Pursuant to § 202(b) of the Federal Power Act, the Federal Power
Commission (FPC) is empowered to direct one electric utility to
interconnect its electric system with another utility, and it
"may prescribe the terms and conditions of the arrangement to be
made . . . including the apportionment of the cost between them and
the compensation or reimbursement reasonably due to any of
them."
After hearings and staff studies the FPC found that an
interconnection between Gainesville, a small municipally owned
utility, and respondent, a major investor-owned electric utility,
would be in the public interest, would not unduly burden
respondent, and would benefit both parties. The FPC ordered the
interconnection, requiring Gainesville to pay the entire $3 million
cost thereof and to maintain certain generating capacity. In the
light of these circumstances, the FPC imposed no standby charge on
Gainesville. The Court of Appeals denied enforcement of the order,
agreeing with respondent's claim that the omission of an annual
$150,000 payment to it by petitioner for the backup service
provided by the interconnection resulted in a failure to satisfy
the statutory mandate of "reimbursement reasonably due" respondent
because respondent would obtain no benefit from the
interconnection. Section 313(b) of the Act provides that "findings
of the Commission as to the facts, if supported by substantial
evidence, shall be conclusive."
Held: Since there was substantial evidence to support
the FPC's findings that benefits will accrue to respondent from the
interconnection, the Court of Appeals erred in not deferring to the
FPC's expert judgment. Pp.
402 U. S. 521-529.
425 F.2d 1196, reversed and remanded.
BRENNAN, J., delivered the opinion of the Court, in which all
members joined except BLACKMUN, J., who took no part in the
decision of the cases.
Page 402 U. S. 516
MR. JUSTICE BRENNAN delivered the opinion of the Court.
Under the Federal Power Act, an order of the Federal Power
Commission that directs one electric utility "to establish physical
connection of its transmission facilities with the facilities of"
another utility
"may prescribe the term and conditions of the arrangement to be
made . . . including the apportionment of cost between them and the
compensation or reimbursement reasonably due to any of them."
Federal Power Act § 202(b), 49 Stat. 848, 16 U.S.C. § 824a(b).
[
Footnote 1] The Commission
order
Page 402 U. S. 517
which directed respondent Florida Power Corp. to interconnect
its electric system with that of petitioner Gainesville Utilities
Department did not contain a term or condition sought by respondent
requiring petitioner to pay an annual standby charge of
approximately $150,000 for the emergency or backup service provided
by the interconnection, 40 F.P.C. 1227 (1968); 41 F.P.C. 4 (1969).
The Court of Appeals for the Fifth Circuit held that, because of
the omission of such a term or condition,
"the terms of the interconnection do not adequately satisfy the
statutory requirements because they do not provide Florida Power
with the 'reimbursement reasonably due' it. . . . Thus, we deny
enforcement of this order insofar as no provision for the
reasonable compensation of Florida Power is made."
425 F.2d 1196, 1203 (1970) (footnote omitted). We granted the
petition for certiorari of Gainesville Utilities Department in No.
464, and of the Federal Power Commission in No. 469, 400 U.S. 877
(1970). We reverse the judgment of the Court of Appeals insofar as
it denied enforcement of the Commission's order and remand for the
entry of a new judgment enforcing the Commission's order in its
entirety.
I
The demand upon an electric utility for electric power
fluctuates significantly from hour to hour, day to day,
Page 402 U. S. 518
and season to season. For this reason, generating facilities
cannot be maintained on the basis of a constant demand. Rather, the
utility's generating capability must be geared to the utility's
peak load of demand, and also take into account the fact that
generating equipment must occasionally be out of service for
overhaul, or because of breakdowns. In consequence, the utility
builds certain "reserves" of generating capacity in excess of peak
load requirements into its system. [
Footnote 2] The practice of a utility that relies
completely on its own generating resources (an "isolated" system in
industry jargon) is to maintain equipment capable of producing its
peak load requirements plus equipment that produces a "reserve"
capacity equal to the capacity of its largest generating unit.
