Opinion for the Court filed by Circuit Judge RUTH BADER GINSBURG.
RUTH BADER GINSBURG, Circuit Judge:
For the second time, we confront a challenge to a Federal Energy Regulatory Commission (FERC or Commission) rule allowing utilities to include a portion of their construction work-in-progress (CWIP) costs in rate base. A prior panel of this court upheld the first such challenge in part, vacating portions of the rule and remanding the CWIP issue to FERC for further consideration. Mid-Tex Electric Cooperative, Inc. v. FERC, 773 F.2d 327 (D.C.Cir.1985). FERC responded in two measures taken simultaneously: the Commission promulgated an interim rule that, in FERC's own words, "does not change the substance of the general provisions of the [vacated] CWIP rule";
The economic and regulatory framework for the CWIP rulemaking is set forth in detail in our earlier opinion, see Mid-Tex, 773 F.2d at 330-36, and therefore will be described here in abbreviated fashion. Speaking generally, utilities can recover the cost of constructing new generating or transmission facilities in one of two ways. Under the "AFUDC" method,
In 1983, FERC issued Order 298,
Some months after the remand, FERC issued Order 448.
After FERC's promulgation of this interim rule, the petitioners here applied for rehearing before the Commission; simultaneously, they moved before this court for an order directing FERC to comply with the Mid-Tex mandate. They were unsuccessful in both fora,
A. Order 298 and the Mid-Tex remand
Petitioners' substantive challenge features alleged inconsistencies between Order 448 and the instructions set forth in the prior Mid-Tex opinion. FERC's actions, petitioners contend, attempt circumvention of the court-ordered reconsideration of CWIP's anticompetitive effects, and reinstate precisely the regulatory regime overturned by the first Mid-Tex court. Evaluating this challenge requires close inspection of both the interim rule itself and the reasons leading the first Mid-Tex court to vacate and remand Order 298, the earlier CWIP rule.
The CWIP rule embodied in Order 298, FERC determined, would have three beneficial effects: the rule would (a) mitigate AFUDC's bias against construction of new facilities; (b) allow utilities to assess more accurately the need for new facilities by reducing the tendency, under AFUDC, to overpredict future demand; and (c) advance the goal of price stability by mitigating the sudden price increases under AFUDC. See Mid-Tex, 773 F.2d at 332-34; Order 298, 48 FED.REG. at 24323, 24326-39 (June 1, 1983).
The prior Mid-Tex panel concluded, after careful review of the rulemaking record and governing precedents, both that FERC possessed the statutory authority to consider these benefits within its overall "public interest" calculus, see Mid-Tex, 773 F.2d at 344-47, and that record evidence adequately supported FERC's conclusion that its CWIP rule would achieve the asserted benefits. See id. at 347-49, 350-51. The remaining issue was "the extent of FERC's reliance on these [beneficial] considerations at the expense of other criteria which ... FERC is obliged to weigh in the balance." Id. at 344. The court found that FERC, when it balanced the probable beneficial and adverse consequences of Order 298, had given insufficient consideration to the CWIP rule's potential for harm; accordingly, the panel ordered FERC to examine that potential more carefully and, if necessary, to recalculate the net benefit of its new rule. See id. at 351-62.
The court's prime concern was the prospect that the CWIP rule might have an adverse impact on competition in the electric power industry. The prior Mid-Tex opinion featured two significant potential anticompetitive effects: "price squeeze" and "double whammy." Price squeeze, as that term is used here, is a by-product of disparities between state and federal regulation of the utility rate-making process. FERC regulates only sales of electricity for resale, i.e., the "wholesale" rates utilities charge other utilities for power then "retailed" to consumers; those retail rates, in turn, are subject to regulation by the several state power authorities. Many utilities operate in both the wholesale and retail markets, and are thus both suppliers and competitors of their wholesale customers. State regulators may choose not to allow utilities to pass CWIP costs along to their retail customers; where that is the case, wholesale prices, if they include some portion of the wholesaler's CWIP costs, may exceed retail prices from which CWIP costs are excluded. This "price squeeze" can enable utilities to drive their retail competitors from the retail market by reducing — or eliminating — the profit margin provided by the difference between allowable wholesale and retail prices.
In Order 298, FERC acknowledged that allowing utilities to include CWIP in rate base might lead to price squeeze effects. Id. at 336; see 46 FED.REG. at 23436. However, because the risk of price squeeze "cannot be predic[ted] in advance without having detailed information regarding both wholesale and retail rates and costs[,] ... FERC determined that price squeeze issues relating to CWIP in rate base should be resolved on a case-by-case basis." Mid-Tex, 773 F.2d at 336. It was this decision — essentially to ignore the price squeeze issue during rulemaking and to consider CWIP-related price squeeze claims only on a case-by-case basis during ratemaking proceedings — that we set aside as "prompted by inconsistent rationales." Id. at 357; see also id. at 351-57.
