Full opinion text
Opinion for the Court filed by Circuit Judge BORK. BORK, Circuit Judge. The petitioners in these consolidated eases are wholesale customers of electric utilities whose wholesale rates are regulated by the Federal Energy Regulatory Commission. After notice and comment rule-making, FERC ruled that electric utilities may generally include in their rate bases amounts equal to 50% of their investments in construction work in progress (“CWIP”). We affirm in part, and vacate and remand in part. I. A. A regulated utility is, of course, entitled to recover the cost of financing the construction of facilities used to produce and transmit electric power. The “cost” includes interest on debt and a reasonable return on capital investment. What is controversial is the timing of this cost recovery. Under one frequently used method, the utility’s rate base does not reflect investment in new facilities until they commence commercial operation. During construction, the investment and accrued carrying charges are carried in an account called “Allowance for Funds Used During Construction” (“AFUDC”). The carrying charges on debt are recorded as an offset to interest expenses, and the carrying charges on equity are recorded as current income — but in fact ratepayers are not making cash payments to the utility. When the plant begins service, the entire value of the investment, including deferred financing charges, is added to the utility’s rate base. Once added to rate base, both the investment and the accrued carrying charges earn a reasonable rate of return and are depreciated over the life of the facility. Under the CWIP method, by contrast, capital investment is added to the utility’s rate base when made. Ratepayers pay a return on that investment while the facility is under construction. Thus, under the CWIP method the carrying charges are not accrued and so are not added to rate base when the facility goes into service. Only the investment itself — for which ratepayers do not begin paying until service commences — is added to rate base at that time. Thereafter a return is paid on the investment and it is depreciated over the life of the facility, just as under the AFUDC method. Until 1976, the Commission authorized use of the AFUDC method only. In Order No. 555, 56 F.P.C. 2939 (1976), the Commission created three exceptions to the rule against CWIP in rate base. The first two exceptions allowed use of the CWIP method for “socially beneficial” investment in (1) pollution control facilities and (2) conversion of plants fueled by oil and natural gas to coal. Id. at 2943-46. The third exception allowed a utility to include CWIP in rate base if the utility made a clear and convincing showing that it was experiencing severe financial problems. Id. at 2946. At the time of the rulemaking in this case, FERC had never issued an order allowing CWIP in rate base on the basis of financial distress. Order No. 298, 48 Fed.Reg! 24,-323, 24,338 (1983) (to be codified at 18 C.F.R. § 35.26), Joint Appendix (“J.A.”) at 1298. We upheld the rule allowing these exceptional uses of CWIP in rate base without opinion in Oglethorpe Electric Membership Corp. v. FERC, 574 F.2d 637 (D.C.Cir.1978). In July, 1981, FERC issued a Notice of Proposed Rulemaking “to amend its regulations concerning construction work in progress.” 46 Fed.Reg. 39,445 (1981) (proposed July 27, 1981), J.A. at 1. The Commission published a proposed rule in the notice, but it also discussed and sought comments on “alternative changes to our existing rule relating to CWIP.” Id., J.A. at 1. The proposed rule left intact the pollution control and fuel conversion exceptions for CWIP, and focused solely on revisions to the financial difficulty exception. The proposed revisions would have set out more detailed criteria for evaluating whether a utility was financially distressed and for determining the amount of CWIP that a distressed utility could include in rate base. Id., J.A. at 2. The Commission emphasized, however, that the rulemaking was not confined to evaluation of the proposed rule: “we intend to explore in this proceeding alternatives of broader scope than financial distress as a basis for allowing CWIP in rate base, as well as alternative formulations based on financial distress.” Id., J.A. at 2. Among the alternatives FERC expressly stated it would consider were (1) maintaining the status quo; (2) allowing a straight percentage of CWIP in rate base regardless of financial condition; (3) allowing CWIP for a particular plant to go into rate base for a specified period prior to the time when the plant commenced operation; (4) allowing CWIP in rate base to the extent permitted by the utility’s predominant state regulatory authority; and (5) requiring wholesale customers to pay contributions in aid of construction in lieu of CWIP. Id. at 39,425, J.A. at 36-37. After receiving numerous comments from interested participants, FERC issued Order No. 298 as a Final Rule. The final rule “adopts a fixed percentage approach that allows any utility to file to include up to 50 percent of all CWIP in rate base in addition to any CWIP related to fuel conversion or pollution control facilities.” 48 Fed.Reg. at 24,349, J.A. at 1350. Order No. 298 is some 151 pages long. For now, we summarize the Commission’s legal, economic, and factual presentation and postpone detailed discussion until we turn to petitioners’ specific challenges. FERC’s new CWIP rule rests on a public interest rationale. FERC recognized that a literal interpretation of the principle that an asset must be “used and useful” before it can be included in rate base, see Smyth v. Ames, 169 U.S. 466, 18 S.Ct. 418, 42 L.Ed. 819 (1898), would foreclose allowing any CWIP in rate base under any circumstances. Acknowledging its general adherence to the “used and useful” principle, FERC noted that there are “widely recognized exceptions and departures from this rule, particularly when there are countervailing public interest considerations.” 48 Fed.Reg. at 24,335, J.A. at 1286. Accordingly, FERC eschewed an inflexible understanding of the “used and useful” principle, believing it could depart to some extent from that concept “when the reliability of future service is in doubt,” id. at 24,336, J.A. at 1287, and emphasizing that a rigid “used and useful” concept “may fail the interests of both the electric utility industry and its ratepayers.” Id., J.A. at 1288. The critical public interest consideration the Commission identified was its “responsibility to further the maintenance of an adequate and efficient electric utility industry”’ 48 Fed.Reg. at 24,332, J.A. at 1267. Hence FERC sought to strike “a reasonable balance between the principle of inter-temporal cost responsibility and the need to create a regulatory setting within which the utility industry can supply the nation’s need for electricity at the lowest reasonable cost.” Id. at 24,329, J.A. at 1254. The Commission concluded that allowing CWIP in rate base would advance this least-cost strategy for the electric utility industry and hence promote the public interest in three ways: —mitigatpng] any bias which may discourage additional capital investment in needed facilities; —enabling] the need for those facilities to be more accurately evaluated by price signals which reflect today some of the costs associated with future facilities; and —mitigatpng] the sudden price increases which tend to result under an AFUDC policy thereby furthering the goal of rate stability. Id. at 24,326, J.A. at 1237-38. The Commission’s three asserted purposes for its new CWIP policy, of course, rest on the Commission’s assessment of the effects of an AFUDC-only rule on the electric utility industry, as well as its prediction of the effects of a 50% CWIP in rate base rule. Specifically, FERC found that an AFUDC policy tends, at least under current conditions, to create a bias against the creation of new capacity and a bias in favor of minimizing capital costs rather than total economic costs. 