INDIANA & MICHIGAN ELECTRIC CO. v. FEDERAL POWER COM'N

WILKEY, Circuit Judge:

Indiana & Michigan Electric Company (hereinafter I&M) filed proposed changes in its tariff schedule with the Federal Power Commission on 13 June 1972. By letter of 3 July 1972, the Secretary of the Commission acknowledged I&M's filing and advised the company that "[t]he earliest effective date for the increase consistent with [Section 35.13(b) (4) (i)] of the Regulations would be August 13, 1972."1 This section of the Commission's regulations2 requires that, whenever a filing calls for a rate increase, certain cost-of-service data and a summary of the proposed rates be filed 60 days prior to the date the rates are to take effect. On 18 July 1972 I&M applied to the Commission for an order making its new rate schedule effective as of 14 July, or 31 days after the date on which I&M had previously filed. On 11 August 1972 the Commission accepted I&M's rates for filing but designated 13 August as their effective date; it then suspended their use for five months thereafter, or until 13 January 1973.3 By order dated 6 October 1972 the Commission denied I&M's application for rehearing.4

I&M's petition for review of the Commission's order was originally consolidated with petitions by two of I&M's customers, Richmond Power and Light and Anderson Power and Light. On 25 May 1973 this court held that I&M's rate filing was unlawful with respect to Richmond and Anderson because it violated the terms of their contracts with I&M.5 However, since the parties here have represented to the court that I&M's contract with at least one of its other 22 customers6 is different from the Richmond and Anderson contracts, I&M's petition to have the effective date of its new rate schedule retroactively altered to 14 July 1972 remains viable.7

Because the Commission lacked statutory authority to delay the effective date of I&M's filing until 13 August 1972 and to suspend the new rates until 13 January 1973, we vacate the Commission's order of 11 August 1972 and remand to the Commission with instructions that I&M's 13 June rate filing be given effect as of 14 July 1972.8

I. JURISDICTION OF THE COURT TO CONSIDER THE VALIDITY OF THE COMMISSION'S 60-DAY REGULATION

The liminal question here is whether this court can, consistent with section 313(b) of the Federal Power Act, consider I&M's contention that the Commission's 60-day prefiling regulation is invalid. Section 313(b) provides, in relevant part: "No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure so to do."9

While I&M did not expressly raise the legality of the 60-day regulation in its application for rehearing, it did challenge the Commission's statutory authority to set an effective date 60 days after I&M's filing.10 The Commission characterized I&M's position in seeking a rehearing as follows: "I&M asserts that the Commission has no authority to require a notice in excess of the thirty days specified in Section 205(d) of the Federal Power Act."11 Apparently perceiving I&M's position as a challenge to the 60-day regulation, the Commission devoted two of the five pages of its order denying rehearing to an attempted justification of the regulation.12 Commissioner Moody joined issue with the majority and attacked the validity of the regulation in his dissent.13 Clearly, then, I&M brought sufficient attention to the issue to stimulate the Commission's consideration of it.

The rationale of the requirement that an aggrieved party exhaust its administrative remedies, as provided by section 313 of the Federal Power Act, is "`that orderly procedure and good administration require that objections to the proceedings of an administrative agency be made while it has an opportunity for correction . . . .'"14 I&M gave the Commission an opportunity to correct its alleged error in setting the effective date of I&M's rates. Furthermore, I&M suggested the possibility that the 60-day regulation is invalid by inviting the Commission to construe the regulation in a manner "compatible with the Commission's statutory authority."15 The Commission declined to correct its alleged error and explicitly defended the validity of its regulation. Thus, I&M should be permitted to assert the regulation's invalidity in this court.

