No. 80-1633.United States Court of Appeals, District of Columbia Circuit.Argued June 19, 1981.
Decided August 17, 1981. Supplemental Opinion on Rehearing October 30, 1981. Opinion as Modified on Rehearing October 30, 1981.
Page 188
Woodrow D. Wollesen, Washington, D.C., with whom Charles F. Wheatley, Jr., Washington, D.C., was on the brief for petitioners.
Andrea Wolfman, Atty., Federal Energy Regulatory Com’n, Washington, D.C., with whom Robert R. Nordhaus, Gen. Counsel, Federal Energy Regulatory Com’n, Washington, D.C., was on the brief for respondent.
A. Theodore Gardiner, III, Cleveland, Ohio, of the bar of the Supreme Court of Ohio pro hac vice by special leave of Court with whom Paul T. Ruxin, Cleveland, Ohio, was on the brief for intervenor.
Petition for Review of an Order of the Federal Energy Regulatory Commission.
SUPPLEMENTAL OPINION ON REHEARING Before WALD and MIKVA, Circuit Judges.
[1] ORDER
[2] Upon consideration of the petitions for rehearing filed by Respondent, Federal Energy Regulatory Commission, and Intervenor, Central Illinois Public Service Co., and responses thereto, it is
WALD, Circuit Judge:
[5] Our original opinion in this case was issued on August 17, 1981.[1] Pursuant to the Federal Rules of Appellate Procedure 35 and 40 and local rule 14, Respondent, the Federal Energy Regulatory Commission (“FERC” or “Commission”), and Intervenor, Central Illinois Public Service Company (“CIPSCO” or “Company”), with the support of the United States,[2] have petitioned for rehearing, requesting that Section III A of our opinion be vacated. We hereby grant the request for rehearing and vacate those parts of Section III A which are inconsistent with this supplemental opinion.[3] [6] Section III A examined Illinois Cities of Bethany’s (“Cities”) allegation that a wholesale electric power tariff, filed by CIPSCO under section 205 of the Federal Power Act, 16 U.S.C. § 824d, and approved by FERC, was too high in comparison with CIPSCO’s retail rates. Cities, a group of CIPSCO wholesale customers, claimed that they were being price squeezed.[4]Relying upon a Staff study that indicated that CIPSCO’s profit margin was higher for its retail services than its wholesale services, see Joint Appendix (“J.A.”) at 16, 412, an Administrative Law Judge (“ALJ”) rejected Cities’ claim. Id. at 345, 406-17. FERC affirmed that decision. Id. at 425. Because we read the Supreme Court’s decision in F.P.C. v. Conway, 426 U.S. 271, 96 S.Ct. 1999, 48 L.Ed.2d 626 (1976) to permit the Commission, in the interests of competition, to adjust even cost-justified differentials, we remanded
Page 189
“to allow the Commission, if it [found] that CIPSCO and petitioners [were] competitors, . . . to reduce [CIPSCO’s wholesale] rate to the higher of the `lower end of the range of reasonableness’ or that needed to eliminate the price squeeze, or to justify a higher rate by reference to other factors.”Illinois Cities, supra, slip op. at 24. On rehearing, however, we have determined that no price squeeze exists so as to justify invocation of the Conway doctrine. We now vacate that decision and affirm the decision of the Commission.
[7] ANALYSIS
[8] Our decision to remand was based upon our finding that the ALJ had erred initially in rejecting a prima facie price squeeze case[5] presented by Cities and subsequently in failing to determine whether CIPSCO’s wholesale rate, although within the range of reasonableness, lay at the “lower end of the range of reasonableness,” i.e., at a point within the range of reasonableness that would permit elimination of the price squeeze. Id. at 19, 21. Upon further reflection, inspired in part by the additional information and reformulated arguments in the petitions for rehearing and the responses thereto, we now conclude that we were mistaken in ordering the remand.
