[Federal Register Volume 63, Number 194 (Wednesday, October 7, 1998)]
[Rules and Regulations]
[Pages 53805-53809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26888]
[[Page 53805]]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 35
[Docket No. RM93-24-000; Order No. 600]
Revision of Fuel Cost Adjustment Clause Regulation Relating to
Fuel Purchases From Company-Owned or Controlled Source
AGENCY: Federal Energy Regulatory Commission.
ACTION: Final Rule.
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SUMMARY: The Federal Energy Regulatory Commission (Commission) is
amending its regulations to state that where a regulatory body has
jurisdiction over the price of fuel purchased from a company-owned or
controlled source, and exercises that jurisdiction to approve such
price, the Commission will presume, subject to rebuttal, that the cost
of fuel so purchased is reasonable and includable in the fuel
adjustment clause.
EFFECTIVE DATE: This final rule is effective November 6, 1998.
FOR FURTHER INFORMATION CONTACT: Wayne W. Miller, Federal Energy
Regulatory Commission, Office of the General Counsel, 888 First Street,
N.E., Washington, D.C. 20426, (202) 208-0466.
SUPPLEMENTARY INFORMATION: In addition to publishing the full text of
this document in the Federal Register, the Commission also provides all
interested persons an opportunity to inspect or copy the contents of
this document during normal business hours in the Public Reference Room
at 888 First Street, N.E., Room 2A, Washington, D.C. 20426.
The Commission Issuance Posting System (CIPS) provides access to
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using the CIPS Link or the Energy Information Online icon. The full
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To access CIPS, set your communications software to 19200, 14400,
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This document is also available through the Commission's Records
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after November 16, 1981. Documents from November 1995 to the present
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available at 202-208-2222, or by E-mail to [email protected]
Finally, the complete text on diskette in WordPerfect format may be
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RVJ International Inc., is located in the Public Reference Room at 888
First Street, N.E., Washington, D.C. 20426.
Before Commissioners: James J. Hoecker, Chairman; Vicky A. Bailey,
William L. Massey, Linda Breathitt, and Curt Hebert, Jr.
I. Introduction
The Federal Energy Regulatory Commission (Commission) is amending
the second sentence of 18 CFR 35.14(a)(7) to make clear that where a
regulatory body has jurisdiction over the price of fuel purchased by a
utility from a company-owned or controlled source, and exercises that
jurisdiction to approve such price, the cost of fuel so purchased shall
be presumed, subject to rebuttal (rather than conclusively ``deemed''),
to be reasonable and includable in the fuel adjustment
clause.1
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\1\ This Final Rule addresses only the fuel adjustment clause
and fuel cost recovery through the fuel adjustment clause. It does
not address Commission review of fuel costs and fuel cost recovery
in base rates.
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II. Discussion
In the Notice of Proposed Rulemaking (NOPR), issued September 24,
1993,2 the Commission explained that 18 CFR 35.14(a)(7) has
been interpreted by the United States Court of Appeals for the District
of Columbia, in Ohio Power Company v. FERC, 954 F.2d 779 (D.C. Cir.),
cert. denied, 506 U.S. 981 (1992) (Ohio Power), to establish a
conclusive presumption that the price of fuel purchased from an
affiliate, subject to the jurisdiction of another regulatory body, is
just and reasonable. The Commission stated that the proposed revision
to Sec. 35.14(a)(7) was intended to provide that the Commission would
instead employ a rebuttable, rather than a conclusive, presumption, and
thus make clear that the Commission had no intention (through a
conclusive presumption of reasonableness) of abdicating its statutory
responsibility to independently review wholesale rates (including fuel
adjustment clauses) subject to its jurisdiction to ensure that they are
just and reasonable. The Commission explained, however, that the
proposed revision would not affect the other, independent basis of the
Ohio Power decision; i.e., when a public utility member of a registered
public utility holding company system buys fuel from an affiliate in
accordance with section 13(b) of the Public Utility Holding Company Act
of 1935 (PUHCA),3 the Commission may not deny recovery of
those costs in the utility's wholesale rates.
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\2\ Revision of Fuel Cost Adjustment Clause Regulation Relating
to Fuel Purchases From Company-Owned or Controlled Source, 58 FR
51259 (October 1, 1993), IV FERC Stats. & Regs. para. 32,502 (1993).
\3\ 15 U.S.C. 79m(b).
