Authority of the Federal Energy Regulatory Commission to Fix Electricity Rates and Charges and to Require Refund Payments by a Public Utility

Authority of the Federal Energy Regulatory Commission to Fix Electricity Rates and Charges and to Require Refund Payments by a Public Utility

Order Code RS20774
January 9, 2001
CRS Report for Congress
Received through the CRS Web
Authority of the Federal Energy Regulatory
Commission to Fix Electricity Rates and Charges
and to Require Refund Payments by a Public
Utility
Michael V. Seitzinger
Legislative Attorney
American Law Division
Summary
Sections 205 and 206 of the Federal Power Act concern rates and charges collected
by a public utility in transmitting or selling electric energy in interstate commerce. These
rates and charges are required to be just and reasonable. States retain jurisdiction over
facilities for generation, distribution, or transmission of electric energy in intrastate
commerce.
Section 205 requires a public utility to file a rate schedule with the Federal Energy
Regulatory Commission (FERC or Commission). Rate changes are not permitted unless
a new rate schedule has been filed.
Section 206 provides for the review of rates already in effect. The Commission has
the authority to determine that an existing rate is unjust or unreasonable and set a new
rate. In certain situations FERC may have authority to refund amounts paid in excess of
just and reasonable rates. Case law is useful in determining when such a situation may
exist.
Sections 205 and 206 of the Federal Power Act1 concern rates and charges collected
by a public utility in transmitting or selling electric energy in interstate commerce. These
rates and charges “shall be just and reasonable, and any such rate or charge that is not just
and reasonable” shall be unlawful.2
Section 206(a) of the Federal Power Act gives authority to change rates charged by
covered utilities to the Federal Energy Regulatory Commission (FERC or Commission).
The subsection states:
1 16 U.S.C. §§ 824d and 824e.
2 16 U.S.C. § 824d(a).
Congressional Research Service ˜ The Library of Congress

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Whenever the Commission, after a hearing had upon its own
motion or upon complaint, shall find that any rate, charge, or
classification, demanded, observed, charged, or collected by any
public utility for any transmission or sale subject to the jurisdiction of
the Commission, or that any rule, regulation, practice, or contract
affecting such rate, charge, or classification is unjust, unreasonable,
unduly discriminatory or preferential, the Commission shall determine
the just and reasonable rate, charge, classification, rule, regulation,
practice, or contract to be thereafter observed and in force, and shall
fix the same by order. Any complaint or motion of the Commission
to initiate a proceeding under this section shall state the change or
changes to be made in the rate, charge, classification, rule, regulation,
practice, or contract then in force, and the reasons for any proposed
change or changes therein. If, after review of any motion or
complaint and answer, the Commission shall decide to hold a hearing,
it shall fix by order the time and place of such hearing and shall
specify the issues to be adjudicated.3
FERC’s authority to fix rates and charges is, as the above subsection of the Federal Power
Act indicates, limited to transmission or sale of electric energy within its jurisdiction. This
jurisdiction for the most part extends to the transmission of electric energy in interstate
commerce and the sale of this energy at wholesale in interstate commerce.4 The states
retain jurisdiction “over facilities used for the generation of electric energy or over
facilities used in the local distribution or only for the transmission of electric energy in
intrastate commerce, or over facilities for the transmission of electric energy consumed
wholly by the transmitter.”5
FERC’s authority under section 206(a) has been noted by the courts. For example,
in Louisiana Public Service Commission v. FERC the United States Court of Appeals for
the District of Columbia Circuit stated: “[A]s to matters within its jurisdiction, the
Commission has the duty–not the option–to reform rates that by virtue of changed
circumstances are no longer just and reasonable.”6 In San Diego Gas & Electric
Company, the Commission acknowledged its ability to establish new rates if it determines
that existing rates are unjust and unreasonable:
Under the Federal Power Act, upon complaint or on our own motion,
the Commission may establish new rates only if it first has a record to
3 16 U.S.C. § 824e(a).
4
“It is declared that the business of transmitting and selling electric energy for ultimate
distribution to the public is affected with a public interest, and that Federal regulation of matters
relating to generation to the extent provided in this subchapter and subchapter III of this chapter
and of that part of such business which consists of the transmission of electric energy in interstate
commerce and the sale of such energy at wholesale in interstate commerce is necessary in the public
interest, such Federal regulation, however, to extend only to those matters which are not subject
to regulation by the States.” 16 U.S.C. § 824(a). See also 42 U.S.C. § 7172(a)(1)(B).
5 16 U.S.C. § 824(b)(1).
6 184 F.3d 892, 897 (DC Cir. 1999).