The major importance of an interconnection is that it
Page 402 U. S. 519
reduces the need for the "isolated" utility to build and
maintain "reserve" generating capacity. [
Footnote 3] An interconnection is simply a transmission
line connecting two utilities. Electric power may move freely
through the line up to the line's capacity. Ordinarily, however,
the energy generated by each system is sufficient to supply the
requirements of the system's customers, and no substantial amount
of power flows through the interconnection. It is only at the times
when one of the connected utilities is unable for some reason to
produce sufficient power to meet its customers' needs that the
deficiency may be supplied by power that automatically flows
through the interconnection
Page 402 U. S. 520
from the other utility. To the extent that the utility may rely
upon the interconnection to supply this deficiency, the utility is
freed of the necessity of constructing and maintaining its own
equipment for the purpose.
The Gainesville Utilities Department is a municipally owned and
operated electric utility serving approximately 17,000 customers in
a 22-square-mile area covering the city of Gainesville and adjacent
portions of Alachua County, Florida. In 1965, Gainesville's
"isolated" system had a total generating capability of 108.4
megawatts (mw) while its peak load was 51.1 mw. Gainesville's
generating capacity in 1965 consisted of five steam electric
generating units ranging from five to 50 mw. Thus, Gainesville's
generating capacity of 108.4 mw gave it a reserve capacity of 57.3
mw over its annual peak load of 51.1 mw -- a reserve adequate to
cover the shutdown of the system's largest generating unit of 50
mw. Gainesville's peak load was projected to be doubled to 102 mw
by 1970. Its 1970 capacity, however, was projected to increase to
only 138.4 mw through the addition in 1968 of two 15-mw gas-turbine
generators. Thus, an interconnection was necessary if Gainesville
was to avoid having to make a still greater investment in
generating equipment.
Florida Power Corporation operates a major electric generation,
transmission, and distribution system serving 370,000 retail
customers in a 20,600-square-mile system serving 32 counties in
central and northwest Florida, including Alachua County. It also
supplies power at wholesale to 12 municipal distribution systems
and 9 REA cooperatives. In 1966, Florida Power had an aggregate
generating capability of 1595 mw and experienced a peak load of
1232 mw. At the time of the hearing before the Commission, Florida
Power was building a 525-mw generating unit to begin service in
December, 1969, and
Page 402 U. S. 521
anticipated a 1970 generating capability of 2114 mw and a 1970
peak load of 1826 mw. Thus, the anticipated excess of capacity over
peak load, 288 mw, is less than the size of its largest generating
unit, 525 mw. However, the deficiency is provided for by
interconnections which Florida Power has with four other Florida
utilities.
See n 3,
supra. All five of these utilities constitute the Florida
Operating Committee, which, though informal in nature, serves as a
medium through which the technical operations of its members are
coordinated. As a result of the sharing of reserves made possible
by the interconnection of the Committee's members, each utility is
able to reduce the reserve generating capacity that would be
required if it were electrically isolated. Specifically, each of
the Florida Operating Committee members maintains generating
capacity equal to 115% of its annual peak load.
For several years prior to 1965, Gainesville sought to negotiate
an "interconnection" with Florida Power and with another member of
the Florida Operating Committee, Florida Power & Light. When
those efforts failed, Gainesville, in 1965, filed an application
with the Commission seeking an order under § 202(b) directing
Florida Power to interconnect with Gainesville. [
Footnote 4]
II
Section 202(b) authorizes the Federal Power Commission to order
a utility to interconnect with another, and to "prescribe the terms
and conditions of the arrangement . . . ," if the Commission "finds
such action
Page 402 U. S. 522
necessary or appropriate in the public interest," and "if the
Commission finds that no undue burden will be placed upon such
public utility thereby." The proviso to the section makes explicit
that the Commission has no authority in ordering an
interconnection
"to compel the enlargement of generating facilities . . . [or]
to compel such public utility to sell or exchange energy when to do
so would impair its ability to render adequate service to its
customers."
