Indiana & Michigan Electric Company v. Federal Power Commission, Richmond Power and Light of the City of Richmond, Indiana,intervenors

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 li 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 *344I&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.

1. 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) *345of 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.® 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:

The proposed rates and charges . have not been shown to be justified and may be unjust, unreasonable, unduly discriminatory, or preferential, or otherwise unlawful. It has also been alleged that I&M’s proposed tariff changes are contrary to the economic stabilization program and antitrust policies and that interchange of energy should be provided for. It is necessary and appropriate in the public interest and in carrying out the provisions of the Federal Power Act that the Commission enter upon a hearing concerning the lawfulness of the rates, charges, classifications, services, and other provisions contained in I&M’s proposed FPC Electric Tariff, and the use thereof deferred as hereinafter provided.9 10

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

[i]ssue a supplemental order modifying ordering paragraph (C) of its August 11, 1972 Order in this proceeding, so as to provide that I&M’s *346proposed rate schedules are suspended for five months beginning July 14, 1972 and their use deferred until December 14, 1972 . . . . 11

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

[W]hile the court must act within the bounds of the statute and without intruding upon the administrative province, it may adjust its relief to the exigencies of the case in accordance with the equitable principles governing judicial action. The purpose of the judicial review is consonant with that of the administrative proceeding itself, — to secure a just result with a minimum of technical requirements.13

By our excercise of equity powers herein, we are “adjusting] [our] relief to the exigencies of the ease 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;

Congress having by the Packers and Stockyards Act established the public policy of maintaining reasonable rates *347for stockyard services, and having prohibited and declared unlawful any unjust or unreasonable rate, a court of equity should be astute to avoid the use of its process to effectuate the collection of unlawful rates ....18

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 proeedurally 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 *348convinced 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.

. Richmond Powes and Light and Anderson Power and Light filed memoranda in support of the Commission’s petition. The Indiana and Michigan Municipal Distributors Association (IMMDA) and the City of Auburn, Indiana, a member of the IMMDA, submitted separate petitions for rehearing. In addition, the IMMDA filed a suggestion for rehearing en taño. I&M filed a reply memorandum.

. See FPC v. Tennessee Gas Transmission Co., 371 U.S. 145, 152-153, 83 S.Ct. 211, 9 L.Ed.2d 199 (1902); State Corp. Comm’n v. FPC, 215 F.2d 176, 184 (8th Cir. 1954). These cases interpreted section 4 of the Natural Gas Act, 15 U.S.C. § 717c (1970), which is virtually identical to section 205 of the Federal Power Act, 16 U.S.C. § 824d (1970).

. See Ind.Stat.Ann. § 8-1-2-42 [§ 54-317] (Burns [Code Ed.] 1973); Mich.Stat.Ann. § 22.13 (6a), M.C.L.A. § 460.6a, (Callaghan 1974 Supp.). Under Mich.Stat.Ann. § 22.13(6) (1970), M.C.L.A. § 460.6, municipally-owned utilities are not subject to the jurisdiction of the Michigan Public Service Commission. Therefore,, it is not clear on the face of the Michigan statutes whether the municipally-owned, Michigan customers of I&M could increase their rates retroactively.

. The estimated cost to I & M’s municipal customers for the six-month period 14 July 1972 through 12 January 1973 is $2,601,951. Affidavit of Fred R. Saffer, 26 February 1974, attached to IMMDA Suggestion for Rehearing En Banc.

. In an affidavit attached tp the IMMDA Suggestion for Rehearing En Banc, the Chairman of the Board of Public Works of Fort Wayne, Indiana, represented:

That in the event the Court’s opinion remains unmodified with respect to requiring that Indiana & Michigan Electric Company’s June 13, 1972, rate filing should become effective as of July 14, 1972, the sum required to be paid for the period of July 14, 1972, through January 13, 1973, will amount to apirroximately Four Hundred Seventy Thousand Dollars ($470,000.-00), the payment of which will cause considerable hardship to the City of Fort Wayne. The City will be unable to adequately maintain its system as by law required as a direct result of being required to make such x>ayment. The City cannot recover this $470,000 payment since the City’s rates were not increased for this item and cannot be increased retroactively.
That if the Court’s oinnion remains unmodified, the impact on the financial condition of the City of Fort Wayne’s City Light and Power Utility will be extremely detrimental in that said City will have to absorb the increased rates without having the ability to raise its retail rates to provide for these additional past costs.

. 16 U.S.C. § 824d(e) (1970).

. See note 35 and accompanying text of the 14 February 1974 opinion in this case.

. 16 U.S.C. § 824e(a) (1970) (emxdiasis sup-l>lied).