and intervenor,[8] in their petitions for rehearing, misconstrued our initial decision as “requiring the Commission to lower wholesale electric utility rates whenever a municipal customer, competing with the utility for retail business, cannot pay the rate, and (while incurring its own costs) resell at a profit.”[9] Properly understood, however, the transfer price test probes only whether the utility itself could buy or sell at its own prices.[10] As such, it is similar to the method of analysis employed
Page 190
in the Staff study relied upon by the ALJ[11] which compares the company’s rate of return on sales at both the wholesale and retail level to see whether the company is subsidizing lower retail prices through higher wholesale prices in order to compete against its wholesale customers.[12]
Both tests depend upon a proper allocation of wholesale and retail costs, and both seek to test whether there is a price discrimination[13] — a non-cost justified differential — between wholesale and retail customers.[14] Thus, Cities’ attempted use of the transfer price squeeze test to attack the findings of the Staff cost-of-service study is in fact not materially different from a direct attack upon the accuracy of the Staff study itself. Having acknowledged the discretion of the Commission to utilize its choice of an appropriate methodology[15] to prove or disprove a
Page 191
price discrimination, and having rejected Cities’ frontal assault upon that methodology,[16] we should have found that Cities had failed to make out a price squeeze case. In sum, since the Staff study found that after fully allocating wholesale and retail costs the company’s rate of return on wholesale sales was reasonable and indeed less than its rate of return on retail sales, there was no reason to believe that Cities was being price squeezed at all. See n. 14 supra. And where no price squeeze case exists, there is no need to decide whethe Conway[17] requires the ALJ to determine whether CIPSCO’s wholesale rate, although within the range of reasonableness, lay at a point within that range where it could or should be lowered to eliminate the price squeeze. Because we erred in remanding for the Commission to consider applying Conway to this case, we vacate our earlier decision on this aspect of the case.
[11] The Supreme Court in Conway held that although the Commission lacked jurisdiction to fix retail rates, its jurisdiction to set wholesale rates allowed it to take retail rates into consideration where wholesale customers were price squeezed by dint either of the utility company’s desire to drive out retail competitors or of the interplay between federally and locally regulated rates.[12] The Supreme Court upheld a decision of this court, perThe Commission must arrive at a rate level deemed by it to be just and reasonable, but in doing so it must consider the tendered allegations that the proposed rates are discriminatory and anticompetitive.[18]
Leventhal, J., and observed that this court was “quite correct” in concluding:
[13] We read that language as permitting the Commission to adjust wholesale rates within a range of reasonableness to respond either to utility efforts to depress retail rates to meet competition, or to situations where the imperfections of regulation result in an unintended price squeeze. Since ratemaking is an inexact science, even bona fide allocations of costs between wholesale and retail operations may be imperfect or rates of return set by different regulators at the wholesale and retail levels may make it impossible for purchasing wholesalers, no matter how efficient, to compete at the retail level. In such cases, Conway acknowledges the Commission’s discretion to press wholesale rates to the lower end of the zone of reasonableness. The Conway doctrine is not, however, we emphasize, designed to subsidize particular retail competitors. Rather, the doctrine allows the Commission some leeway where it finds that the process of price setting by regulation, and not the superior efficiency of the utility, might result in retail competitors being driven from the market. [14] Here, the requisite proof that a price squeeze existed was not forthcoming and indeed was refuted by the Staff study. When costs were fully allocated between wholesale and retail operations, CIPSCO’s wholesale profit margin was both reasonableWhen costs are fully allocated, both the retail rate and the proposed wholesale rate may fall within a zone of reasonableness, yet create a price squeeze between themselves. There would, at the very least, be latitude in the FPC to put wholesale rates in the lower range of the zone of reasonableness, without concern that overall results would be impaired, in view of the utility’s own decision to depress certain retail revenues in order to curb the retail competition of its wholesale customers.[19]
Page 192
and sufficiently lower than its retail profit margin so that there was no occasion for the Commission to exercise its Conway
discretion.