16 U.S.C. § 824a(b).
Following extensive hearings, an examiner made findings that the
proposed interconnection would be in the public interest and that
it would not place an undue burden on Florida Power. The Commission
affirmed the findings, and further found that the interconnection
would neither compel Florida Power to enlarge its generating
facilities nor impair its ability to serve its customers. The
Commission ordered the interconnection, but on conditions (1) that
Gainesville pay the entire $3 million cost of the interconnection,
and (2) that Gainesville maintain generating capacity resources at
least equal to 115% of its peak load -- the requirement imposed by
the Florida Operating Committee on all its members. The order also
fixed the rates of compensation to be paid for actual energy
transfers across the interconnection.
Respondent, Florida Power, does not challenge the Commission's
order except in its omission of a term or condition that
Gainesville pay approximately $150,000 annually as "compensation or
reimbursement reasonably due" respondent for the backup service
effected by the interconnection. Respondent contended that this
charge, computed on the basis of Gainesville's largest generator,
was justified because only Gainesville could gain from the
interconnection, since the reserve made available to respondent
from Gainesville was too small to be of any realistic value to
respondent's massive power system.
Page 402 U. S. 523
The Commission rejected the contention. It noted that respondent
had not included a comparable charge in any of the contracts for
interconnection voluntarily negotiated with members of the Florida
Operating Committee. The Commission also emphasized that "the
apportionment of cost" factor had been satisfied by requiring
Gainesville to bear the full cost of making the interconnection.
Primarily, however, the Commission rested its rejection upon two
grounds. First, the Commission stated its view that, in applying
the statutory provision, the appropriate analysis should focus not
upon the respective gains to be realized by the parties from the
interconnection, but upon the sharing of responsibilities by the
interconnected operations:
"[T]hat sharing must be based upon, and follow the proportionate
burdens each system places upon the interconnected system networks,
not the benefits each expects to receive. Benefits received in any
given situation may approximate these responsibilities, or they may
not. In the course of negotiation of voluntary pooling
arrangements, benefits received may, on occasion, serve to offset
burdens imposed in determining the appropriate charge for
particular services rendered or facilities supplied. But where, as
here, the cost of providing such services and facilities and the
appropriate charges therefor have equitably been determined after a
careful analysis and apportionment of the burdens and
responsibilities of each party, there is no basis for any further
consideration of relative benefits. . . ."
40 F.P.C. at 1237. Second, the Commission found that, even if
the interconnection were evaluated on the basis of relative
benefits,
"this record shows that the proposed intertie will afford both
parties opportunities to take advantage of
Page 402 U. S. 524
substantial and important benefits: electrical operating
benefits, and corporate financial savings."
Id. at 1238. In its original opinion and in its opinion
denying rehearing, the Commission specified the benefits that it
found Florida Power would gain from the interconnection, as set out
in the margin. [
Footnote 5] On
the basis of these findings, the Commission concluded that no
standby charge should
Page 402 U. S. 525
be imposed on either party to the interconnection. Thus, under
the terms of the Commission's final order, each party pays only for
the power actually received from the other, and each party is
obligated to deliver power only on an "as available" basis. 40
F.P.C. at 1236 n. 4, 1245.
The Court of Appeals' denial of enforcement of the Commission's
order insofar as no provision was made "for the reasonable
compensation of Florida Power"
Page 402 U. S. 526
rested on the court's conclusion that the Commission's
"proportionate burden" analysis was "largely illusory:"
"The Commission's policy of proportionate utility responsibility
really works only one way. The small system receives high benefits
and, because of its size, no real obligations. The large system,
however, receives no benefit, but does incur real, substantial
responsibilities. Such imaginary equity is not reasonable
compensation."
425 F: 2d at 1203. The validity of this conclusion, however,
depends upon whether the court correctly read the record as showing
that Florida Power "receives no benefit" and that Gainesville
incurs "no real obligations." [
Footnote 6] The Commission's findings are squarely
contrary.
Although the Commission did argue that the benefits to be
derived from the interconnection by each party were irrelevant to
the proper decision of the case, nonetheless, in view of
respondent's strenuous protest, the Commission went on to bring its
expertise and judgment to bear upon the benefits and burdens and
made findings identifying several specific benefits that would
accrue to Florida Power from the interconnection.