48 Fed.Reg. at 24,330, J.A. at 1258. An AFUDC policy has that effect because AFUDC earnings are paper earnings, not cash earnings. See id. at 24,339, J.A. at 1303. Consequently, “particularly when the magnitude of CWIP is large in relation to rate base,” “financing difficulties arise because the internal cash flow generated by rate base investments is often insufficient to support the required sales of debt and equity securities” to finance the utility’s construction program. Id. at 24,330, J.A. at 1260. This scenario, in the Commission’s view, is increasingly likely, since by 1980 CWIP “constituted about 40 percent of net plant in service for Class A and B electric utilities,” whereas CWIP averaged only about 20% of net plant in service between 1970 and 1974, and indeed only about 8% of net plant in service during 1950-1969. Id. at 24,329 n. 35, J.A. at 1255 n. 35. Furthermore, FERC found “convincing evidence in the record including a study prepared by the FERC and a study prepared for the Commission by EIA which shows an increase in cash flow from including 50 percent of CWIP which is sufficient to affect most utility financial indicators in a very positive fashion.” Id. at 24,340, J.A. at 1310. Thus, the first ground for the Commission’s contention that its CWIP rule would mitigate the perceived bias against optimal capital investment was that AFUDC led to cash flow problems that a CWIP rule would ameliorate. In addition, FERC determined that its CWIP rule would reduce a second source of bias against capital investment. The Commission found that “[s]ince about 1974, utilities have not realized returns at levels approximating their cost of capital.” 48 Fed.Reg. at 24,326, J.A. at 1241. This necessarily biases investor-owned utilities against capital investment, because “if a company earns less than its cost of capital, any additional investment constitutes a loss for its shareholders; they are poorer if the investment is made than if it is not.” Id. at 24,327, J.A. at 1242. Allowing CWIP in rate base alleviates this source of bias in two ways. First, “[i]nclusion of CWIP in rate base reduces a utility’s investment,” because it allows the utility to avoid investing in the carrying charges on the investment during construction. 48 Fed.Reg. at 24,327, J.A. at 1242. The utility’s remaining investment is still an unattractive one, so long as the utility is earning less than its cost of capital, “[b]ut the loss is smaller than it would be if CWIP were excluded from rate base.” Id., J.A. at 1243. Second, the Commission had before it a number of studies concerning the effects of allowing CWIP in rate base on utilities’ cost of capital. See 48 Fed.Reg. at 2340-41, J.A. at 1310-13. The Commission found methodological problems with all of these cost of capital analyses, but arrived at the “conclusion, which is admittedly no more than a matter of judgment, ... that we believe whatever the size of any effect that the inclusion CWIP in rate base will have on the cost of capital, the rule will generally provide a downward pressure on those costs.” Id. at 24,341, J.A. at 1313. By reducing utilities’ cost of capital, then, the CWIP rule would tend to reduce the shortfall between the utility’s actual earnings and its cost of capital, and thereby weaken the disincentive to engage in capital investment. FERC’s second public interest rationale rests on the Commission’s view that it is in the public interest “to enable the demand of customers for new capacity to be more accurately reflected in the planning forecasts of the utilities.” 48 Fed.Reg. at 24,-337, J.A. at 1294. FERC determined, on the basis of economic analysis and on its assessment of prevailing conditions in the industry, that the AFUDC method “mask[s] from the ultimate consumer the real cost of power during the period when a new plant is being constructed, thereby encouraging demand which serves to distort estimates of future demand and the attendant need for new capacity.” Id. at 24,335, J.A. at 1284. FERC did not predicate its rule on the finding that “enormous new capacity is necessarily required.” Id. at 24,334, J.A. at 1281. Rather, the Commission took the position that the need for new capacity should, to the extent practicable, be tested by the market. Id., J.A. at 1281. Current conditions, FERC concluded, made AFUDC increasingly unsuited to serving that goal. The difficulty with AFUDC arises because that method does not allow current rates to reflect “the difference between the price of electricity at the time demand estimates are made and the price at which electricity must be sold when the planned facility comes on line.” 48 Fed.Reg. at 24,331, J.A. at 1262. Whereas once new facilities could be expected to yield a decline in the price of electricity, “[tjoday the addition of a new facility is more likely to mean higher prices than lower ones.” Id., J.A. at 1262. Consequently, estimates of future demand based on current prices tend to overpredict growth in demand, since, when new facilities commence service and the price of electricity rises, consumers will shift away from consuming electricity to other goods. “Then, when customers have adjusted electricity consumption decisions to the higher prices, it begins to appear — too late — that too much supply has been made available.” Id. at 24,326, J.A. at 1237. Including CWIP in rate base, FERC found, reduces this tendency to overpredict demand by passing on some of the cost impact attributable to a new plant to consumers throughout the entire construction period. 48 Fed.Reg. at 24,331, J.A. at 1263. Hence consumers will face higher prices sooner, and the extent of the resulting reduction in demand will allow the utility to avoid unnecessary capacity. Id., J.A. at 1263. “Thus inclusion of CWIP will generally allow utilities to pursue least total cost strategies to meeting their customers’ electric power demands.” Id., J.A. at 1263. The Commission’s third asserted purpose — rate stability — is closely related to' the second. To some extent, the Commission appears to have viewed rate stability as desirable in itself because rate shocks may have a disruptive impact on consumers. See Order Granting in Part and Denying in Part Application for Rehearing, 48 Fed.Reg. 46,012, 46,019 (1983), J.A. at 1812-13. But, for the most part, the avoidance of the rate shocks that may result under an AFUDC-only rule when a new plant begins service was seen by FERC as a means to achieve a “substantially smoother” “price path” that would facilitate the assessment of need for new capacity. See 48 Fed.Reg. at 24,331, J.A. at 1263. There is no doubt that these three public interest purposes played a decisive role in FERC’s decision. FERC stopped short, however, of concluding that the importance of achieving these objectives would permit it entirely to disregard the used and useful principle. Instead, the Commission argued that its decision was largely though not completely consistent with that principle, understood as a principle of intergenera-tional equity. 