II. THE COMMISSION'S 60-DAY PREFILING REGULATION

The Commission delayed the effective date of I&M's rate filing pursuant to section 35.13(b) (4) (i) of its regulations.16 This section requires that if a proposed rate schedule calls for increased rates, the utility must file with the Commission "a statement showing its cost of the service to be supplied under the new rate schedule," "a summary statement of [the] proposed increased rate," and certain material on sales and revenue under the old rates and the proposed rates, all "60 days prior to the date that such changed rate is proposed to become effective."17 Much of the data required presupposes the existence of a completed rate schedule. Obviously, a "summary statement of [the] proposed increased rate" cannot be filed unless the thing to be summarized, the rate schedule itself, has been prepared. Included in the cost-of-service items required are "the percentage rate of return claimed,"18 "the maximum demands of the service under the proposed rate schedules,"19 and "revenues under the proposed rates."20 Accurate calculation of these items would be difficult, if not impossible, in the absence of a detailed schedule of the proposed rates. Similarly, a detailed schedule is a prerequisite to calculation of "[a] statement comparing sales and services and revenues therefrom . . . under both the rate schedule proposed to be superseded or supplemented and the proposed changed rate schedule."21 Finally, section 35.13(b) (5) further requires that "the filing utility shall submit with its rate increase filing 60 days prior to the proposed effective date of such increased rates, testimony and exhibits of such composition, scope and format that they would serve as the company's case-in-chief in the event the matter is set for hearing."22 Again, preparation of such information depends upon the existence of the completed rate schedule.

It seems clear, then, that in order to comply with the requirements of section 35.13(b), a utility must be prepared to make a complete filing of its new rate schedule. Thus, the practical effect of the section is to impose a de facto 60-day notice requirement on utilities seeking to increase their rates. Such a requirement contravenes the terms of section 205(d) of the Federal Power Act, which provides:

The Supreme Court has interpreted this language to create not only a minimum notice period for the utility's customers and the Commission, but also a maximum waiting period for the filing utility. In United Gas Pipe Line Co. v. Memphis Light, Gas & Water Division,24 the Court construed section 4(d) of the Natural Gas Act,25 whose language is virtually identical to that in section 205(d) of the Federal Power Act, as providing for "the earliest effectuation of contractually authorized or otherwise permissible rate changes consistent with appropriate Commission review."26 Thirty days is the maximum a utility can be compelled to wait from the time it files its rate changes until the date the changes take effect unless the Commission properly exercises its suspension power. Under the Commission's regulations, a utility must make a de facto rate filing 60 days in advance of the effective date. Therefore, the regulations unlawfully extend the statutory waiting period for utilities by 30 days.

The Commission asserts that the 60-day prefiling requirement of section 35.13(b) (4) (i) is necessary to "the proper exercise of its ratemaking authority under the Federal Power Act."27 To exercise its authority properly, the Commission must evaluate in each case the advisability of suspending the rate filing pending full hearings on the reasonableness of the proposed rates. The Commission argues that "[t]he difficulty of such evaluations often requires more time than the 30 days to which I&M would restrict the Commission."28 This statement fixes responsibility for the 30-day "restriction" with the wrong party, for it is Congress that specified 30 days from the filing date as providing for "the earliest effectuation of contractually authorized or otherwise permissible rate changes consistent with appropriate Commission review."29 If the Commission cannot properly exercise its ratemaking authority within the 30-day time frame prescribed by section 205(d), it should address its grievance to Congress, not to the judiciary.

The result we reach here is not foreclosed by this court's decision in Municipal Light Boards v. FPC.30 As Commissioner Moody pointed out in his dissent to the Commission's denial of I&M's application for rehearing, the validity of section 35.13(b) of the Commission's regulations was not really in question in Municipal Light Boards.31 The parties in that case merely assumed the provision's validity and contested the issue of whether the Commission could waive its own regulation by permitting a less-than-60-day waiting period. Consequently, we properly expressed no view on a possible issue never raised by any party, i.e., whether promulgation of the regulation was within the Commission's statutory authority.

