Summary: In response to a congressional request, GAO reviewed the subject of the electric utilities' practice of "pancaking" rate increases. Pancaking is the stacking of one unadjudicated rate increase on top of another before the Federal Energy Regulatory Commission (FERC) has approved them.
Utilities generally file rate increase requests annually, while FERC can take 2 to 4 years to resolve these rate increase cases. Both the Federal Power Act and FERC regulations allow electric utilities to file successive applications for rate increases and put them into effect without awaiting FERC approval on previously filed applications. However, if any portion of the rate increase is later found to be unjustified, FERC orders the utility to refund any unjustified charges plus interest to its customers. This practice adversely affects wholesale customers because it is expensive, administratively burdensome, and can affect the firms' ability to compete with investor-owned utilities for retail customers. Retail customers could be paying unapproved rate increases without the assurance of receiving the refunded overcharges from the wholesalers. GAO found that FERC has implemented two policy changes and has issued two notices of proposed rulemaking to reduce refunds and shorten the processing time for rate increase cases. However, the problem will exist as long as FERC case processing times exceed 1 year and, during fiscal year 1982, the FERC average case processing time for electric rate cases was 27 months.