[15] CONCLUSION
[16] For the foregoing reasons, we vacate those parts of our initial decisions as are inconsistent with this supplemental opinion, an affirm the decision of the Commission.
Federal Power Commission v. Conway Corp., 50 U.Colo.L.Rev. 459 (1979). Because FERC is required to insure “just and reasonable” rates, 16 U.S.C. § 824d, we are concerned here only with price squeezes not due to the vertically integrated company’s superior efficiency.
Petitioner’s Reply Brief, Illinois Cities, at 12-14 (Alcoa
test properly set out).
The plaintiff’s theory is that “Alcoa” consistently sold ingot at so high a price that the “sheet rollers,” who were forced to buy from it, could not pay the expenses of “rolling” the “sheet” and make a living profit out of the price at which “Alcoa” itself sold “sheet.” To establish this the plaintiff asks us to take “Alcoa’s” costs of “rolling” as a fair measure of its competitors’ costs, and to assume that they had to meet “Alcoa’s” price for all grades of “sheet,” and could not buy ingot elsewhere.
We note that Alcoa’s own costs of rolling were used as a fair measure of its competitor’s costs. Here, competitor’s costs were offered as a fair measure of CIPSCO’s costs. Although it may be, as Cities asserts, that its retail costs were lower than CIPSCO’s, there was inadequate evidence in the record to prove that assumption. Petitioners draw our attention to J.A. 136-39. Although the evidence there correctly indicated that if CIPSCO owned each of the Cities’ distribution systems it would pay higher taxes, J.A. 136-38, the hypothetical itself merel assumed that CIPSCO would incur the same costs that Cities incurred.
J.A. at 625. Although the results of a cost of service study are phrased in terms of a profit differential, see Memorandum By The Cities of Bethany, Et Al. In Response To The “Memorandum Amicus Curiae” Filed By The Antitrust Division of the Department of Justice at 4, like the price squeeze test, the cost of service study also seeks to determine whether the vertically integrated company maintains artificially high wholesale prices in order to squeeze out its retail competition. If, after costs are fully allocated, it appears that the wholesale rate of return of a vertically integrated company is reasonable and, in fact, lower than retail rate of return, it would appear that wholesale customers are not being price squeezed — indeed, the higher the retail rate of return vis-a-vis the wholesale rate of return, the greater the wholesale customer’s discount.
[17] OPINION AS MODIFIED ON REHEARING[18] Before WRIGHT,[*] WALD and MIKVA, Circuit Judges.
[19] Opinion for the Court filed by Circuit Judge WALD.WALD, Circuit Judge:
[20] In this action, eight Illinois municipalities[1] seek direct review of an order of the Federal Energy Regulatory Commission (“FERC” or “Commission”) approving a wholesale electric power tariff filed by Central Illinois Public Service Company (“CIPSCO” or “Company”) under section 205 of the Federal Power Act, 16 U.S.C. § 824d. The petitioners, wholesale customers of CIPSCO, challenge the substantive reasonableness of the tariff, as well as the Commission’s decision to refrain from investigating CIPSCO’s high operation and maintenance costs. For the reasons stated below, we affirm the Commission’s actions.[21] I. THE FACTS
[22] On December 1, 1977, CIPSCO filed tariff sheets with the Commission proposing increases in three wholesale rates: W-1, which governs sales to electric cooperatives, W-2, which covers sales to full-requirement[2] municipal customers, and W-3, which applies to sales to partial-requirement[3] municipal customers. Though the electric cooperatives acquiesced in the new rates,[4] several of the W-2 and W-3 customers formed the Illinois Municipal Group (“petitioners” or “Cities”) to protest the proposed rate increases. The Cities petitioned the Commission to intervene in the ratemaking proceeding as CIPSCO’s opponent on December 27, 1977.[5] Three days later the Commission issued an order accepting the Company’s W-1 filing and permitting it to become effective without suspension on January 1, 1978.[6] In the same order, however, the Commission conditionally accepted the Company’s W-2 and W-3 tariffs pending determination of the issues raised by the Cities. The challenged rates went into effect subject to refund on January 2, 1978, following a one-day suspension.[7]
Page 193
(“Staff”),[10] upheld the Company’s refusal to extend preferential rates contained in certain long-term contracts with one W-2 and one W-3 customer to the remaining customers in those rate categories; found that the Cities failed to present a prima facie case that a price squeeze inimical to the Company’s wholesale customers existed; and recommended that the Commission investigate the Company’s abnormally high operation and maintenance costs.