See
n 5,
supra. Merely
because the Commission argued that, on its view of the legal
question involved, findings of benefits were unnecessary to its
decision does not render them any the less findings on the question
of benefits. A reviewing court should hardly complain because an
agency provides more analysis than it feels is absolutely
necessary. [
Footnote 7]
Page 402 U. S. 527
Section 313(b) of the Federal Power Act, 16 U.S.C. § 8251(b),
provides that "[t]he finding of the Commission as to the facts, if
supported by substantial evidence, shall be conclusive."
See
Universal Camera Corp. v. NLRB, 340 U.
S. 474 (1951). Among the specific benefits the
Commission found would accrue to Florida Power were increased
reliability of Florida Power's service to customers in the
Gainesville area, the availability of 60 to 100 mw of reserve
capacity during certain periods of the year, and savings from
coordinated planning to achieve use at all times of the most
efficient generating equipment in both systems. The Commission's
findings were aided by specific studies, made by the Commission's
staff, and placed in the record. Insofar as the Court of Appeals'
opinion implies that there was not substantial evidence to support
a finding of some benefits, it is clearly wrong. And insofar as the
court's opinion implies that the responsibilities assumed by
Gainesville in combination with the benefits found to accrue to
Florida Power were insufficient to constitute "compensation . . .
reasonably due," the Court of Appeals overstepped the role of the
judiciary. Congress ordained that that determination should be
made, in the first instance, by the Commission, and on the record
made in this case, the Court of Appeals erred in not deferring to
the Commission's expert judgment.
Florida Power's emphasis on Gainesville's small size occurs only
when discussing Gainesville's ability to provide Florida Power with
energy. But Gainesville's small
Page 402 U. S. 528
size has relevance in terms of the amount of power it may, even
in emergencies, require from Florida Power. What Florida Power
chooses to emphasize is that the availability of a certain amount
of power flowing from it to Gainesville is relatively more valuable
to Gainesville's small system than the availability of the same
amount of power flowing from Gainesville to Florida Power. It is
certainly true that the same service or commodity may be more
valuable to some customers than to others, in terms of the price
they are willing to pay for it. An airplane seat may bring greater
profit to a passenger flying to California to close a
million-dollar business deal than to one flying west for a
vacation; as a consequence, the former might be willing to pay more
for his seat than the latter. But focus on the willingness or
ability of the purchaser to pay for a service is the concern of the
monopolist, not of a governmental agency charged both with assuring
the industry a fair return and with assuring the public reliable
and efficient service, at a reasonable price.
Our guidepost here is the Act's explicit commitment of the
judgment as to what compensation is reasonably due, in this highly
technical field, to the Commission.
Cf. Permian Basin Area Rate
Cases, 390 U. S. 747,
390 U. S. 767
(1968). In the exercise of this judgment, the Commission's order
placed on Gainesville the entire $3 million cost of constructing
the interconnection. Thus, the benefits that the Commission found
that Florida Power will receive from the interconnection will come
without any capital investment on its part. In addition, the
Commission required Gainesville to maintain generating capacity
equal to at least 115% of its annual peak load, and to maintain
operating reserves in accordance with the procedures established by
the Florida Operating Committee. In light of these circumstances,
the Commission concluded on the basis of its "proportionate
burden"
Page 402 U. S. 529
analysis that Gainesville should not pay a standby charge for
the availability of emergency service, which is provided only on an
"as available" basis. It simply required Gainesville to pay for
energy actually received. On this record, we cannot say that the
Commission has failed to discharge either its responsibility to
assure Florida Power of "reasonable compensation" or its
responsibility to the public to assure reliable efficient electric
service.
Since we conclude that substantial evidence supports the
findings of the Commission that benefits will accrue to Florida
Power from the interconnection, we have no occasion to decide
whether the Commission, in ordering the interconnection of two
electric power companies, may properly condition the
interconnection, when one party receives no benefits, upon
compensation terms based on the relative burdens that each places
on the interconnected network. Decision of that question must await
a case which presents it.
Reversed and remanded.
MR. JUSTICE BLACKMUN took no part in the decision of these
cases.
