Consolidated Edison Co. of New York, Inc. v. Federal Energy Regulatory Commission
Docket: No. 91-1127
Court: Court of Appeals for the D.C. Circuit; March 9, 1992; Federal Appellate Court
The case addresses the Federal Energy Regulatory Commission's (FERC) authority under section 4(d) of the Natural Gas Act to expedite the effective date of a natural gas pipeline’s out-of-cycle purchase gas adjustment (PGA). Typically, a thirty-day waiting period is mandated between a supplier's notice of a rate increase and the effective date of the change. However, FERC can shorten or waive this period for good cause. Tennessee Gas Pipeline Company applied for an out-of-cycle PGA to increase its gas sales rate, requesting a December 1, 1990 effective date. FERC accepted this request on December 27, 1990. Petitioners, including Consolidated Edison Company of New York, contended that the effective date violated the "filed rate doctrine," asserting that December 27 should be the earliest effective date allowed. The court upheld FERC's decision, finding that it reasonably exercised its authority to waive the thirty-day notice requirement and that the December 1 effective date was permissible for the requested rate change.
The regulatory framework mandates that all rates must be just and reasonable, with pipelines required to file detailed rate changes with the Commission. While FERC can suspend a proposed rate during investigations, it must ultimately implement the rate unless found unreasonable. The filed rate doctrine, recognized by the Supreme Court, prevents regulated entities from charging rates other than those filed with FERC and prohibits retroactive ratemaking, thereby restricting both utilities and regulators in rate-setting practices.
The filed rate doctrine is designed to ensure market certainty, prevent price discrimination, and uphold regulatory authority in assessing the legality of rates or practices. It allows the regulatory body, such as the Commission, to evaluate the reasonableness of rates, promoting transparency for gas purchasers regarding the implications of their purchasing decisions. The doctrine has historically aimed to prevent unjust discrimination in the context of the Interstate Commerce Act.
Purchase Gas Adjustment clauses (PGAs) enable pipelines to recover costs for natural gas acquisition without the extensive data requirements of a full rate proceeding. Established in 1972 and modified in subsequent years to adapt to market changes, regulations require pipelines to provide annual cost estimates with quarterly updates. Changes in PGAs typically take effect quarterly, subject to Commission review and potential refunds. While rate reductions can be implemented quickly upon an "out-of-cycle" PGA filing, increases require specific approval. The Commission can waive the standard notice period for good cause.
The analysis of the Commission's order is based on the Chevron deference standard, which dictates that courts must adhere to Congressional intent when clearly defined, or accept reasonable agency interpretations when statutes are ambiguous. The case at hand is viewed under this framework, with Con Edison arguing against deference based on the Supreme Court's Maislin decision. However, the interpretation of the Maislin ruling is seen as consistent with Chevron principles, emphasizing that rates must be filed with the regulator to be collectible.
Con Edison argues that the court should interpret section 4(d) of the Natural Gas Act (NGA) literally to assert that FERC's order to implement a rate change was beyond its authority. Section 4(d) requires new schedules to be filed with the Commission that clearly state any changes and their effective date, allowing for a shortened notice period only under specified conditions. Con Edison acknowledges the Commission's ability to shorten notice but contends that this authority is limited to prospective notice waivers.
Citing the City of Piqua v. FERC case, Con Edison highlights the court's rejection of a rigid interpretation of similar statutory language, where it was determined that FERC could set an effective date retroactively if the parties had agreed on it. Further precedents, such as Hall v. FERC and Columbia Gas Transmission Corp. v. FERC, reinforce that while FERC must adhere to the filed rate doctrine, advance notice of rate increases can be satisfied through actual consent from purchasers, not necessarily the statutory thirty-day notice.
The court concludes that Con Edison’s strict interpretation of section 4(d) is undermined by the precedents that emphasize the importance of actual notice rather than merely statutory compliance. It recognizes that the advance notice provided to Con Edison was different from the clear consent seen in Piqua, where the customer had explicitly agreed to the rate increase and its effective date.
Purchasers were only aware on December 1 that Tennessee had requested an out-of-cycle PGA increase effective that day, but they did not know if or how FERC would respond, including whether it would waive the usual thirty-day notice period. Con Edison argued that the purchasers' expectation was based on the idea that without FERC’s acceptance, Tennessee could not collect the increase. The Louisiana Power & Light case illustrated this expectation; the power supplier began billing customers at an unfiled increased rate, which FERC later ruled was unlawful without prior acceptance. FERC maintained that the lack of authority in that case was due to insufficient justification for waiver, not a general prohibition on retroactive effective dates. The Commission did not allow the new rate to take effect on the date of its order, opting instead to suspend it for further investigation. Despite Con Edison’s claims of unfair surprise, FERC's history of allowing retroactive rate increases indicates that Con Edison was likely aware of this practice. FERC retained the authority to assess the reasonableness of rates, and it set a deadline for protests to consider whether Tennessee's proposed increase should take effect. Additionally, Con Edison acknowledged that under NGA section 4, FERC can suspend a rate increase while allowing it to be effective immediately upon filing, subject to refund.
Uncertainty regarding the actual rates that purchasers will pay is not significantly increased by the procedure employed by FERC. Although Con Edison could not determine the exact rate for gas purchased on December 2 prior to the December 27, 1990 order, it was aware of both the current rate and the proposed rate increase when notified of Tennessee's filing on November 30. The duration of uncertainty was minimal, as FERC issued a ruling within four weeks. Thus, Tennessee's filing and the subsequent Commission action provided adequate notice of the out-of-cycle PGA increase effective December 1, 1990. The Natural Gas Act section 4(d) allows the Commission to reduce or eliminate the standard thirty-day notice requirement for good cause. Given Con Edison and other purchasers had notice of Tennessee's request for an effective December 1 date, FERC’s order is deemed a reasonable exercise of its statutory authority, consistent with precedent and the filed rate doctrine. Consequently, Con Edison’s petition for review is denied, and the Commission’s action is upheld. PGAs are FERC-sanctioned mechanisms that allow pipelines to adjust rates quarterly with less stringent filing requirements to account for specific gas acquisition costs.
Public utility regulation principles apply broadly, as seen in relevant case law such as Towns of Concord v. FERC and Maislin Indus. U.S. Inc. v. Primary Steel, Inc. Petitioners do not contest FERC’s finding of 'good cause' for eliminating the waiting period for rate changes. Under the Natural Gas Act (NGA) Section 5(a), objections must typically be raised in a rehearing application to FERC, which oversees existing rates but may only act prospectively. Section 5(a) allows FERC to modify unlawful charges but does not permit retroactive refunds; it can only determine just and reasonable rates to be observed moving forward. Section 4(d) mandates a thirty-day notice for any rate changes, though FERC may waive this requirement for good cause. Additionally, 18 C.F.R. 154.305(d)(e) allows for yearly surcharges related to PGA shortfalls. The Supreme Court has noted the similarity in notice provisions between the Federal Power Act and the Natural Gas Act. While a standard procedure might be preferable, it is not within the court's authority to compel FERC to adopt any particular approach. The determination of whether FERC can set an effective date earlier than the Commission’s order post-waiting period is not addressed in this case.