48 Fed.Reg. at 24,336-37, J.A. at 1288-93. FERC’s first argument is that present consumers in fact receive “significant benefits” from capital expenditures for plants that have not yet commenced service. Since much of new utility construction is needed to meet the future requirements of current customers, capital investment in new facilities “confer[s] a present benefit on customers, namely, the reasonable assurance of a continuing quality of service. It is reasonable for current ratepayers to pay for this benefit.” 48 Fed.Reg. at 24,-331, J.A. at 1266. Indeed, FERC pointed out that an analogous practice has been accepted as consistent with even a strict interpretation of the used and useful principle: “current ratepayers pay for facilities necessitated by past demand and for the capital costs of unused capacity.” Id. at 24,336, J.A. at 1291. The Commission did not contend that assigning some of the current costs of capital investment to current ratepayers matched cost responsibility with benefit enjoyment as well as an AFUDC-only rule. Rather, its claim was that substantial ratepayer equity would be achieved even under a CWIP rule. See id. at 24,336-37, J.A. at 1292. It is also clear that FERC assigned some weight to the recent financial problems many utilities have experienced. FERC did not conclude that CWIP was necessary as a form of emergency relief for the industry as a whole. See 48 Fed.Reg. at 24,334, J.A. at 1277. FERC did, however, find that “the record in this proceeding clearly shows that the electric utility industry has been in a weak financial position. While general economic conditions may have exacerbated the financial difficulties of some companies, there is ample support that the electric utility industry has experienced particular difficulty in financing construction programs.” Id. at 24,333, J.A. at 1276. While reiterating that its ultimate concern was “the long-term outlook in light of the service demands that are anticipated,” FERC clearly inferred, from the “particular difficulty” utilities have recently had in financing new plants, that “a regulatory remedy to offset the financial drain posed by construction is necessary.” Id. at 24,-334, J.A. at 1277. Having in effect made a preliminary determination that the used and useful principle does not preclude allowing CWIP in rate base, FERC then proceeded to assess the impacts of its CWIP rule — both beneficial and adverse — on consumers, and wholesale customers as well as on investor-owned utilities. FERC balanced, in a very general way, these various effects, and concluded that its public interest rationale tipped the scales decisively in favor of allowing 50% CWIP in rate base. But this implies that had FERC’s assessment of the various effects of its CWIP rule on wholesale customers and consumers been different, the eventual outcome might have varied as well. We therefore summarize FERC’s “impact” findings to set the stage for review of petitioners’ objections that FERC disregarded or slighted the CWIP rule’s adverse effects on them. FERC recognized that inclusion of CWIP in rate base “raise[d] current electric bills and lowers future ones.” 48 Fed.Reg. at 24,327, J.A. at 1243. After receiving the available evidence, FERC concluded that it was possible, though unlikely, that CWIP-based rates would remain higher indefinitely, and reasonably likely that they would remain “minimally higher” over the next twelve years, id. at 24,328, J.A. at 1250-51, before CWIP-based rates fall below AFUDC-based rates around 1990. See id. at 24,345, J.A. at 1335. But, in any event, FERC stated that, in view of the “generally modest rate impact” the rule is expected to generate, the need to ensure adequate and reliable future service would justify proceeding even if rates remained slightly higher for the foreseeable future. Id., J.A. at 1335. FERC’s assertion that rate impact would be moderate rests on two Commission-sponsored studies as well as studies submitted by commenters. FERC found that, after taking into account the CWIP rule’s 6% ceiling on initial rate increases, initial price increases would average 3.57%. 48 Fed. Reg. at 24,344, J.A. at 1333. FERC viewed this conclusion as consistent with studies by commenters predicting (without considering the 6% limitation) increases between 5% and 6%, and discounted a study prepared by wholesale customers, predicting an increase of 8.7% as “not representative of the industry.” Id. at 24,343, J.A. at 1327. In addition to deciding that its public interest goals outweighed the adverse effect of these modest rate increases on wholesale customers, the Commission gave considerable weight, as an equitable consideration, to the asserted fact that investor-owned utilities in most states have an obligation to serve the future needs of all customers within their territory of service. See 48 Fed.Reg. at 24,332 n. 51, J.A. at 1267 n. 51. “Since utilities are affected with the public interest, their obligation to serve drives the need to construct facilities even when such investment may not be economic from the investors’ standpoint.” Id. at 24,340, J.A. at 1312. Beside explaining why utilities would plan and construct new facilities at a time when they are not earning their allowed rate of return, this obligation to provide adequate future capacity, in FERC’s view, made it equitable to require ratepayers to share some of the risks associated with construction of new facilities. Id. at 24,337-38, J.A. at 1297. Having found only a modest rate impact on wholesale customers viewed solely as consumers, FERC went on to consider the impact of the CWIP rule on those customers viewed as competitors of their wholesale suppliers in state-regulated retail markets. The most important potential effect on wholesale customers in their capacity as competitors is “price squeeze.” A price squeeze occurs when “a utility’s price for wholesale service is higher in relation to wholesale costs than is the utility’s price for retail service in relation to retail costs, resulting in actual or potential impairment of the wholesale customer’s ability to compete with the utility for that retail service.” 48 Fed.Reg. at 24,345, J.A. at 1338-39. Wholesale customers argued that a FERC rule allowing CWIP in rate base will necessarily cause a price squeeze in states that do not allow CWIP in rate base, because wholesale rates, which FERC regulates, will rise as a result of CWIP, while retail rates, which the' states regulate, will not rise wherever CWIP is not allowed. Even if CWIP should be allowed in rate base, these commenters urged that utilities should not collect CWIP subject to refund, as with other rate base items, because customers subjected to a price squeeze could be irreparably harmed before litigation leading to an eventual refund ran its course. 48 Fed.Reg. at 24,338, J.A. at 1300-01. FERC rejected the contention that allowing CWIP in rate base would necessarily result in price squeeze in states that employ an AFUDC-only rule in regulating retail rates. It asserted that “[n]o substantive evidence establishing the occurrence or likely occurrence of a price squeeze was submitted in this record.” 