1372-73, 20 L.Ed.2d 312 (1968) (emphasis added). I believe that the Commission gave reasoned consideration to the possibility that Kentucky Utilities might not be fully compensated for losses incurred as a result of the shorter notice period, weighed that possibility against the benefit to competition, and concluded that a shorter notice period for up to 25 MW loads would be just and reasonable.
Accordingly, I would affirm the Commission.

. It argues that the loss would in fact be much greater since the figures used by the municipals witness are outdated and the loss would actually be more than twice as much. However, the only figures in the record are those of the municipals' witness.

. The effect on competition was carefully considered in section III D of the opinion, 18 F.E.R.C. at pp. 61,673 to 61,676, where the Commission evaluated the municipals’ argument that the ordered notice periods were too long.