* Together with No. 469,
Federal Power Commmission v.
Florida Power Corp., also on certiorari to the same court.
[
Footnote 1]
Section 202(b) of the Federal Power Act, 49 Stat. 848, 16 U.S.C.
§ 824a(b), provides:
"(b) Whenever the Commission, upon application of any State
commission or of any person engaged in the transmission or sale of
electric energy, and after notice to each State commission and
public utility affected and after opportunity for hearing, find
such action necessary or appropriate in the public interest it may
by order direct a public utility (if the Commission finds that no
undue burden will be placed upon such public utility thereby) to
establish physical connection of its transmission facilities with
the facilities of one or more other persons engaged in the
transmission or sale of electric energy, to sell energy to or
exchange energy with such persons:
Provided, That the
Commission shall have no authority to compel the enlargement of
generating facilities for such purposes, nor to compel such public
utility to sell or exchange energy when to do so would impair its
ability to render adequate service to its customers. The Commission
may prescribe the terms and conditions of the arrangement to be
made between the persons affected by any such order, including the
apportionment of cost between them and the compensation or
reimbursement reasonably due to any of them."
[
Footnote 2]
The industry distinguishes between various types of "reserve"
requirements. Since time is required to start up equipment that is
not operating, a certain amount of equipment must be maintained in
such a state that it can begin generating power immediately. The
industry calls these instantaneous or "spinning" reserves, and they
must be available to meet load variations and breakdowns of
equipment as they occur. A utility must always maintain "spinning"
reserves equal to the size of the largest generator currently in
service producing power, in order to protect against a breakdown of
that unit. As "spinning" reserves are called upon a utility must
start up more equipment in order to maintain "spinning" reserves at
an adequate level. These reserves are called "quick-start" or
"ready" reserves, and must be available on short notice -- usually
10 minutes or less. Both spinning and quick-start reserves are
collectively referred to as "operating" reserves, in contrast to
"installed" reserves. Installed reserves refers to the remaining
generating capacity of a utility, those generators that are not
ready to be operated, or in operation. Accordingly, the expense
associated with "reserve" requirements includes both capital
expense -- building the necessary "installed" reserve generating
capacity -- and operating expense -- running the necessary
"spinning" reserves and maintaining the readiness of "quick-start"
reserves. In general, this opinion will not differentiate between
the different reserve requirements.
[
Footnote 3]
The reason that interconnections lower reserve requirements is
well illustrated by a hypothetical discussed in the Commission's
brief, at 15-16.
"Assume that four electric systems operate in isolation, and
that each has an annual peak load of 500 mw served by several
generating units, the largest of which is 200 mw. At a minimum,
each system would have to provide 700 mw of installed generating
capacity (500 mw to cover the annual peak load plus 200 mw of
installed reserves equal to the largest unit). If we assume further
that each system operates its 200 mw unit near capacity throughout
the year, spinning reserves equal to the output of that unit would
constantly be required. If the four systems are to be
interconnected pursuant to the Florida Operating Committee formula,
total generating capacity need not exceed 2300 mw (total annual
peak load -- if all peaks occur during the same period -- plus
operating reserves of 300 mw,
i.e., 1 1/2 times the
largest generating unit). This 2300 mw capacity requirement would
be met by requiring each system to maintain generating capacity
equal to 115 percent of its annual peak load. Each system would
thus have to maintain only 575 mw of generating capacity -- 125 mw
less than would be required if operating in isolation. The
interconnected system as a whole would require the constant
maintenance of 200 mw of spinning reserves and 100 mw of
quick-start reserves; each system's
pro rata share of
operating reserves would amount to only 75 mw. Thus,
interconnection of the four systems would result in substantial
capital savings by reducing installed generating capacity
requirements and substantial operating savings by reducing
operating reserve requirements."
(Footnote omitted.)
[
Footnote 4]
At the same time, Gainesville also filed a complaint with the
Commission charging Florida Power with unlawful discrimination
under §§ 205 and 206 of the Federal Power Act, 16 U.S.C. §§ 824d,
824e, for failure to agree to an interconnection. The Commission
dismissed this complaint as moot when the interconnection was
ordered.