48 Fed.Reg. at 24,346, J.A. at 1340. To the contrary, FERC’s own analysis confirmed that allowing 50% of CWIP in rate base “does not generally create price discrimination where it does not otherwise exist.” Id., J.A. at 1340. The same analysis also stated, however, that in some cases 50% CWIP in rate base might bring about price discrimination where none previously existed or increase the magnitude of preexisting price discrimination. Federal Energy Regulatory Commission, Office of Regulatory Analysis, Environmental Assessment Related to FERC Rule Amendment Regarding Inclusion of CWIP in Rate Base at 4-41 (1983), J.A. at 1461. But, it went on to say, the risk that either of those effects “is likely to occur in a given situation cannot be predicated in advance without having detailed information regarding both wholesale and retail rates and costs.” Id. Therefore, FERC determined that price squeeze issues relating to CWIP in rate base should be resolved on a case-by-case basis. But the Commission also warned that it does not believe “that the rule must operate to automatically deny CWIP simply because a price squeeze is found to exist.” 48 Fed. Reg. at 23,436, J.A. at 1340. That belief, in turn, rests on a legal premise: the Commission’s “stated policy not to remedy a price squeeze if it is due solely to state regulatory action or inaction.” Id. at 23,436 n. 97, J.A. at 1340 n. 97. Given that legal premise, it follows that a state’s refusal to allow CWIP in rate base cannot, standing alone, justify denial of CWIP as a remedy for price squeeze. FERC also determined that CWIP should be collected subject to refund, “in order that relief be immediately available to companies with larger construction programs and concomitant capital needs and that cash flow rates achieve more stability over time.” 48 Fed.Reg. at 24,339, J.A. at 1301. Thus, the Commission’s decision on the refund question explicitly rests on its price signal and rate stability rationales for allowing CWIP in rate base. See id., J.A. at 1301-02. FERC was also concerned that, in some instances, the immediate effects of allowing CWIP in rate base would include the very rate shocks it was hoping to reduce through the new rule. 48 Fed.Reg. at 24,-436, J.A. at 1342. To minimize this risk, and to reduce any adverse impact on wholesale customers. FERC’s final rule includes a provision limiting rate increases resulting from addition of CWIP to rate base to 6% per annum for the first two years after the effective date of the rule. Id., J.A. at 1342. B. Petitioners raise both procedural and substantive challenges to Order No. 298. Their procedural claims are: 1. that FERC failed to provide adequate notice and opportunity to comment on the CWIP rule it ultimately adopted; 2. that FERC erroneously determined that it was not required to provide an environmental impact statement (“EIS”) pursuant to section 102(C) of the National Environmental Policy Act (“NEPA”), 42 U.S.C. § 4332(2)(C); 3. that FERC erroneously determined that it need not consider the impact of the new CWIP rule on “small entities” pursuant to the Regulatory Flexibility Act (“RFA”), 5 U.S.C. §§ 601-612 (1982); 4. that FERC improperly relied on studies that were not published until after Order No. 298 was adopted. We address these procedural claims in Part III. Petitioners’ substantive objections to the validity of the new CWIP rule can be summarized as follows: 1. advancing the public interest purposes FERC identified is beyond FERC’s statutory authority; 2. the record does not support FERC’s findings that its CWIP rule will advance those public interest purposes; 3. even if FERC’s asserted goals would be served by its CWIP rule, the rule violates the used and useful principle and is therefore contrary to law; 4. the rule is inconsistent with other recent FERC decisions; 5. FERC erred in concluding that the rule would not cause price squeeze and in adopting the rule despite its anticompetitive effects; and 6. FERC’s errors in connection with anticompetitive effects resulted in numerous other errors, including failure adequately to consider alternative proposals that would have avoided the anticompetitive effects of its CWIP rule. We address the first four of these challenges in Part IV, and the last two in Part V. II. A. At the request of the court, the parties submitted additional briefs addressing the question of whether these claims are ripe for review. The issue of ripeness turns on two criteria — “the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration.” Abbott Laboratories v. Gardner, 387 U.S. 136, 149, 87 S.Ct. 1507, 1515, 18 L.Ed.2d 681 (1967). The fitness requirement is essentially one of finality, see id. at 149-51, 87 S.Ct. at 1515-17, and there is little doubt that it is satisfied in this case. As in Abbott, “[t]he regulation challenged here, promulgated in a formal manner after announcement in the Federal Register and consideration of comments by interested parties, is quite clearly definitive. There is no hint that this regulation is informal, ... or only the ruling of a subordinate official, ... or tentative.” Id. at 151, 87 S.Ct. at 1517 (footnote and citations omitted). The hardship criterion is satisfied when “the impact of the regulations upon the petitioners is sufficiently direct and immediate as to render the issue appropriate for judicial review at this stage.” 387 U.S. at 152, 87 S.Ct. at 1517. We think petitioners’ case meets that requirement as well. FERC informs us that under Order No. 298 “the Commission must accept CWIP rate filings and the petitioners must pay CWIP rates under the rule.” Brief for FERC on Ripeness Issue at 2. Although utilities are not obligated to file for increased CWIP, “rates will be filed — and must be paid— that include 50 percent of CWIP in rate base.” Id. at 5. Indeed, many such rates have already been filed and are being paid by petitioners in this case. See Supplemental Brief of Intervenors-Respondents at 4-5, 6. It seems clear, then, that as to inclusion of CWIP in rate base “the impact of the administrative action could be said to be felt immediately by those subject to it in conducting their day-to-day affairs.” Toilet Goods Ass’n v. Gardner, 387 U.S. 158, 164, 87 S.Ct. 1520, 1524, 18 L.Ed.2d 697 (1967). While petitioners could also challenge this rule in an actual rate proceeding at a later date, we do not think that makes this case unripe. Because of the CWIP rule, petitioners are paying higher rates. This distinguishes this case from our decision in South Carolina Electric & Gas v. ICC, 734 F.2d 1541 (D.C.Cir.1984). The petitioners in South Carolina Electric, as that opinion pointed out, might never have to pay a higher rate. Id. at 1546-47. Moreover, a challenge to a specific rate would not add to the concreteness of the controversy now before us. The size of a rate increase might be relevant to the issue of competitive harm, which we are not deciding, but would not alter our view of the procedural and substantive issues which we do decide. Finally, one of the prudential values underlying the ripeness doctrine is the protection of agencies from judicial interference with their discretion. In South Carolina Electric, the agency retained discretion not to allow the rule to lead to higher rates. Here the Commission states that its rule binds it to accept rates calculated with CWIP in the rate base; its discretion has been exercised and no longer exists. Reflecting this difference, the ICC in South Carolina Electric argued that the case was not ripe while