On the one hand, FERC argued that allowing 50% CWIP in rate base would generally not have price squeeze effects, id. at 353, 356-57, and that "only a full exploration of the particular facts of each case can determine which of the many disparities between state and federal regulatory practice should be deemed to cause a price squeeze." Id. at 352. In combination, these two arguments contain the "necessary implication," id. at 353, that FERC would consider, and would remedy, price squeeze claims made in ratemaking proceedings and would thereby "ensure that, as applied, the rule will not operate to create a price squeeze." Id.
At the same time, FERC represented that, based on a "general policy ... that federal ratemaking policy ordinarily should not yield to competing state policies," the Commission generally will not remedy price squeeze "resulting solely from state regulatory action or inaction, even on a case-by-case basis." Id. (emphasis added). This rationale contradicted the first, see id., and we "obviously [could not] affirm a decision based on ... different and inconsistent answers to the same fundamental questions." Id.
FERC had three options on remand: (a) it could "show that its CWIP rule will not have any significant price squeeze effects," id. at 357; (b) it could more fully "explain the basis, in law and policy," id., for its asserted policy of ignoring price squeeze caused by state-federal regulatory disparities, or (c) if neither (a) nor (b) proved sufficient — i.e., if FERC concluded that it is indeed obliged to consider those price squeeze effects at the rulemaking stage — then the Commission "must explain what importance is being assigned to those [price squeeze] effects in comparison to the importance of the public interest goals on which ... FERC may validly rely as general support for allowing CWIP in rate base." Id.
Order 298 had also recognized the potential "double whammy" consequences of allowing CWIP in rate base. See id. at 357. In response to this matter, the Commission stated that it would "allow wholesale customers to escape liability for CWIP if they can prove that they bear no responsibility for the decision to build a new plant and will, in fact, purchase no ... power [from] the new plant." Id. at 358, quoting 48 FED.REG. at 46014. FERC's decision to consider double whammy in this particular fashion was "essentially a reprise of its decision to consider price squeeze issues only on a case-by-case basis," id., and was similarly infirm; lacking any explanation for FERC's refusal to consider double whammy as an integral part of its rulemaking
Additionally, the first Mid-Tex court directed FERC to address on remand three subsidiary issues. First, FERC must supply a "reasoned basis," id., for placing the burden on the customers to demonstrate that the utility's decision to build a new generating facility was not one for which they bore any "responsibility." Id.
B. Order 448
In Order 448, FERC requested additional comments on a number of questions concerning the anticompetitive effects of its CWIP policy
The Commission's interpretation of the prior Mid-Tex opinion thus informed its view of the scope of the rule-making proceeding ahead. In addition, FERC's reading of the court's opinion led the Commission to conclude that it was not required to reinstate the AFUDC-only policy in effect prior to the advent of Order 298 while it reconsidered the CWIP issue. The interim rule promulgated in Order 448, FERC candidly admits, "in large measure repromulgat[es] the rule addressed by the [prior] Mid-Tex [panel]" and "does not change the substance of the general provisions of the Commission's former CWIP rule under which public utilities could seek to include [50% of CWIP] in rate base."
Petitioners attack FERC's interim action on two fronts. Order 448, they assert, is not responsive — indeed, is directly contrary — to the instructions of the prior Mid-Tex panel. The interim rule, petitioners contend, "does not even purport to resolve the substantive deficiencies noted by the Court in Mid-Tex,"
A. The Interim Rule and the Mid-Tex Mandate
This proceeding, although formally styled a petition for review of FERC's Order 448, is essentially a proceeding to enforce or clarify the mandate of the first Mid-Tex panel.
No instant enlightenment is produced upon viewing the decision, for the opinion leaves unaddressed the issue now critical — FERC's interim authority to retain a CWIP rule while the Commission undertakes the court-ordered thorough reconsideration of CWIP's anticompetitive consequences. Our mandate to FERC was clear on what was expected of FERC at the end of the line, i.e., on the standards against which any permanent CWIP rules would be measured,
This, we hold, FERC has done. Reserving the procedural question for later discussion, i.e., whether FERC had "good cause" to proceed without public notice-and-comment during this interim period,
FERC took several steps to insure that the "interim procedures [established by Order 448] guard against potential harm from CWIP-related price squeeze and/or double whammy during the pendency of the Commission's full review of the concerns expressed by the [first] Mid-Tex court."
We are cognizant that ratemaking procedures may continue for several years, so that allowing CWIP subject to possible refund at the close of a ratemaking may involve substantial financial hardship for customers. But here again, we note that the Commission has signaled its willingness to exercise its suspension powers and provide preliminary relief where a wholesale customer can make a "concrete, substantial showing that it is likely to incur imminent, irreparable harm if CWIP is allowed."
We do not confront allegations that these protections are not being applied in a manner consistent with our concerns as expressed in the prior Mid-Tex opinion, and nothing we say here should be interpreted to foreclose a party from raising such a claim in the future. We hold only that FERC has put into place safeguards adequate, at least on their face, to protect customers against the kinds of injuries its CWIP policy may cause,
We examine, finally, petitioners' objection that Order 448 is infirm because it was promulgated without notice and comment.