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determine that the existing rates are unjust, unreasonable , unduly
discriminatory or preferential. Further, once such a finding is made
as to existing rates, the Commission must have a record to support
the new rate it establishes as just and reasonable.7
In Central Louisiana Electric Company, the Commission identified the factors that it
considers in determining whether undue discrimination exists: “The particular showing that
is required to establish undue discrimination ‘will necessarily turn upon the facts of each
case, including the characteristics of the customer class involved and the service requested,
as well as myriad other potentially relevant factors.’”8
Section 205 of the Federal Power Act requires a public utility to file a rate schedule
with the Commission. Rate changes are not permitted unless a public utility has filed a
new rate schedule with the Commission. The new rate schedule is made available for
public inspection.9 The Commission may suspend the operation of a new rate schedule and
defer the use of new rates and charges for up to five months beyond the time when the
changes would have gone into effect. If the Commission does not conclude its hearings
concerning the proposed changes after this five-month period, the changes shall go into
effect. However, the Commission has the authority to order the public utility to refund
that portion of the increased rates or charges that it finds are not justified.10
In East Tennessee Natural Gas Company v. FERC, the United States Court of
Appeals for the District of Columbia Circuit noted the Commission’s authority to order
refunds if the Commission has determined that the proposed rates are not justified.11 In
discussing section 4 of the Natural Gas Act, the court stated: “If the Commission
ultimately determines...that the rates are not just and reasonable, then § 4 authorizes the
Commission to order that the pipeline pay refunds to any customers who purchased gas
at the (filed) proposed rate, thereby retroactively changing that rate. Allowing these
retroactive reductions in filed rates is a necessary compromise to accommodate delays in
the approval process....”12 The Natural Gas act and the Federal Power Act have been
described as “substantially identical” in many aspects, and cases brought under either
statute are often used interchangeably.13
Just as section 205 of the Federal Power Act allows the Commission to review rates
at the time of filing, section 206, as discussed above, provides for the review of rates
already in effect. Following a hearing, the Commission has the authority to determine that
7 92 F.E.R.C. P 61,172, 1000 WL 1204898, *5 (2000).
8 70 F.E.R.C. P 63,015, 1995 WL 76820, *7 (1995)( citing Southern California Edison Company,
46 F.E.R.C. P 61,052, 61243 (1989).
9 16 U.S.C. § 824d(d).
10 16 U.S.C. § 824d(e).
11 863 F.2d 932 (DC Cir. 1988).
12 East Tennessee Natural Gas, at 942.
13 See, e.g., Arkansas Louisiana Gas Company v. Hall, 453 U.S. 571, 577 n.7 (1981); FPC
v.Sierra Pacific Power Company, 350 U.S. 348, 353 (1956); Towns of Concord, Norwood, and
Wellesley v. FERC, 955 F.2d 67, 70 (DC Cir. 1992).

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an existing rate is unjust or unreasonable and set a new rate.14 The Commission may also
establish a refund effective date and order a public utility to refund amounts paid in excess
of the rates which would have been just and reasonable for the period subsequent to the
refund effective date through fifteen months after this date.15
Courts have also recognized the Commission’s ability to order refunds for past
periods when the Commission has committed legal error. For example, in Tennessee
Valley Municipal Gas Association v. Federal Power Commission, the Commission
erroneously dismissed a claim brought under section 5 of the Natural Gas Act.16 The
Tennessee Valley Municipal Gas Association alleged that the rates charged by its supplier
were excessive. Instead of investigating the matter, the Commission dismissed the claim
on the basis that the record was too “stale” to form the basis for a prospective ruling and
that the initiation of a section 5 proceeding was probably not in the public interest.17 The
court found that the Commission’s failure to reopen the matter for further hearings was
legal error. Thus, the court concluded that the Tennessee Valley Municipal Gas
Association “must be put in the same position that it would have occupied had the error
not been made.”18
Further, in Office of Consumers’ Council v. FERC, the court found that the
Commission committed legal error when it failed to remedy a violation of section 5 of the
Natural Gas Act.19 Although the Commission found that certain clauses in Columbia Gas
Transmission Corporation’s contracts violated section 5, it maintained that remedies were
not necessary if Columbia’s current practices did not violate section 5. The Office of
Consumers’ Council of Ohio and Associated Gas Distributors argued that they were
entitled to remedies beginning on the date of the Commission’s determination. They
contended that these remedies were within the prospective nature of section 5 relief. The
court agreed with the Office of Consumers’ Council and Associated Gas, finding that
“[i]mposing the proper remedy ‘retroactively’ to the date of the Commission’s
determination would merely put Columbia’s customers ‘in the same position that [they]
would have occupied had the error not been made.’”20
Although these two cases indicate that the Commission has ordered refunds for past
periods outside the periods provided by sections 205 and 206 of the Federal Power Act,
the emphasis of legal error present in the circumstances of these cases must be considered.
The plain language of the two statutory provisions and judicial interpretation of them
would seem to support the Commission’s limited ability to order refunds.21
14 16 U.S.C. § 824e(a).
15 16 U.S.C. § 824e(b).
16 470 F.2d 446 (DC Cir. 1972).
17 Tennessee Valley Municipal Gas Association, at 449.
18 Tennessee Valley Municipal Gas Association, at 452.
19 826 F.2d 1136 (DC Cir. 1987).
20 Office of Consumers’ Council, at 1139.
21 See, e.g., Public Service Company of New Hampshire v. FERC, 600 F.2d 944 (DC Cir 1979),
in which the court noted the Commission’s inability to award reparations on the basis that a
properly filed rate or charge has in fact been unreasonably high or low.