FERC here contends that the case is ripe. We therefore conclude that the CWIP rule is ripe for review. B. The standard of review applicable whenever we review orders of the Commission (whether issued after adjudication or rulemaking) is, under the Federal Power Act, the “substantial evidence” standard. See 16 U.S.C. § 825/ (a) (1982). However, as we recently stated in Association of Data Processing Service Organizations v. Board of Governors, 745 F.2d 677, 686 (D.C.Cir.1984), where we review a rule issued after informal rulemaking under a review provision providing for substantial evidence review of “orders,” it is ordinarily true that the “ ‘substantial evidence’ requirement applicable to our review ... demands a quantum of factual support no different from that demanded by the substantial evidence provision of the APA, which is in turn no different from that demanded by the arbitrary or capricious standard.” Indeed, we noted that our prior decisions construing the “substantial evidence” provisions of the Federal Power Act and the Natural Gas Act stand for the proposition that that provision “did not have the effect of requiring increased factual support beyond that demanded by the normal ‘arbitrary or capricious’ rulemaking standard of review.” Id. at 686 (discussing Public Systems v. FERC, 606 F.2d 973, 980 n. 34 (D.C.Cir.1979), and American Public Gas Association v. FPC, 567 F.2d 1016, 1028-29 (D.C.Cir.1977), cert. denied, 435 U.S. 907, 98 S.Ct. 1456, 55 L.Ed.2d 499 (1978)). Our duty under that standard of review, as we said in Weyerhaeuser Co. v. Costle, 590 F.2d 1011 (D.C.Cir.1978), is to insist upon an explanation of the facts and policy concerns relied upon by the Agency in making its decisions; second, to see' if those facts have some basis in the record; and finally, to decide whether those facts and those legislative considerations by themselves could lead a reasonable person to make the judgment that the Agency has made. Id. at 1027 (citations omitted). In conducting that inquiry, however, “we keep in mind the Supreme Court’s statement that ratemaking studies are not bound to ‘any single formula or combination of formulas’ and that if the Commission’s order ‘produces no arbitrary result’ our inquiry is at an end.” Public Systems v. FERC, 709 F.2d 73, 79 (D.C.Cir.), (quoting FPC v. Natural Gas Pipeline Co., 315 U.S. 575, 586, 62 S.Ct. 736, 743, 86 L.Ed. 1037 (1942)). III. A. Petitioner Mid-Tex asserts that FERC’s Notice of Proposed Rulemaking (“NPR”) failed to give adequate notice that FERC might adopt a rule allowing a utility to include CWIP in rate base on the basis of an efficiency rationale rather than a financial hardship rationale. Thus, Mid-Tex frames its claim in terms of “the need to renotice the new rationale developed in the final rule,” Brief for Mid-Tex at 30 (emphasis in original). We find no merit in this claim. The Commission’s NPR specified a straight percentage CWIP rule as one of a number of alternatives that would be considered and on which comments were solicited. J.A. at 36. Moreover, the NPR stated that these were “alternatives of broader scope than financial distress,” id. at 2, and referred both to a general efficiency rationale and to the effects of CWIP in rate base on cash flow, cost of capital, and rates. Id. at 30. The Commission’s reasoning undoubtedly evolved significantly as a result of the notice and comment rulemaking. As FERC said, “[i]n the ensuing year and a half [since issuance of the NPR] ... we have gained a much better understanding of the effects of AFUDC treatment on utility financing, the investment bias created by inadequate returns and the unnecessary future costs which may be imposed by decisions reflecting that bias.” 48 Fed.Reg. at 24,338, J.A. at 1299. But this does not establish that “the original notice did not adequately frame the subjects for discussion:” Connecticut Light & Power Co. v. NRC, 673 F.2d 525, 533 (D.C.Cir.1982). Petitioners had actual notice that FERC might adopt the alternative it ultimately chose, and FERC’s eventual rationale seems to us to “follow logically,” Connecticut Light & Power, 673 F.2d at 533, from the NPR’s announced concern with capital costs and minimizing the aggregate cost of new construction to consumers. Therefore, renoticing the rule is not warranted. B. Mid-Tex’s NEPA claim is that the Commission erroneously determined in its environmental assessment (“EA”) that it need not prepare an environmental impact statement. Mid-Tex asserts that the Commission’s finding that the CWIP rule would not significantly affect the environment is flawed because the EA itself demonstrates that the rule would cause a widespread increase in coal usage and consequently have a significant — and adverse — environmental impact. In deciding whether an agency’s decision not to prepare an environmental impact statement is arbitrary and capricious, this court ordinarily engages in four related inquiries: . (1) whether the agency took a “hard look” at the problem; (2) whether the agency identified the relevant areas of environmental concern; (3) as to the problems studied and identified, whether the agency made a convincing case that the impact was insignificant; and (4) if there was an impact of true significance, whether the agency convincingly established that changes in the project sufficiently reduced it to a minimum. Sierra Club v. Peterson, 717 F.2d 1409, 1413 (D.C.Cir.1983); see also Kleppe v. Sierra Club, 427 U.S. 390, 410 n. 21, 96 S.Ct. 2718, 2730, n. 21, 49 L.Ed.2d 576 (1976). Because Mid-Tex challenges only the validity of FERC’s determination that the CWIP rule would not result in a significant increase in coal consumption for generation of electricity, we need focus only the third of the above inquiries. We find that FERC’s predictive finding regarding coal usage is adequately supported by substantial evidence in the record. Mid-Tex asserts that “Environmental Assessment Table 4.9 demonstrates the type of widespread coal usage resulting from the final CWIP rule.” Brief for Mid-Tex at 36. Table 4.9, however, contains only generic information — it compares the typical atmospheric emissions from a 1000-MWe generating station of each of the five generating types. While Table 4.9 indicates that coal produces more atmospheric emissions than oil or gas, and that all three fossil fuels produce vastly more emissions per unit of energy than do nuclear or hydroelectric power, Table 4.9 reveals nothing about the effects of the CWIP rule. However, Mid-Tex also asserts that “[t]he Commission is simply wrong in asserting that, by lowering demand for electricity, the new CWIP rule will yield a positive environmental impact.” Brief for Mid-Tex at 36. Since the EA found that the CWIP rule would trigger a shift from oil and gas to coal, nuclear, or hydroelectric power, because the latter have the lowest operating costs, see J.A. at 1445, Mid-Tex concludes that FERC should have prepared an EIS to examine the increase in atmospheric emissions and other adverse environmental effects of the shift to coal. Mid-Tex challenges neither the assumptions nor the findings contained in the EA, and those findings refute its argument. The EA found that the CWIP rule would cause a drop in consumption of electricity that would more than offset the effect of a shift away from oil and gas to coal. As Table 4.7 shows, the EA found that, compared to the nationwide base case, a 50% CWIP