I. Introduction and Case Summary In January 2014, a so-called “Polar Vortex” scourged the Eastern United States, causing a significant amount of property damage and several fatalities. While many industries were impacted by the Polar Vortex, electrical utilities were dealt an especially devastating financial blow. The increased demand for electricity to heat homes and businesses during the Polar Vortex caused a corresponding increase in operational costs for many electrical utilities. Due to a federal tariff that caps the amount an electrical utility may charge for its services, many providers and generators, including Old Dominion Electric Cooperative, were temporarily forced to sell electricity at a substantial loss. After the Polar Vortex subsided, Old Dominion requested that the Federal Energy Regulatory Commission (FERC) waive provisions of the governing tariff retroactively so that it could recover some of its losses. The FERC denied the request and Old Dominion appealed. On June 15, 2018, the U.S. Court of Appeals for the District of Columbia held that Old Dominion’s request was properly denied, as the rate cap imposed by the tariff could not be lifted even under extreme circumstances like the Polar Vortex.
II. The Federal Power Act The Federal Power Act empowers the FERC to prospectively fix or change the rates charged by public electrical utilities to ensure that they are just and reasonable. If a utility wants to change its own rates, it must notify the FERC at least sixty days before the change is to take effect. The FERC may waive the sixty-day notice requirement for good cause, but, as the court in Old Dominion Electric Cooperative v. FERC found, it does not have the authority to allow retroactive changes in the rates already charged to consumers. These requirements are collectively known as the “filed rate doctrine.” The Federal Power Act also prohibits the FERC from adjusting current rates to make up for an electrical utility’s over- or under-collection in prior periods. These rules are intended maintain the predictability of rates and prevent discriminatory or extortionate pricing.
III. Key Takeaways Old Dominion Electric Cooperative v. FERC confirmed that under the Federal Power Act, the FERC has lacks the authority to make discretionary exceptions for electrical utilities, even in cases where the electrical utility’s motivation is not to gouge consumers, but simply to recoup lost profits, or at least break even, after natural disaster forces the utility to provide services at a loss. In order to avoid ending up like Old Dominion, an electrical utility may be able to adjust its rates accordingly by notifying the FERC at least sixty days before a disaster is likely to occur. However, from a practical standpoint, it is unlikely that an electrical utility could predict an event like the Polar Vortex so far in advance. Jeremy Fetty is a partner in the law firm of Parr Richey with offices in Indianapolis and Lebanon. Mr. Fetty is current Chair of the Firm Utility and Business Section and often advises businesses and utilities (for profit, non-profit and cooperative) on regulatory, compliance, and transactional matters. The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.