[24] Both parties filed briefs on exceptions to the Initial Decision with the Commission. Six months later, on February 21, 1980, the Commission issued an order summarily affirming the ALJ’s opinion in all but two respects.[11] The Commission reversed the ALJ’s recommendation of an investigation into the prudence of CIPSCO’s management[12] and his directive that CIPSCO be required to “flow through” its construction-related interest deductions on a current basis.[13] The Cities petitioned for rehearing on twelve issues, including its contract discrimination and price squeeze arguments, eight rate base or rate of return disputes, and the Commission’s refusal to investigate CIPSCO’s management.[14] The Commission denied this rehearing request by taking no action within the statutorily prescribed period.[15] [25] The Cities have petitioned this court for review of the Commission’s order. CIPSCO moved for and was granted leave to intervene before this court in support of the Commission’s actions.[26] II. THE ISSUES
[27] Though the Cities preserved twelve arguments by their petition for rehearing, they present only six in this petition for direct review.[16] Of those six, three were argued by one of the petitioners, the village of Rantoul, before this court in a challenge to a FERC order approving a previous CIPSCO tariff.[17] This court affirmed the Commission’s actions in that case in an unpublished memorandum opinion.[18] Though that opinion does not bind our decision in
Page 194
this case,[19] our review of the record in the instant proceeding gives us no cause to question the outcome in Rantoul
or its applicability to this case. Accordingly, we summarily affirm the Commission in this case as to those issues decided i Rantoul,[20] and discuss in this opinion only those arguments presented here for the first time.
[29] III. ANALYSIS[30] A. Price Squeeze
[31] The most serious of the Cities’ allegations is that the challenged rates are set too high in comparison to CIPSCO’s retail rates to allow the Cities to compete with CIPSCO for retail, especially high-volume retail,[21] customers, and thus that FERC should have reduced those rates to “the lower end of the range of reasonableness.”[22] The Cities
Page 195
trace FERC’s decision not to do so to the ALJ’s acceptance of faulty cost of service estimates and his reliance on an inappropriate conceptual framework for analyzing the significance of those estimates. FERC maintains that the ALJ’s analysis of petitioners’ price squeeze complaint was correct, and that the petitioners failed to establish a prima facie case for the existence of a price squeeze.