Under section 205(d) of the Federal Power Act, I&M was entitled to an effective date of 14 July 1972 for the rate schedule it filed on 13 June. The Commission therefore acted unlawfully by delaying the effective date until 13 August.32

III. THE FIVE-MONTH SUSPENSION OF I&M'S RATES

Section 205(e) of the Federal Power Act empowers the Commission to hold hearings on the lawfulness of a proposed rate schedule and, pending such hearings, to suspend use of the schedule for no longer than five months "beyond the time when it would otherwise go into effect."33 The Commission recognized in its order denying rehearing that it "does not have statutory authority to issue a suspension order after a proper proposed effective date."34 Commissioner Moody seconded this observation in his dissent:

Since we hold that the lawful effective date of I&M's rate filing was 14 July 1972, the Commission had no authority to suspend use of the new rate schedule on 11 August 1972. Therefore, the Commission's suspension order of that date must be vacated.

IV. CONCLUSION

The Commission has exceeded its statutory authority by delaying the effective date of I&M's rate filings beyond the 30 days prescribed by section 205(d) of the Federal Power Act. Therefore, we order that the effective date of I&M's filing be changed retroactively to 14 July 1972. It inevitably follows that the Commission's 11 August suspension order was ultra vires and must be invalidated. The orders here in issue are vacated and the case is remanded for implementation of this opinion.

Vacated and Remanded.

ON PETITIONS FOR REHEARING

PER CURIAM.

ORDER

On consideration of the petitions for rehearing, it is ordered by the Court that the petitions for rehearing are granted and the opinion filed on 14 February 1974 is modified in the manner set out in the third paragraph of the opinion of this Court filed herein this date.

WILKEY, Circuit Judge:

The Commission, with the support of intervenors, has filed a petition for rehearing in which it requests that we modify our main opinion of 14 February 1974 by eliminating therefrom our holdings: (1) that the Commission's five-month suspension of the rates filed by Indiana & Michigan Electric Co. (I&M) must be vacated; and (2) that I&M is entitled to collect from its customers the difference between its filed rates, which now must be deemed lawful from their effective date, and the rates actually charged for the six-month period from 14 July 1972 to 13 January 1973.

In our main opinion we explained in Parts III and IV why under section 205 of the Federal Power Act the Commission does not have authority to suspend filed rates after a proper proposed effective date, a conclusion with which both majority and dissenting members of the Commission agreed. Since we have held that the effective date was 14 July 1972, the Commission suspension order of 11 August 1972 could have had no effect. It has been forcefully argued to us that, while this is statutorily correct, yet great inequities are likely to result. Even though the Commission is statutorily powerless to correct these inequities, we are urged to exercise our equity powers as a court to mitigate these hardships, or at least place the Commission in such posture as to be able to do so on the basis of evidence and findings later to be heard and made on the justness and reasonableness of I&M rates.

After scrutinizing the various memoranda submitted in connection with this petition,1 we have decided to adhere to our holding that the Commission exceeded its authority when it suspended I&M's rates for five months. However, we deem it appropriate to exercise our equity powers and modify our earlier order in the following manner:

1. I&M may not collect retroactive rate increases for the five-month period from the effective date of its rate filing, 14 July 1972, through 13 December 1972.

2. I&M may collect the difference between its old and new rates for the period from 14 December 1972 through 13 January 1973.

3. Should the Commission determine during the course of its current hearings that I&M's filed rates are unjust or unreasonable, it may order I&M to refund the amounts collected after 13 December 1972 in excess of the just and reasonable rates.

I. Equitable Factors

Under our original order, I&M's customers would be obligated to pay retroactive rate increases for the five-month period during which the Commission's unlawful suspension order was in effect. This would create considerable hardship for I&M's customers, for, in reliance on the Commission's suspension order, they failed to seek increases in their own rates to offset I&M's increased charges. Since I&M's customers are precluded by federal law2 and the relevant state statutes3 from retroactively raising their rates, our original order would force them to absorb out of their own current assets the five months of retrospective increases in I&M's rates. These substantial amounts4 would impose a significant burden on the finances of I&M's customers.5