[
Footnote 5]
"For the Company, the interconnection will add an additional
energy source to its network in a geographic area where the Company
has a substantial load (customer demands), but does not have
generating plants of its own. Because of that, the expected benefit
to Florida Power may be very substantial, since the [Gainesville]
governors have a faster rate of response setting than Florida
Power's. Also of great importance to Florida Power is the improved
system reliability which the Company will gain through the proposed
intertie. That is shown in studies submitted by staff from
engineering analyses of loss of load probabilities. They establish
that the interconnection will have the effect of improving the
reliability of Florida Power's system."
40 F.P.C. at 1238.
"[T]hroughout its application [for rehearing], the Corporation
emphasizes the contention that Gainesville will not be able to
render any service of significant value to Florida Power. Upon
consideration of this argument, we find that Florida Power has
greatly underestimated Gainesville's capacity to be of service to
the Corporation. Because of its electrical isolation, Gainesville
has maintained a very large reserve capacity in relationship to its
peak load. In 1965, its peak load was 51.1 mw, and its reserve
capacity was 57.3 mw or 112.1 percent of peak demand. Although the
purpose of this interconnection proceeding is to enable Gainesville
to lessen its need for self-reliance, Gainesville's reserve
capacity will continue to be large even after interconnection. The
staff's witness has testified that, during the ten-year period
1970-1979, Gainesville's average minimum reserves at the time of
Florida Power's annual peak hour demand will be 43 percent.
According to staff's computations, Gainesville will be able to
deliver, if there will be sufficient interconnection transmission
facilities, anywhere from 60 mw to 100 mw to Florida Power during
certain periods in January, April, and September 1970. This
prediction that Gainesville will be able to furnish capacity of
this magnitude to Florida Power plainly refutes Florida Power's
assertion that the interconnection will prove to be a one-way
street, with all the benefits flowing from the Corporation to the
City. The Commission is satisfied that the interconnection will
permit a reciprocal exchange of benefits to the mutual advantage of
both systems."
"
* * * *"
"Staff's studies of Gainesville's future reserve capacity also
serve to refute Florida Power's allegation that there is 'no
scintilla of evidence' to support the Commission's finding that
Gainesville will become an additional interchange power source on
Florida Power's network after the interconnection is consummated.
Similarly, staff's studies rebut the Corporation's assertions
regarding the insignificance of Gainesville's anticipated capacity
contributions."
41 F.P.C. at 5-6 (opinion denying rehearing).
"Florida Power asserts that the Commission erred in finding that
the interconnection will add an additional energy source in an area
where Florida [Power] has no generating plant. The Corporation
states that it now has three energy sources to supply its load in
the Gainesville area, and that it does not need a fourth. Florida
Power's Form 12 for 1965 shows that the Corporation's Suwanee Plant
is the closest generating source to its Gainesville load center.
This plant is more than 75 transmission line miles away from this
load center. The next closest plant is the Inglis Station, which is
more than 80 transmission line miles away. Florida Power's three
energy sources are connected to the Gainesville load area by 69 kv
transmission lines. According to staff, two of these lines serve
other loads and could be vulnerable to outages. We agree with
staff's position that the connection with Gainesville's generating
resource would upgrade service reliability to the Corporation's
customers in the Gainesville area."
41 F.P.C. at 7.
[
Footnote 6]
Respondent Florida Power concedes that the Commission's
"proportionate burden" analysis is appropriate when the
interconnected systems are approximately equal in size and when the
interconnection does benefit both parties to an interconnection.
Brief for Florida Power Corp. 21.
[
Footnote 7]
We, therefore, reject the Court of Appeals' conclusion that,
because they were stated in the alternative, these were "not
factfindings protected by the umbrella of the substantial evidence
test." 425 F.2d at 1203 n. 20. This is not a case where the
Commission did not follow a procedure that it might have followed,
see SEC v. Chenery Corp., 318 U. S.
80 (1943), or failed to make findings or evaluate
considerations relevant to its determination,
see Schaffer
Transportation Co. v. United States, 355 U. S.
83 (1957).