[32] 1. The Elements of a Prime Facie Case[33] Though a fixture of antitrust law since the 1945 decision i United States v. Aluminum Co. of America (“Alcoa“),[23] price squeeze complaints are relatively new to the regulated industries field. FERC routinely disclaimed jurisdiction over such arguments until 1976, when the Supreme Court held that they could be considered when determining whether a rate meets the antidiscrimination requirement of section 205(b) of the Federal Power Act.[24] Following that decision, FERC promulgated guidelines for dealing with price squeeze complaints. Those guidelines established the criteria necessary to make out prima facie price squeeze case:
[34] It should be noted that unlike the ordinary situation where a party who establishes a prima facie case is, as a matter of law, entitled to relief unless the defending party rebuts the case, the establishment of a prima facie price squeeze case means only that enough has been shown to warrant inquiry into the price squeeze allegations to ascertain whether price discrimination exists. It is, the Commission assures us, merely the threshold[26] which must be crossed to put the question at issue. [35] Petitioners claim that they established a prima facie case by comparing the wholesale rates W-2 and W-3 with the comparable[27] retail rates 9 and 9-B in effect(1) Specification of the filing utility’s retail rate schedules with which the intervening wholesale customer is unable to compete due to purchased power costs;
(2) A showing that a competitive situation exists in that the wholesale customer competes in the same market as the filing utility;
(3) A showing that the retail rates are lower than the proposed wholesale rates for comparable service;
(4) The wholesale customer’s prospective rate for comparable retail service, i.e., the rate necessary to recover bulk power costs (at the proposed wholesale rate) and distribution costs; and
(5) An indication of the reduction in the wholesale rate necessary to eliminate the price squeeze alleged.[25]
Page 196
on January 2, 1978. At that time, the wholesale rates were higher than the retail rates for which petitioners would have been eligible based on their demand characteristics.[28]
However, on April 14, 1978, a new retail tariff went into effect,[29] raising the 9 and 9-B retail rates above the W-2 and W-3 wholesale rates. Whether or not these new rates were annualized,[30] the ALJ found that petitioners would have paid more for their electric power purchases during the 1978 calendar year had they paid the retail rather than the wholesale rates. Therefore, he concluded that petitioners failed to establish the third element of a prima facie case under the Commission’s guidelines.[31]
Page 197
rate minus expenses associated with the costs of distribution.[37] This argument is a confusing variation[38] on petitioners’ main argument: a frontal assault on FERC’s price squeeze guidelines[39] as insufficiently sensitive to price squeeze possibilities. Petitioners point out that if retail and wholesale rates are equal (thus preventing wholesale customers from making a prima facie case under the Commission’s guidelines), the wholesale customers will be unable to compete with the public utility for retail customers because they will inevitably incur some distribution costs, which will require them either to lose money or to increase their retail rate above that of the public utility — the classic price squeeze situation.[40] Therefore petitioners advocate utilization of the transfer-price test adhered to in many antitrust cases: “[i]f a vertically integrated entity cannot purchase at its own wholesale rates and still realize a profit by selling at its own retail rates, then it can be concluded that the supplier has overcharged its wholesale customers.”[41] The petitioners in another utility rate case before the Commission described the operation of this test in the electric utility context:
[38] Petitioners attempted to show that under this test a price squeeze exists here by working the transfer price analysis forwards and backwards. First, petitioners subtracted costs they claim are associated only with the distribution function from the revenues that would have been collected from them had petitioners been charged for their electricity purchases under the retail rates 9 and 9-B. The difference, according to petitioners’ calculations, is less than the amounts actually collected from them under the wholesale rates.[43] Petitioners claim this shows that CIPSCO charges its wholesaleThey argue that a utility performs three analytically distinct functions: generation, transmission and distribution. Generation and transmission are company-wide costs and do not vary with the type of customers taking the power. Distribution, on the other hand, is largely a retail cost since the municipals provide their own distribution. Thus, the cities argue that we should compare the wholesale rate for transmission and generation with the average retail rate for serving all customer classes with transmission and generation. Any disparity would be implicitly unjustified since these costs should be uniform company-wide. Consequently, the difference would show the amount of the price squeeze.[42]
Page 198
customers more for generation and transmission services than it does its retail customers. Secondly, petitioners applied the transfer-price test directly to show that CIPSCO could not make a profit if it owned the municipal operations, bought power from itself at its wholesale rates, distributed it through the municipal operations, and charged its customers at its prevailing retail rates.[44]