rule would reduce the amount of electricity generated by coal by about I. 03% in 1985 and by about .61% in 1990. J. A. at 1445. For 1995 the base case and the 50% CWIP rule would produce virtually identical amounts of coal-generated electricity. See id. In some regions, the EA found that coal usage would increase, while in others it would decrease. But, according to Table 4.8, the largest increase in regional coal usage was a one-half of 1% increase in the Northwest in 1995. We need not decide whether the Commission could completely ignore regional increases in coal usage on the grounds that those increases were offset by regional decreases elsewhere, because we agree with the EA that “[a]llowing for some range of error in the ... models and assumptions, these small impacts may not be reliably distinguished from no (or zero) impacts.” Id. at 1446. Nor, given the pattern of declining overall consumption for each type of fossil fuel predicted under the CWIP rule, do we see any basis for disputing the EA’s conclusion that the rule’s environmental impact would be negligible but predominantly beneficial. See id. at 1452. C. Petitioners Mid-Tex and Public Systems argue that FERC failed to comply with the Regulatory Flexibility Act (“RFA”), 5 U.S.C. §§ 601-612 (1982). The RFA provides that all agencies, as part of the rulemaking process, must conduct a “regulatory flexibility analysis” for any rule that has a “significant economic impact on a substantial number of small entities.” 5 U.S.C. § 605(b). The flexibility analysis must, among other things, discuss how a rule will affect small entities, describe “significant alternatives” that would “minimize any significant economic impact of the rule on small entities,” and explain “why each one of such alternatives was rejected.” Id. § 604(a)(3) (describing the “final regulatory flexibility analysis” to be issued with the final rule); see id. § 603 (describing the “initial regulatory flexibility analysis” to be issued with the proposed rule). Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 537 (D.C.Cir.1983) (“SRTF”). Section 611(b) of the RFA expressly precludes judicial review of agency compliance with these requirements, but goes on to say that “[wjhen an action for judicial review of a rule is instituted, any regulatory flexibility analysis for such rule shall constitute part of the whole record of agency action in connection with the review.” In SRTF, this court, after examining the legislative history of the RFA, concluded that Congress intended to preclude judicial review of regulatory flexibility analyses except as part of judicial review of the underlying rule. 705 F.2d at 537-38. We accordingly held that “a reviewing court should consider the regulatory flexibility analysis as part of its overall judgment whether a rule is reasonable and may, in an appropriate case, strike down a rule because of a defect in the flexibility analysis.” Id. at 539. We emphasized, however, that “a major error in the regulatory flexibility analysis may be, but does not have to be, grounds for overturning a rule.” Id. at 538. Section 605(b) of the RFA provides that an agency is not required to prepare either an initial or a final regulatory flexibility analysis “if the head of the agency certifies that the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” The certifying agency must publish the certification in its NPR and include “a succinct statement explaining the reasons for such certification.” 5 U.S.C. § 605(b) (1982). In its NPR, the Commission certified that its proposed rule would not have a significant economic impact on a substantial number of small entities. J.A. at 42-43. FERC explained that virtually all of the utilities it regulates do not fall within the meaning of the term “small entities” as defined in the RFA. Petitioners do not contest the accuracy of this explanation. Instead, petitioners argue that FERC’s determination that the utilities it regulates are not “small entities” is legally insufficient to satisfy the certification requirement. Petitioners say that an agency must consider whether its proposed rule will have a significant economic impact on wholesale customers as well as regulated utilities. Before the Commission, the Small Business Administration (“SBA”) advocated a similar interpretation of the RFA, arguing that FERC “should have considered the impact of the proposed rule on wholesale and retail customers of the jurisdictional entities subject to rate regulation by the Commission.” 48 Fed.Reg. at 24,-350, J.A. at 1360. Indeed, SBA maintained that FERC should also consider the possible impact on ultimate retail electric consumers, many of which are small businesses, in the event that state regulatory authorities elect to follow FERC’s new CWIP policy. FERC responded that “the RFA does not require the Commission to consider the effect of this rule, a federal rate standard, on non-jurisdictional entities whose rates are not subject to the rule. The Commission, therefore, is not under a statutory obligation to study the impact of the CWIP rule upon wholesale or retail customers of any jurisdictional utility or upon other ultimate retail electric consumers.” Id. at 24,350, J.A. at 1361. FERC adheres to that interpretation in this court. FERC’s case in support of its interpretation of the RFA relies on the language of the statute and its legislative history. FERC points out that the RFA’s Congressional Findings and Declaration of Purpose state in part that (2) laws and regulations designed for application to large scale entities have been applied uniformly to small businesses ...; (3) uniform Federal regulatory and reporting requirements have in numerous instances imposed unnecessary and disproportionately burdensome demands including legal, accounting and consulting costs upon small businesses ...; (4) the failure to recognize differences in the scale and resources of regulated entities has in numerous instances [produced undesirable economic effects]; (6) the practice of treating all regulated business ... as equivalent may lead to inefficient use of regulatory agency resources____ Act of Sept. 19, 1980, Pub.L. No. 96-354, § 2, 94 Stat. 1164 (emphasis added). Having made these findings, Congress declared that the purpose of the RFA was to require agencies to endeavor, “consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses ... subject to regulation.” 94 Stat. 1165 (emphasis added). According to FERC, this evidence demonstrates that Congress intended agencies to limit their consideration of the economic impact of proposed rules to small entities that would be directly regulated by those rules. Some language in the Senate Report supports this interpretation of the RFA. The Report referred to the problem Congress perceived in terms of the tendency of “regulations of general and uniform applicability” to place “disproportionate burden[s] upon small businesses.” S.Rep. No. 878, 96th Cong., 2d Sess. 3, reprinted in 1980 U.S.Code Cong. & Ad.News 2788, 2790. And the Report described the aim of the bill as ensuring that agency rules will be framed taking into account the size and nature of the regulated businesses. Id. at 2. Moreover, the instances of praiseworthy regulatory flexibility cited in the Senate Report confirm that Congress was primarily concerned about the high costs of compliance with regulations by small businesses bound to conform their conduct to those regulations. See id. at 6-7. Congress viewed those costs as relatively more burdensome to small businesses than their larger counterparts, and believed this disproportion . could have anticompetitive effects. In response, petitioners claim that the RFA is intended to apply to all rules that affect small entities, whether the small entities are directly regulated or not. Mid-Tex notes that the RFA refers, without limitation, to “any rule which the agency expects to propose or promulgate which is likely to have a significant economic impact on a substantial number of small entities.” 