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02/03/87 Southwestern Electric v. Federal Energy Regulatory

February 3, 1987





Petition for Review of an Order of the Federal Energy Regulatory Commission.


Mikva, Ruth B. Ginsburg and Silberman, Circuit Judges. Opinion for the Court filed by Circuit Judge Ruth B. Ginsburg. Dissenting opinion filed by Circuit Judge Mikva.


In this case, we confront an attempt by the Federal Energy Regulatory Commission (FERC or Commission) to adjust to this court's decision in Middle South Energy, Inc. v. FERC, 241 U.S. App. D.C. 326, 747 F.2d 763 (D.C. Cir. 1984), cert. dismissed, 473 U.S. 930, 106 S. Ct. 22, 87 L. Ed. 2d 700 (1985). In Middle South Energy, a divided panel held that the Commission's authority under section 205(e) of the Federal Power Act, 16 U.S.C. § 824d(e) (1982), to suspend rates, and to require refunds where filed rates are subsequently found to be unlawful, extends only to "changed rates," not to "initial rates." In the instant case, petitioner Southwestern Electric Power Company challenges the Commission's novel classification of a transmission service agreement SWEPCO filed with FERC. Relying on prior Commission precedent, SWEPCO contended that its filing constituted an initial rate. The Commission rejected that contention; maintaining that SWEPCO's filing is properly characterized as a change in rate, FERC held that the rate filing in question legitimately falls within the Commission's suspension and refund order authority. Accordingly, FERC accepted SWEPCO's submission for filing, subject to a day's suspension and the possibility of an eventual refund determination.

The Commission admits that it has departed from prior practice in classifying SWEPCO's filing as a changed rate, and that an explanation is in order. We conclude that the explanation FERC offered is insufficiently clear and coherent to warrant our approbation. Unquestionably, the Commission may take a "broad view of what constitutes a changed rate." Middle South Energy, 747 F.2d at 771. When FERC redraws the line between initial and changed rates, however, the Commission is bound to reason why, so as to show that its new path marks out a permissible construction of the Act. FERC has not supplied, in ruling on SWEPCO's filing, an adequate justification for abandoning its own precedent, nor can we discern the contours of the line the Commission now intends to retain between initial and changed rates. We therefore vacate the orders petitioner challenges, and remand this case to the Commission for reconsideration of SWEPCO's filing and a fuller exposition of the Commission's position. I.

SWEPCO and the Oklahoma Municipal Power Authority , early in 1985, entered into a Transmission Service Agreement . The arrangement involved SWEPCO's conveyance to OMPA of undivided shares in two generating units (Pirkey and Dolet Hills); the TSA specified the rates, terms and conditions for transmission of OMPA's power entitlements from the two units.

The Commission, when it accepted SWEPCO's submission, found, contrary to SWEPCO's contention, that the filing was a "changed rate" subject to FERC's suspension and refund powers. *fn1 This was a novel ruling. OMPA was indisputably a new SWEPCO customer; that fact alone would have supported a finding, under Commission precedent then in effect, that the OMPA TSA was an "initial rate." See, e.g., Southern Company Services, Inc., 22 F.E.R.C. para. 61,045 at 61,082 (1983); Southern Company Services, Inc., 23 F.E.R.C. para. 63,018 at 65,034 (1983). The Commission's principal order cited a passage extracted from Otter Tail Power Co. v. FERC, 583 F.2d 399, 406 (8th Cir. 1978), cert. denied, 440 U.S. 950, 59 L. Ed. 2d 639, 99 S. Ct. 1431 (1979), as authority for defining an initial rate as a " new service rendered to new customers." *fn2 SWEPCO already had on file, "based on the same cost-of-service formula," rates charged existing customers for transmission from the two generating units covered by the OMPA TSA; the Commission, on that basis, concluded that the SWEPCO-OMPA agreement did not involve a "new service," and thus did not qualify as an initial rate. *fn3

SWEPCO filed a request for rehearing. The Commission adhered to its ruling. FERC acknowledged that it was "redrawing the line between changed and initial rates." *fn4 Without much further comment, however, the Commission reiterated its position that SWEPCO already provided "the same transmission service, viz., transmission of power from the Pirkey and Dolet Hills units, over the same transmission lines, to other customers," *fn5 so that SWEPCO's filing ranked as a changed rate. SWEPCO then filed this petition for review. II.

While section 205 of the Federal Power Act, 16 U.S.C. § 824d (1982), does not define either "initial" or "changed" rates, the Commission is not at liberty to blend the two. We so indicated in Middle South Energy, where we vacated FERC's orders and held that the statute empowers the Commission to exercise suspension and refund authority only over filings legitimately characterized as changed rates; as to initial rates, the Commission's ratemaking powers are purely prospective. See Middle South Energy, 747 F.2d at 772.

Having thus failed to gain this court's approval for administrative elimination of the distinction between initial and changed rates, the Commission now proposes to broaden substantially its definition of changed rates. We are mindful that "an agency is free to alter its past rulings and practices even in an adjudicatory setting." Hatch v. FERC, 210 U.S. App. D.C. 110, 654 F.2d 825, 834 (D.C. Cir. 1981). The agency must, however, "provide a reasoned explanation for any failure to adhere to its own precedents." Id.; see also Atchison, Topeka & Santa Fe Ry. v. Wichita Board of Trade, 412 U.S. 800, 808, 37 L. Ed. 2d 350, 93 S. Ct. 2367 (1973) ("Whatever the ground for the departure from prior norms, however, it must be clearly set forth so that the reviewing court may understand the basis of the agency's action and so may judge the consistency of that action with the agency's mandate.").

The Commission recognizes that its classification of the SWEPCO filing as a rate change reflects an alteration in Commission policy. *fn6 FERC announced the alteration with scant elaboration beyond the observation that "at least one court has ventured that an initial rate is a 'new service rendered to new customers.' Otter Tail Power Co. v. FERC, 583 F.2d 399, 406 (8th Cir. 1978)." *fn7 The statement in Otter Tail was made in passing; it determined no issue in that case. *fn8 What the court "ventured" in Otter Tail is therefore an insecure foundation for the Commission's revised categorization.

The policy considerations advanced by the Commission in support of its new position are also of questionable cogency. The Commission asserts that because "the addition of a new transmission customer [ i.e., OMPA] may affect the current or future allocation or amount of costs to [SWEPCO's] other transmission customers," *fn9 the OMPA TSA may "directly or indirectly creat[e] a very real change in the rate already on file." *fn10 If this change came to pass, it would then be "incongruous indeed, if . . . the rates paid by some customers for transmission service [from] the Pirkey and Dolet Hills units were reduced retroactively, while the rate to OMPA for the same transmission service could only be changed prospectively." *fn11

The incongruity FERC features might be troublesome if SWEPCO's rate to OMPA were already on file, and if that rate, along with the rates charged SWEPCO's other customers, were altered by a schedule filed by some third-party; were that the case, OMPA and the other customers would be similarly situated for the relevant purpose, and a construction of the statute so as to accord them equal treatment might well be in order. But that is not this case; the rate to OMPA can hardly be said to have been changed by this filing, so OMPA is not in a situation similar to that of SWEPCO's other customers. It does not appear incongruous to us that existing customers whose rates turn out to be altered by this filing, who ...

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