[39] The ALJ rejected the Cities’ first attempt at proving that they were being charged more than retailers for generation and transmission services not by rejecting individually the proposed adjustments[45] but by relying on a study prepared by the Staff purporting to show the Company’s comparative rate of return between its wholesale and 9 and 9-B retail customers. According to this study, the Company’s profit margin was higher for its retail service.[46] Accepting as accurate the study’s assignment of costs,[47] the ALJ concluded that the study rebutted petitioners’ argument that the Company’s rate differential was not justified by a difference in costs. He then went on to disparage, rather than refute, the remainder of petitioners’ analysis, calling the transfer price test a[40] He concluded with the parting shot:concept . . . so new that one doubts if it will ever become old for it would place in the hands of the party alleging discrimination the ability to create the discriminatory premises either willfully or simply through an inefficient municipal operation.[48]
[41] The price transfer test, as set forth in Alcoa, is a legitimate means of indicating a price squeeze. FERC itself has accepted that test.[50] The ALJ here, however, appears to have misunderstood the test. He concluded that “it would place in the hands of the party alleging discrimination the ability to create the discriminatory premises either willfully or simply through an inefficient municipal operation, J.A. 416, thus misinterpreting the test as requiring an inquiry into whether a vertically integratedit is not the policy of Conway to guarantee that all costs incurred in operating a municipal system (efficiently or otherwise) should be “subsidized by its investor-owned supplier.”[49]
Page 199
company could realize a profit by purchasing at its own wholesale rates and selling at the retail rates of the party alleging discrimination rather than at its own retail rates. Properly understood, the transfer price test is, in fact, quite similar to the method of analysis employed by the Staff study in this case and relied upon by the ALJ to show the absence of any price discrimination.[51] Both depend upon a proper allocation of wholesale and retail costs, and both seek to test whether there is price discrimination[52] between wholesale and retail customers.[53] Thus, to use the transfer price test to attack the findings of the Staff study seems to us to be not materially different than a direct attack upon the accuracy of the Staff study. Since we have already rejected Cities’ direct attack upon the Staff study,[54] and have acknowledged the agency’s discretion to utilize its choice of methodology,[55] this indirect attack upon the Staff study must also be rejected. Furthermore, in this case, Cities itself has misapplied the transfer price test by assuming, without adequate proof, that CIPSCO’s retail costs would be the same as the retail costs of its wholesale customers, J.A. 139, an assumption which may explain the ALJ’s misunderstanding of the test he was being asked to apply.[56]
Page 200
[42] At any rate, having failed to make out a price squeeze case, Cities is not aided by FPC v. Conway, supra. The Supreme Court in Conway held that although the Commission lacked jurisdiction to fix retail rates, its jurisdiction to set wholesale rates allowed it to take retail rates into consideration where wholesale customers were price squeezed by dint either of the utility company’s desire to drive out retail competitors or of the interplay between federally and locally regulated rates.[43] The Supreme Court upheld a decision of this court, perThe Commission must arrive at a rate level deemed by it to be just and reasonable, but in doing so it must consider the tendered allegations that the proposed rates are discriminatory and anticompetitive.[57]
Leventhal, J., and observed that this court was “quite correct” in concluding:
[44] We read that language as permitting the Commission to adjust wholesale rates within a range of reasonableness to respond either to utility efforts to depress retail rates to meet competition, or to situations where the imperfections of regulation result in an unintended price squeeze. Since ratemaking is an inexact science, even bona fide allocations of costs between wholesale and retail operations may be imperfect or rates of return set by different regulators at the wholesale and retail levels may make it impossible for purchasing wholesalers, no matter how efficient, to compete at the retail level. In such cases, Conway acknowledges the Commission’s discretion to press wholesale rates to the lower end of the zone of reasonableness. The Conway doctrine is not, however, we emphasize, designed to subsidize particular retail competitors. Rather, the doctrine allows the Commission some leeway where it finds that the process of price setting by regulation, and not the superior efficiency of the utility, might result in retail competitors being driven from the market. [45] Here, the requisite proof that a price squeeze existed was not forthcoming and indeed was refuted by the Staff study. When costs were fully allocated between wholesale and retail operations, CIPSCO’s wholesale profit margin was sufficiently lower than its retail profit margin so that there was no occasion for the Commission to exercise its Conway discretion. [46] B. Normalization of Generating CapacityWhen the costs are fully allocated, both the retail rate and the proposed wholesale rate may fall within a zone of reasonableness, yet create a price squeeze between themselves. There would, at the very least, be latitude in the FPC to put wholesale rates in the lower range of the zone of reasonableness, without concern that overall results would be impaired, in view of the utility’s own decision to depress certain retail revenues in order to curb the retail competition of its wholesale customers.[58]
[47] In 1977, CIPSCO opened a new generating plant resulting in a sudden increase in the system’s generating reserves.[59]
Petitioners contend the Commission erred in failing to “normalize” this increase in generating capacity — that is, to exclude from
Page 201
the rate base all costs associated with reserve capacity in excess of 15 percent — despite the fact that they did not allege[60] and made no attempt to prove[61] that any portion of these costs were occasioned by managerial imprudence. We affirm the Commission’s refusal to normalize these costs.