5 U.S.C. § 602(a)(1) (emphasis added). Since the RFA does not distinguish between the direct “impact” of a regulation on regulated small entities and the indirect “impact” of a regulation on small entities that do business with or are otherwise dependent on the regulated entities, petitioners find no basis in the RFA for the limitation on which FERC relies. In support of their analysis, petitioners refer to a section-by-section analysis of the RFA by Senator Culver — an analysis to which this court gave substantial weight in SRTF, see 705 F.2d at 538 — suggesting that in determining the impact of regulations on small entities agencies should broadly evaluate the direct and indirect effects of the proposed regulation. 126 Cong.Rec. 21,458-59 (1980). Finally, petitioners urge us to give weight to the fact that the SBA argued in favor of the broader reading of the RFA before the Commission, because the SBA is charged with monitoring agency compliance with the RFA. See 5 U.S.C. § 612. We think FERC’s interpretation of the RFA is well founded. The problem Congress stated it discerned was the high cost to small entities of compliance with uniform regulations, and the remedy Congress fashioned — careful consideration of those costs in regulatory flexibility analyses — is accordingly limited to small entities subject to the proposed regulation. We find a clear indication of this limitation in section 603 of the statute, which specifies the contents of initial regulatory flexibility analysis. These initial analyses are to include “a description of and, where feasible, an estimate of the number of small entities to which the proposed rule will apply,” 5 U.S.C. § 603(b)(3) (emphasis added), and “a description of the projected reporting, recordkeeping and other compliance requirements of the proposed rule, including an estimate of the classes of small entities which will be subject to the requirement.” 5 U.S.C. § 603(b)(4) (emphasis added). Since the scope of the final regulatory flexibility analysis is limited to the issues raised by the initial analysis, it is clear that Congress envisioned that the relevant “economic impact” was the impact of compliance with the proposed rule on regulated small entities. Reading section 605 in light of section 603, we conclude that an agency may properly certify that no regulatory flexibility analysis is necessary when it determines that the rule will not have a significant economic impact on a substantial number of small entities that are subject to the requirements of the rule. Petitioners’ arguments do not persuade us that this reading of the Act, which comports with Congress’ declared purposes, is wrong. Indeed, FERC clearly has the better of the dispute over the appropriate inference to be drawn from the legislative history of the RFA. For the legislative history cited by FERC, which shows that the costs of compliance with uniform regulations to small businesses were the focus of congressional concern, also gives rise to an inference that Congress did not intend to require that every agency consider every indirect effect that any regulation might have on small businesses in any stratum of the national economy. That is a very broad and ambitious agenda, and we think that Congress is unlikely to have embarked on such a course without airing the matter. The only statement petitioners point to from the legislative history would not persuade us otherwise even if it were not ambiguous: concern with “the direct and indirect effects of the proposed regulation” may very well mean concern with effects, direct or indirect, on the regulated entities. Accordingly, we hold that FERC correctly determined that it need not prepare a regulatory fieri-bility analysis in connection with its proposed CWIP rule. D- Petitioner Cities asserts that Order No. 298 unlawfully relies on a study prepared by the Energy Information Institute (“EIA”), and that the Commission’s EA also unlawfully relied on the EIA study and on studies prepared by the Argonne National Laboratory and by Southwest Energy Associates. The gravamen of Cities’ claim is that none of these three studies is part of the record or was made available for comment. Hence, Cities says that this case falls within the condemnation of our statement in Connecticut Light & Power, 673 F.2d at 530-31, that “[a]n agency commits serious procedural error when it fails to reveal portions of the technical basis for a proposed rule in time to allow for meaningful commentary. FERC’s brief does not respond to Cities’ argument. However, FERC did address this alleged defect in its order on rehearing. It stated that “[a]ny non-record studies that the Commission considered in reaching its decision complemented and supported the findings of the on-the-record studies and the Commission’s policy analysis contained in the final rule.” 48 Fed. Reg. at 46,017, J.A. at 1801. Specifically, FERC said, it relied on the EIA study only as support for the finding of its own study that the disparity between CWIP-based and AFUDC-based rates would be “greatest in the early years and diminish over time.” Id., J.A. at 1802. Hence, “[w]ith regard to the initial rate impacts, primary reliance is placed by the Commission on the FERC study which was issued for public comment and which forms part of the rulemaking record. There is thus an adequate basis for the rule without the EIA study.” Id., J.A. at 1802. We think there is n0 need for us to determine the extent of FERC’s reliance on the EIA study! beCause we think FERC was entitled to rely on that gtudy. Citieg conveniently neglects to mention that the EA expressly noted that “the following documents are available in the office of Public Information (Room 1000, 825 North Capitol Street, N.E., Washington, D.C. 20426): (a) Results from the EIA study; (b) EIA’s 1981 Annual Report to Congress (four volumes); (c) User manuals for the [National Utility Financial Statement] model used in the EIA study (three volumes); (d) the FERC computer model; and (e) Re-suits from the FERC study.” J.A. at 1424 n *. It seems certain that the documents listed as (a), (b) and (c) above supply all the information referred to by FERC as the EIA study. Certainly Cities has not suggested any respect in which they do not. Hence the EA clearly identified the relevant materials and supplied notice of their availability in a public document room, Since “[t]he APA does not preScribe any procedure for assembling a ‘record’ for ju-dicja] review of informal rulemaking,” SRTF, 705 F.2d at 519, we have in the past sustained an agency’s reliance on materials available in a public documents room, so long as interested persons had good reason to believe those documents were relevant to the rulemaking proceedings. See Connecticut Light & Power, 673 F.2d at 531 & n. 7. Indeed, in Connecticut Light & Power we did so notwithstanding