On June 1, 2020, FERC issued an order on remand from the United States Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) directing the Bonneville Power Administration (“Bonneville”) to return to Chehalis Power Generating, L.P. (“Chehalis”) refunded payments for reactive power supplied to Bonneville from August 1, 2005 through September 30, 2005. While FERC declined to require Bonneville to return the entire refund amount requested by Chehalis, it did provide interest calculated according to FERC’s interest regulation.
This long-running dispute centers on the characterization of Chehalis’s 2005 rate schedule (where it began charging Bonneville for reactive service that it had been previously providing for free) as either an “initial” or “changed” rate, subject to FERC’s suspension and refund authority under Federal Power Act (“FPA”) Section 205(e). In July 2005, FERC found that Chehalis’s proposed rate schedule was a “changed” rate, and made it effective August 1, 2005, subject to refund pursuant to FPA Section 205. FERC later determined in 2008 that the 2005 rate was excessive and ordered Chehalis to refund Bonneville a portion of the revenues collected from August 1, 2005 to when a new Chehalis reactive power rate schedule took effect in 2006. The classification of the 2005 rate schedule as an “initial” or “changed” rate, and the resulting suspension and refund authority available to FERC, was appealed to the D.C. Circuit, but pulled back by a voluntary remand from FERC.
In subsequent orders following the voluntary remand, FERC determined that its precedent distinguishing “initial” and “changed” rates was not clear and should be applied prospectively, and that, therefore, Chehalis should not have been required to issue refunds to Bonneville. FERC further noted, however, that while it “would be appropriate” for Chehalis to recover amounts that FERC had previously directed Chehalis to refund to Bonneville, FERC could not order Bonneville to return the refunds to Chehalis because Bonneville was an exempt public utility under FPA section 201(f) of the FPA. The D.C. Circuit disagreed, finding FERC’s broad remedial authority under section 309 included the authority to order recoupment where FERC otherwise had authority over the disputed funds. The D.C. Circuit remanded the case back to FERC to “balance the equities” to determine how much of the refund Chehalis should be permitted to recoup, considering that the rate originally charged to Bonneville was 250% over the rate ultimately found to be just and reasonable (see May 30, 2017 edition of the WER).
In 2017, FERC established a briefing schedule to further develop the record regarding an appropriate recoupment amount. In its briefing, Chehalis revived arguments that its 2005 filing was an “initial” rate, and thus, full recoupment was equitable because the suspension and refund authority exercised by FERC is available only for “changed” rates, per FPA Section 205(e). Bonneville countered that allowing Chehalis to recoup the full 2005 rate would amount to unjust enrichment, since FERC later determined that the 2005 rate was unjust and unreasonable. Alternatively, Bonneville argued FERC should weigh the equities as if the Commission had set the rate for hearing under FPA Section 206, which would be consistent with FERC’s later determination that the rate was unjust and unreasonable.
In its June 1 order, upon balancing the equities in this “atypical” case, and based on D.C. Circuit guidance, FERC found it equitable for Chehalis to partially recoup refunds from Bonneville, including interest, as if FERC had treated its initial filing as an initial rate and subjected the rate to investigation under FPA section 206. FERC explained its aim was to return the parties to the positions they would have been in but for FERC’s error in treating the rate as a “changed” rate. FERC determined that would mean treating Chehalis’s filing as an “initial” rate that would have been accepted for filing and set for hearing under FPA section 206, rather than making it effective subject to refund under FPA section 205, as FERC did back in 2005. This would allow Chehalis to recoup refunds for the rate charged during the 60-day notice period formerly allowed under section 206 (before the passage of EPAct 2005, which eliminated this notice period), while permitting Bonneville to retain the refunds it received thereafter.
FERC reasoned that it would likely have initiated an FPA section 206 proceeding because its initial order found the rate may be unjust and unreasonable, which is the same determination typically made when setting a case for hearing. FERC also concluded that it would have been able to satisfy the burden under section 206 given that the rate was ultimately found to be excessive. Again noting its desire to put the parties in the positions they would have been absent its error, FERC found it appropriate to allow interest according to its interest regulation from the date Bonneville first received the refund from Chehalis to the date of the recoupment.
A copy of the order is available here.