[48] While we recognize that rate treatment of excess generating capacity in the electric utility industry is controversial in this era of slow demand growth, we are also aware that it is notoriously difficult to project accurately the demand for electric power far enough in advance to coordinate need with the construction of new generating facilities,[62] CIPSCO has argued that practical reasons often exist for constructing facilities with a capacity in excess of the recommended norm.[63] The ALJ relied here upon the absence of any sort of managerial imprudence to support the inclusion of the total plant in the rate base.[64] Regardless of whether that test is — or should be — the exclusive one in deciding whether a utility’s ratepayers must always bear the total costs of excess capacity by having such costs included in the rate base in the year the plant comes on line, we do not find the Commission’s action on the basis of the record in this case to be arbitrary or capricious.[65] [49] C. Refusal to Investigate[50] The ALJ found that CIPSCO’s operating and maintenance costs exceeded the industry norm, and recommended that FERC investigate the causes of this phenomenon.[66] FERC reversed this recommendation, deciding not to institute an investigation because “[t]he asserted need for the investigation requested by Cities has not been adequately established.”[67] Cities contends FERC “approach
Page 202
[is] . . . substantially in error” as “F.E.R.C. should have routine reporting and evaluating functions to monitor such companies as CIPSCO . . . . [because the Cities] should not have to launch such an expensive inquiry, which is clearly beyond their resources . . .”[68] Cities then asks this court to order the Commission to undertake such an investigation.[69] [51] Petitioners’ argument is misdirected to this court. It is now settled law that, barring extreme circumstances, an agency’s refusal to institute an investigation is unreviewable.[70] [52] Affirmed.J.A. 79 (cross-examination of Bruce Barnes, Jr., Cities’ witness); J.A. 105-06 (cross-examination of Carl Wall). We view this factual dissimilarity as a distinction without a (legal) difference. Petitioners have still failed to demonstrate more than that a rate differential stemming “from the fact that a public utility is free to file for unilateral rate increases with respect to some of its customers while the rate it charges to the remainder are frozen under the Mobile-Sierra doctrine” exists; as we have made clear in previous cases, more is necessary to establish a violation of section 205(b) of the Federal Power Act See Boroughs of Chambersburg v. FERC, 580 F.2d 573, 578
(D.C. Cir. 1978).
The Cities agreed at oral argument that their tax normalization and demand allocation arguments were identical in all essential respects to those made in Rantoul. Our review of the record reveals that petitioners in this action, like the petitioner i Rantoul, lack a substantial evidentiary basis for contending that the demand allocation method used failed to credit petitioners’ for their generating capacity. We likewise find without merit their argument that the Commission could not order rates collected subject to refund pending the outcome of a highly disputed rulemaking proceeding. The Commission clearly has the discretion to adopt interim procedures which, if found inappropriate for any reason, will be remedied on a retroactive basis.
In Alcoa, the court found that the company was engaged in two distinct activities: The production of “ingot” and the manufacturing of “sheet.” Alcoa had a monopoly over the production of ingot which is used to manufacture sheet, but had competitors for its manufacturing function. In applying the transfer price analysis the court assumed that the cost of manufacturing the sheet was the same for Alcoa and its competitors and found that since the competitor’s total costs were greater than Alcoa’s, Alcoa was charging more than a fair price of the ingot.