the fact that those documents were not specifically identified by the agency “until long after the comment period had closed.” Id. at 531. Here, by contrast, FERC specifically identified the EIA study in its EA, stated the manner in which that study could be obtained, and noted that the EA extensively relied on the EIA study. See J.A. at 1423-24. Since the EA was made public at about the same time as Order No. 298, interested persons had some thirty days in which to obtain and review the EIA study and apprise FERC of their objections to that study. There is no procedural infirmity here. As for Cities’ objection to the EA’s use of the Argonne and Southwest Energy studies, we think it evident that those studies played little if any part either in the development of the EA or in the formulation of the final rule. Cities has not directed us to any finding or conclusion in the EA or in Order No. 298 that purports to be based on these studies even in part. Hence any alleged procedural error is manifestly harmless. IV. A. Petitioner Alabama Electric flatly asserts that the Commission’s public interest rationale for allowing CWIP in rate base is beyond its statutory authority. Brief for Alabama Electric at 9. Alabama Electric correctly notes that the Federal Power Act denies the Commission the power to order a utility to enlarge its generating facilities for the purpose of selling or exchanging electric energy with another entity. See 16 U.S.C. § 824a(b) (1982). Alabama Electric characterizes the Commission’s stated objective of removing impediments to capital investment in needed facilities as an attempt to achieve by indirection what the Federal Power Act prohibits the Commission from doing directly— compelling the enlargement of generating facilities. The problem with this argument, of course, is the false equivalence it posits between a Commission order directing a utility to add capacity to serve a wholesale customer and a Commission regulation addressing the timing of recovery by the utility of costs that indisputably belong in rate base at one time or another. There is no compulsion here. Accepting, as we must for purposes of this analysis, that a CWIP-in-rate-base rule will have the effects the Commission attributes to it, the most that can be said is that the CWIP rule reduces certain disincentives to add new generating facilities. Accordingly, we reject Alabama Electric’s claim. We have searched the briefs of the other petitioners in these cases to determine whether they raise any other challenge to the Commission’s statutory authority to invoke the various public interest considerations on which the CWIP rule is based. We have found no suggestion that, standing alone, the need for an adequate and reliable supply of electricity, or the need for least total cost facilities, are impermissible criteria for the Commission to employ in rulemaking. Rather, petitioners contest the extent of FERC’s reliance on these considerations at the expense of other criteria which they believe FERC is obliged to weigh in the balance. Accordingly, we shall accept the first two purposes FERC announced for its CWIP rule — mitigating bias against capital investment and ensuring more accurate price signals — as valid regulatory objectives. Our acceptance does not foreclose considerations of the extent to which those goals may override other regulatory objectives. We take up that question in Part V infra, in connection with some of petitioners’ other objections. Petitioner Public Systems, however, asserts that FERC’s third purpose — rate stability — “plays an important role in the Commission’s decision, but the legitimacy of that role is extremely questionable.” Brief for Public Systems at 66. Public Systems correctly notes that the Federal Power Act requires that rates be “just and reasonable,” without requiring that they be stable, and asserts that “the Commission had an obligation to explain why the new-found goal of rate stability was given any weight in its decision.” Brief for Public Systems at 68. We think FERC has reasonably determined that “[rjatepayers should not face rates that fluctuate radically according to the completion of base load units,” 48 Fed. Reg. at 46,019, J.A. at 1812, and that this concern is not inconsistent on its face with FERC’s mandate to ensure that rates be just and reasonable. The Commission suggests rate shock can have “adverse effects on consumers,” id., J.A. at 1813, and we think ■ the Act’s command that rates be “just” as well as “reasonable” gives FERC discretion to give at least some weight to the goal of protecting consumers “from financial shock or economic dislocation” as a result of precipitous and unanticipated increases in rates. 48 Fed.Reg. at 24,346, J.A. at 1342. B. Petitioner Public Systems attacks FERC’s two principal justifications for allowing CWIP in rate base on the grounds that each undercuts the other. The existence of a bias against capital investment, Public Systems says, suggests that absent CWIP utilities will not build sufficient capacity to serve future needs. The understatement of that future cost of electricity in current price signals, on the other hand, suggests that, without CWIP, utilities will build excess capacity. “What,” Public Systems asks, “is wrong with a regulatory scheme that leads utilities to underprepare for exaggerated anticipated future demand?” Brief for Public Systems at 53. This argument rests on an oversimplification of FERC’s analysis. Consider the case of a utility that begins construction of a plant that is somewhat too large due to overprediction of demand, and subsequently cancels the plant due to inability to meet mounting financing costs. In this example, the two effects FERC has identified skew • the utility’s decisionmaking at different times and, far from “offsetting” one another, these effects reinforce one another. Under the CWIP rule, FERC predicts that the utility will construct a smaller plant and will be more likely to complete it. That result is both more efficient and more adequate to meet future demand for electricity. Or consider a utility that decides to build a facility that is somewhat cheaper to construct but far more expensive to operate than another facility of equal capacity. That decision is inefficient, and the inefficiency persists regardless of whether the two facilities are larger than necessary due to imperfect price signals. Conversely, the prosperous utility may have no trouble financing any plant it thinks needed, yet without CWIP it will tend to overbuild. Even in instances where the two effects somewhat offset one another, moreover, Public Systems asks us to assume that the two effects are equal as well as opposite. That assumption is quite implausible, and presumably unverifiab'le. We think that while in a particular case underpreparation for overpredicted demand may yield the same results as the CWIP rule is said to produce, that result is a fortuity rather than a necessity. Accordingly, we reject the contention that FERC’s rationale is truly at war with itself. C. Petitioners contend that even if the CWIP rule will achieve the purposes FERC advances, and even if FERC can legitimately pursue those goals, the used and useful principle precludes inclusion of CWIP in rate base. According to petitioners, CWIP in rate base violates that principle because “[ujtility plant under construction is not ‘used and useful;’ hence, the costs of