. FPC v. Sierra Pac. Power Co., 350 U.S. 348, 353, 76 S.Ct. 368, 100 L.Ed. 388 (1956); Montana-Dakota Util. Co. v. Northwestern Pub. Serv. Co., 341 U.S. 246, 254, 71 S.Ct. 692, 95 L.Ed. 912 (1951). See also Atlantic Ref. Co. v. Public Serv. Comm’n, 360 U.S. 378, 389, 79 S.Ct. 1246, 3 L.Ed.2d 1312 (1959) (Natural Gas Act § 5, 15 U.S.C. § 717(1 (1970)); FPC v. Hope Natural Gas Co., 320 U.S. 591, 618, 64 S.Ct. 281, 88 L.Ed. 333 (1944) (Natural Gas Act § 5).

. Joint App. at 164.

. Id. at 176. See note 34, main opinion, second paragraph.

. 305 U.S. 364, 59 S.Ct. 301, 83 L.Ed. 221. (1939).

. Id. at 373, 59 S.Ct. at 307.

. 16 U.SC. § 824d (1970). The policy expressed in section 205(a) is to promote just and reasonable rates. See Atlantic Ref. Co. v. Public Serv. Comm’n, 360 U.S. 378, 388, 79 S.Ct. 1246, 3 L.Ed.2d 1312 (1958) (Natural Gas Act). The procedural safeguards provided by section 205 include the Commission’s suspension and refund powers. See text accompanying notes ^6-7 supra.

. 307 U.S. 183, 59 S.Ct. 795, 83 L.Ed. 1211 (1939).

. 7 U.S.C. §§ 181-229 (1970).

. Morgan v. United States, 298 U.S. 468, 56 S.Ct. 906, 80 L.Ed. 1288 (1936); 304 U.S. 1, 58 S.Ct. 773, 82 L.Ed. 1129 (1938).

. 307 U.S. at 194, 59 S.Ct. at 801.

. Id. at 189-190, 59 S.Ct. 795.

. As recognized by this court in Pennsylvania Gas & Water Co. v. FPC, 150 U.S.App.D.C. 151, 4G3 F.2d 1242 (1972) (Natural Gas Act § 4(e), 15 U.S.C. § 717c (e) (1970)).

We may distinguish the instant case from United States v. SCRAP, 412 U.S. 669, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973), and Arrow Transp. Co. v. Southern Ry. Co., 372 U.S. 658, 83 S.Ct. 984, 10 L.Ed.2d 52 (1903), which interpreted the suspension provision of the Interstate Commerce Act, § 15(7), 49 U.S.C. § 15(7) (1970). In Arrow, the Supreme Court held that the District Court had infringed upon the exclusive suspension power of the Interstate Commerce Commission when it enjoined implementation of a filed rate schedule after the statutory seven-month suspension period had expired. The Court endorsed the following statement by the Fifth Circuit, which had reversed the District Court’s decree:

Congress, in its wisdom, has fixed seven months as the maximum period of suspension. It seems clear to us that if the courts extend that period, they are in effect amending the statute and that is a matter beyond their power. 372 U.S. at 662, 83 S.Ct. at 986, quoting 308 F.2d 181, 186 (1962). In SCRAP the District Court enjoined collection of railroad freight surcharges despite the fact that the ICC had denied requests to suspend the surcharges for the statutory seven-month period under section 15(7). The Supreme Court reversed, noting that the District Court’s “injunction constitutes a direct interference with the Commission’s discretionary decision whether or not to suspend the rates.” 412 U.S. at 692, 93 S.Ct. at 2418. In the case at bar, our denial of retroactive increases to I & M for the five-month period from 14 July 1972 through 13 December 1972 does not extend the statutory five-month suspension period as was the case in Arrow. Moreover, our order does not interfere with the Commission’s “discretionary decision whether or not to suspend”; rather, it gives effect to the Commission’s decision that suspension was approj>riate.

. Cf. United States v. Morgan, 307 U.S. 183, 198, 59 S.Ct. 795, 83 L.Ed. 1211 (1939); Middlewest Motor Freight Bureau v. United States, 433 F.2d 212, 231 (8th Cir. 1970), cert. denied, 402 U.S. 999, 91 S.Ct. 2169, 29 L.Ed.2d 165 (1971).

. 202 F.2d 899 (3d Cir.), cert. dismissed, 345 U.S. 988, 73 S.Ct. 1138, 97 L.Ed. 1397 (1953).

. 15 U.S.C. §§ 717c & 717d (1970).

. The rates were filed on 30 April 1952, with a proposed effective date of 1 June 1952. The court issued its main opinion on 9 February 1953.

. 202 F.2d at 904 (emphasis supplied).

. Ibid.

. Notes 2-5 supra and accompanying text.

. Text accompanying note 10 supra. See United States v. Morgan, discussed in text accompanying notes 15-19 supra-, Atlantic Coast Line R.R. Co. v. Florida, 295 U.S. 301, 311-312, 55 S.Ct. 713, 79 L.Ed. 1451 (1935).