Opinion No. 62, Southern California Edison Co. Opinion and Order on Rate Increases, FERC Docket No. ER76-205, Aug. 22, 1979 at 30, J.A. 624.
No public utility shall, with respect to any transmission or sale subject to the jurisdiction of the Commission, (1) make or grant any undue preference or advantage to any person or subject any person to any undue prejudice or disadvantage, or (2) maintain any unreasonable difference in rates, charges, service, facilities, or in any other respect, either as between localities or as between classes of service.
(D.C. Cir. 1977), this court considered and remanded to the Commission for reconsideration a price squeeze complaint arising from a ten-month period in which wholesale prices exceeded comparable retail rates. Obviously, the longer an objectionable price differential exists, the more likely it is that anticompetitive effects will result and the more unwilling we will be to gloss over the fact that such a differential existed by relying on “annualized” rate tables.
Exhibit 1B, J.A. 168; Initial Decision at 67, J.A. 413; Reply by Intervenor CIPSCO to “Response by Illinois Cities to Question Posed by Court at Oral Argument” at 2-4 (citing transcript of testimony of Bruce Barnes, Jr.).
J.A. 74 (prepared testimony of James Bachman) (distribution factors deducted by Cities’ witness duplicate “without justification” voltage discounts calculated into rates 9 and 9-B); J.A. 59 (prepared testimony of Carl Wall) (transmission loss credit developed by Cities’ witness inaccurate).
at 68, J.A. 414; in the absence of such evidence, we will not hold that the utilization of a two year old study for these purposes is per se unreasonable. Two years is not so long a time that substantial changes can be presumed to have taken place. Finally, petitioners allege that neither the ALJ nor the Staff examined the methodology of the study. This assertion is belied by the record. See Initial Decision at 68, J.A. 414; J.A. 13 (testimony of David Hedberg); J.A. 129-131 (cross-examination of James Bachman); Exhibit 9, J.A. 200-201 (Display A) (letter to Carl Wall from Arthur Anderson Co. re cost of service study). In view of the total lack of evidence that extrapolation from this study would lead to distorted results, we accept the Commission’s decision to utilize it as a reasonable exercise of its discretion.
J.A. at 625. Although the results of a cost of service study are phrased in terms of a profit differential, see Memorandum By The Cities of Bethany, Et Al. In Response To The “Memorandum Amicus Curiae” Filed By The Antitrust Division of the Department of Justice at 4, like the price squeeze test, the cost of service study also seeks to determine whether the vertically integrated company maintains artificially high wholesale prices in order to squeeze out its retail competition. If, after costs are fully allocated, it appears that the wholesale rate of return of a vertically integrated company is reasonable and, in fact, lower than retail rate of return, it would appear that wholesale customers are not being price squeezed — indeed, the higher the retail rate of return vis-a-vis the wholesale rate of return, the greater the wholesale customer’s discount.
The plaintiff’s theory is that “Alcoa” consistently sold ingot at so high a price that the “sheet rollers,” who were forced to buy from it, could not pay the expenses of “rolling” the “sheet” and making a living profit out of the price at which “Alcoa” itself sold “sheet.” To establish this the plaintiff asks us to take “Alcoa’s” costs of “rolling” as a fair measure of its competitors’ costs, and to assume that they had to meet “Alcoa’s” price for all grades of “sheet,” and could not buy ingot elsewhere.
We note that Alcoa’s own costs of rolling were used as a fair measure of its competitor’s costs. Here, competitor’s costs were offered as a fair measure of CIPSCO’s costs. Although it may be, as Cities asserts, that its retail costs were lower than CIPSCO’s, there was inadequate evidence in the record to prove that assumption. Petitioners draw our attention to J.A. 136-39. Although the evidence there correctly indicated that if CIPSCO owned each of the Cities’ distribution systems it would pay higher taxes, J.A. 136-38, the hypothetical itself merel assumed that CIPSCO would incur the same costs that Cities incurred.
at 29, J.A. 375.