In addition, I&M's customers have been paying the higher rates provided for by I&M's new tariff schedule since 13 January 1973. Those rates are now subject to scrutiny in Commission hearings to determine whether they are just and reasonable. Our main opinion would deprive the Commission of authority to order refunds by I&M to its customers in the event the Commission finds that some portion of I&M's increases are unjustified. The Commission's power to order refunds arises from section 205(e) of the Federal Power Act6 and is directly tied to the exercise of the Commission's suspension power. Under section 205(e), if the Commission suspends a filing utility's rates and orders hearings on their justness and reasonableness, if those hearings overrun the suspension period, and if the filed rate increases are found unreasonable, the Commission may "by further order require [the filing] public utility or public utilities to refund, with interest, . . . such portion of [the] increased rates or charges as by its decision shall be found not justified."

Under our main opinion, which renders the Commission's 11 August 1972 suspension order a nullity, the Commission's hearings on the reasonableness of I&M's rates cannot rest on the authority of section 205(e), but rather on section 206(a), and thus the Commission does not have the correlative power to order refunds pursuant to section 205(e).7 Consequently, the Commission's hearings can continue only under the authority of section 206(a), and this unambiguously provides that "the Commission shall determine the just and reasonable rate . . . to be thereafter observed and in force, and shall fix the same by order."8 The Supreme Court has interpreted this language as precluding the Commission from ordering refunds, even when it determines that the rates in effect are unjust and unreasonable.9 Under our main opinion, then, I&M's customers would be forced to pay possibly excessive rates from 13 January 1973 until the conclusion of the Commission's ongoing hearings without any prospect of receiving refunds of the excessive amounts paid.

Our concern about the liability of I&M's customers for retroactive rate increases, and payment by those customers of possibly unreasonable rates without right to refunds, is intensified by the fact that the Commission explicitly found in its 11 August 1972 order that I&M's filed rates may be unjust or unreasonable. The Commission stated:

Thus, the strong potential that hardship to I&M's customers could result from our main opinion is compelling.

Moreover, the equitable stake of I&M in our main opinion is not significant. I&M sought from the Commission no greater relief than our modified order now grants. In its application for rehearing before the Commission, I&M requested that the Commission

By modifying our original order in the manner set out above, we eliminate the potential for hardship to I&M's customers and we accord I&M precisely the relief it sought from the Commission. The equities clearly dictate that we reinstate the suspension of I&M's rates for the period from 14 July 1972 through 13 December 1972, and restore to the Commission its power under section 205(e) to order refunds of any amounts paid by I&M's customers after 13 December 1972 that the Commission finds excessive.

II. The Court's Equity Powers

A court sitting in review of an administrative agency is vested with equity powers which it may employ in a manner defined by the Supreme Court in Ford Motor Co. v. NLRB:12

By our excercise of equity powers herein, we are "adjust[ing] [our] relief to the exigencies of the case in accordance with the equitable principles governing judicial action." In so doing, we are acting, we believe, "within the bounds" of the Federal Power Act; indeed, our main opinion promotes the Act by confining the Commission to its statutory authority, and this supplemental opinion is designed to advance the policies and procedural safegards of section 205 of the Act.14

The Supreme Court's decision in United States v. Morgan15 is instructive here. Under the authority of the Packers and Stockyards Act16 the Secretary of Agriculture had declared the schedule of maximum rates charged for stockyard services unlawful and prescribed a new, lower schedule of rates. Stockyard companies filed suit in District Court, which temporarily restrained the Secretary's order on condition that the stockyard companies deposit the amounts received in excess of the Secretary's prescribed rates with the clerk of the court. Ultimately, the Supreme Court held the Secretary's order invalid because the Secretary had failed to accord the stockyard owners the full hearing to which they were entitled under the Act.17 On remand the District Court ordered that the fund accumulated by the clerk during the pendency of the suit be returned to the stockyard owners. The Supreme Court reversed. It directed the District Court to hold the fund that it had collected until the Secretary rendered a decision, after full hearings, on the lawfulness of the stockyard rates. If the Secretary again found the old rates unlawful, the District Court was instructed to distribute to stockyard customers the difference between the old rates and the lawful rates. The Court's basic rationale was as follows:

The Court so held although it conceded that the Secretary could prescribe lawful rates only for the future and could not act with respect to charges collected in the past.19 It reasoned that the Secretary had already found the stockyard rates unlawful, although he had done so in a procedurally defective manner. If the Secretary subsequently decided to reaffirm his earlier decision through proper procedures, he could not directly order refunds of the excessive amounts paid by stockyard customers in the past. However, such a decision would justify restitution to the customers of the amounts held by the clerk of the District Court. Similarly, we have found an order of the Commission invalid on the basis of a procedural defect (untimeliness). But in order to advance the Federal Power Act's policy of maintaining just and reasonable rates, we have provided that refunds to the filing utility's customers will be appropriate if the Commission subsequently makes definite its earlier finding that I&M's filed rates may be unlawful by so holding in a final decision.

Finally, we are not "intruding upon the administrative province" by our actions herein. Our denial to I&M of retroactive relief for the period 14 July 1972 through 13 December 1972 is not an infringement upon the Commission's exclusive suspension power.20 The Commission explicitly determined that suspension was appropriate but failed to issue its suspension order in a timely fashion. Nor are we interfering with the Commission's statutory role as the sole body responsible for determining whether an electric utility's filed rates are just and reasonable. We have not relieved I&M's customers of the burden of paying I&M's filed rates. We have merely provided that if the Commission subsequently determines that the filed rates are unjust or unreasonable, it may order I&M to refund the excess amounts paid by its customers.21 Thus, we are convinced that our exercise of equity powers here promotes the policy of the Federal Power Act without violating the terms of the Act or infringing upon the exclusive domain of the agency charged with implementing the Act.

Our decision draws support from Mississippi River Fuel Corp. v. FPC,22 in which the Third Circuit held that the Commission had acted outside its authority by summarily rejecting the filing utility's rate schedule without a hearing. This rejection, the court found, violated the procedural requirements of sections 4 and 5 of the Natural Gas Act,23 which are virtually identical to sections 205 and 206 of the Federal Power Act. The court ordered that the filed rates be given immediate effect, but "subject to the right of the Commission forthwith to direct and give notice of a hearing upon the new schedules and to safeguard customers of petitioner in the payment of the new tariffs pending the outcome of such hearing by requiring petitioner to file such bond as is contemplated and authorized by Section 4(e)." The court thus permitted the Commission to proceed with hearings on the justness and reasonableness of the proposed rates under section 4(e) (the counterpart in the Natural Gas Act to section 205(e) of the Federal Power Act), with full authority to order refunds, despite the fact that the technical effective date of the filing utility's new rates had long since passed.24

The filing utility subsequently moved to modify the court's order by making its rate filing effective retroactively to 1 June 1952, or 31 days after the date of filing. The court denied the motion, thus in effect imposing a de facto suspension of several months on the filed rates. The court justified its decision by reasoning that granting the retroactive relief requested (1) would force the filing utility's principal customer "to pay additional retroactive charges of about $3,000,000 for gas it already has resold to its own customers on the basis of [the filing utility's] existing rate to it"25 and (2) would fly in the face of "an affirmative though legally misconceived rejection of [the] proposed rate increase by the administrative body which had jurisdiction over the subject matter."26 In the instant case, we have justified our modified relief herein in part on the basis that (1) granting I&M fully retroactive relief would impose substantial, irrecoverable costs on I&M's customers,27 and (2) the Commission has affirmatively found that I&M's rates may be unjust or unreasonable, although it implemented its finding in a procedurally defective manner.28 Therefore, we believe our exercise of equity powers can rest on the authority of Mississippi River Fuel as well as United States v. Morgan.

III. Conclusion

For the reasons stated herein, we grant the petitions for rehearing and modify our main opinion of 14 February 1974 in the manner set out in the third paragraph of this opinion.

So ordered.