B. "Good Cause" for Omitting Notice and Comment
The Administrative Procedure Act permits rulemaking without public notice and comment when an agency "for good cause finds ... that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest." 5 U.S.C. § 553(b)(3)(B) (1982). FERC emphasized three factors which, in its judgment, combined to establish "good cause" for omitting notice and comment procedures in promulgating Order 448. First, the Commission stressed both the interim nature of Order 448, and the ongoing public procedures designed to assist FERC in formulating a permanent CWIP policy. Second, FERC observed that the "fundamental approach to including CWIP in rate base [was] supported by a broad and substantial record" and had been approved "in substantial measure" by the first Mid-Tex
We are satisfied that FERC has established the requisite "good cause," although we recognize that petitioners have raised a substantial and troublesome question. This court has cautioned that the § 553(b)(3)(B) exception should be "narrowly construed and reluctantly countenanced." American Federation of Government Employees v. Block, 655 F.2d 1153, 1156 (D.C.Cir.1981). Accord Action on Smoking and Health v. CAB, 713 F.2d 795, 800 (D.C.Cir.1983); National Federation of Federal Employees v. Devine, 671 F.2d 607, 611 (D.C.Cir.1982); Council of the Southern Mountains, Inc. v. Donovan, 653 F.2d 573, 580-81 (D.C.Cir.1981). That admonition means our inquiry should be a close one. We comprehend, however, that the "good cause" inquiry is inevitably fact- or context-dependent. Viewed in their entirety, the justifications proffered here by FERC, we hold, are sufficiently weighty to support the Commission's decision to declare its interim rule, Order 448, effective immediately upon publication.
The interim status of the challenged rule is a significant factor in our determination. Our precedents establish that the "limited nature of the rule cannot in itself justify a failure to follow notice and comment procedures." Council of Southern Mountains, 653 F.2d at 582; see also AFGE, 655 F.2d at 1157-59 (citing cases holding "even interim regulations invalid without public procedures"). But public notice and comment, we have also said, gain in importance "the more expansive the regulatory reach of [agency] rules," AFGE, 655 F.2d at 1156; thus, we have consistently recognized that a rule's temporally limited scope is among the key considerations in evaluating an agency's "good cause" claim. See Council of Southern Mountains, 653 F.2d at 582; NFFE, 671 F.2d at 612; cf. AFGE, 655 F.2d at 1157-58 (while upholding Agriculture Department's "emergency regulations" promulgated in response to prior court injunction, court finds no justification "for the issuance of permanent regulations" absent public notice-and-comment procedures).
We recognize that court tolerance of "temporary" measures installed without a public airing may give the agency an apparent incentive to proceed with its permanent rulemaking at a leisurely pace; we emphasize, therefore, that the agency must convince us, as FERC has done here,
Similarly, while none of the other factors FERC pressed would constitute "good
Finally, we credit FERC's context-specific concerns regarding "regulatory confusion" and "irremedial financial consequences." The need for regulatory guidance is evident here, for a fundamental rationale underlying the CWIP policy is to foster more efficient and rational long-range capital investment decisions. See Mid-Tex, 773 F.2d at 332-34; Order 298, 48 FED.REG. at 24325-29. FERC's CWIP policy was in place for over two years prior to the issuance of the remand order by the first Mid-Tex panel, and the Commission has expressed its intention not to revisit, during its current rulemaking, the "fundamental policy issues underlying the decision to permit some CWIP in rate base."
FERC may be unsuccessful in that endeavor, we acknowledge, in which case the continuity interest would not be served by upholding the interim rule. FERC argues nonetheless that the balance of hardships tips in favor of an interim CWIP policy in view of the "irremedial financial consequences" of further delay. Petitioners strongly dispute this claim. They assert that the "utility industry has moved from a period of cash shortage to a period of cash excess [so that] it is very unlikely that utilities will suffer economic[ally] from a delay in implementing a new CWIP rule."
By contrast, the harm to wholesale customers under a CWIP regime, if that regime is later abandoned, is securely within the Commission's remedial powers; all CWIP charges are being collected subject to the Commission's powers to order refunds of the amounts so collected (plus interest). See 16 U.S.C. § 824d(e) (1982). We have, albeit in a somewhat different context, rejected the claim that allowing utilities to collect payments subject to refund subjects customers to irreparable injury. See Papago Tribal Utility Authority v. FERC, 628 F.2d 235, 240-41 (D.C.Cir.1980) (noting that Congress specifically devised the refund provisions of the Federal Power Act to protect customers from the interlocutory consequences of unjust or unreasonable rate increases). The reasoning in Papago is applicable here. Putting aside the possible anticompetitive harms that may result from a CWIP policy, with which we believe FERC has dealt adequately on a temporary basis, we think FERC justifiably discounted the financial harm to wholesale customers, i.e., the higher rates those customers would be paying under the interim rule, in light of the statutory prescriptions designed to arm FERC with power to remedy "overcharges" collected by the utilities.
For the reasons stated, the petitions for review are denied and the challenged Commission orders are affirmed.
It is so ordered.
Mid-Tex, 773 F.2d at 359.