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The Commission received comments on the NOPR from the following:
Municipal Resale Service Customers of Ohio Power Company (Municipal
Customers); Coalition for Full Oversight and Regulation of Public
Utility Holding Companies and Affiliates (Coalition FOR PUHCA, or
Coalition); Florida Cities (including the Florida Municipal Power
Agency and the Cities of Alachua, Bartow, Havana, Mount Dora, Newberry,
Quincy, and Williston, Florida); Registered Systems (including American
Electric Power Service Company, GPU Service Corporation and New England
Power Company, each of which is associated with a registered public
utility holding company under PUHCA); Public Utilities Commission of
Ohio (Ohio Commission); Allegheny Power Service Corporation (Allegheny)
(on behalf of Monongahela Power Company, Potomac Edison Company and
West Penn Power Company, wholly-owned subsidiaries of Allegheny Power
System, Inc., a registered public utility holding company under PUHCA);
the law firm of Paul, Hastings, Janofsky & Walker (Paul, Hastings);
Transok, Inc. (Transok) (a wholly-owned subsidiary of Central and South
West Corporation, a registered public utility holding company under
PUHCA); Wisconsin Wholesale Customers (Wisconsin Customers) (consisting
of Wisconsin Public Power Incorporated SYSTEM, Badger Power Marketing
Authority, 41 municipal electric systems and four rural electric
cooperatives); Edison Electric Institute (EEI); American Public Power
Association (APPA); West
[[Page 53806]]
Virginia Public Service Commission and the National Association of
Regulatory Utility Commissioners (NARUC).
While either supportive of or at least neutral concerning the
intention of this rulemaking, the commentors suggest various
modifications to the proposed rule. The suggested modifications
principally involve three concerns: (a) whether the relevant sentence
of Sec. 35.14(a)(7) should simply be eliminated altogether, rather than
revised to set forth a rebuttable presumption; (b) the meaning of the
term ``regulatory body;'' and (c) retroactivity.
A. Need for the Change in the Regulation
In light of Ohio Power, the Commission believes that it is
necessary to amend 18 CFR 35.14(a)(7) to clearly specify that when a
regulatory body has jurisdiction over the price of fuel purchased by a
utility from a company-owned or controlled source and exercises that
jurisdiction by approving such price, the cost shall be ``presumed,
subject to rebuttal'' (rather than conclusively ``deemed'') to be
reasonable and includable in the fuel adjustment clause. By amending
Sec. 35.14(a)(7) in this manner, the Commission is making clear that it
has no intention of abdicating its regulatory responsibilities under
sections 205 and 206 of the Federal Power Act (FPA), 16 U.S.C. 824d,
824e.
As the Commission previously stated in the NOPR:
[t]he Commission has an independent obligation under sections 205(a)
and 206(a) of the FPA to ensure that rates are ``just and
reasonable.'' This obligation requires the Commission to
independently review rates subject to its jurisdiction to ensure
that they are ``just and reasonable.'' While the Commission can give
deference to decisions of another regulatory body and still fulfill
its statutory obligation, it cannot in effect delegate its
jurisdictional responsibilities to others. In addition the
Commission must exercise greater regulatory scrutiny when affiliate
fuel costs are at issue; while there may be a presumption of
reasonableness as to costs incurred in arm's-length bargaining,
there is no such presumption of reasonableness as to affiliate costs
* * *. Thus, the Commission believes that Sec. 35.14(a)(7) should be
amended to provide that for affiliate transactions the presumption
of reasonableness provided for by the regulation is merely
rebuttable and is not conclusive.
Amending Sec. 35.14(a)(7) is also consistent with the
Commission's mandate under section 205(f) of the FPA to undertake
review of automatic adjustment clauses, including fuel cost
adjustment clauses, to ensure ``economical purchase and use of
fuel.'' Given an express Congressional mandate to ensure
``economical purchase and use of fuel,'' the Commission believes
Sec. 35.14(a)(7) should be amended to eliminate what otherwise would
be an absolute bar to Commission inquiry into affiliate fuel
prices.4
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\4\ NOPR, IV FERC Stats. & Regs. at 32,803-04 (citations and
footnotes omitted).
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B. Response to Comments: Whether the Presumption Should Be Eliminated
The Municipal Customers, the Coalition, the Wisconsin Customers and
NARUC request the Commission to eliminate any presumption of
reasonableness of the price of fuel purchased from company-owned or
controlled sources, even if that price has been previously reviewed and
approved by another regulatory body. 5 This can be done,
they argue, by eliminating entirely the relevant sentence of
Sec. 35.14(a)(7), rather than by revising it to provide for a
rebuttable presumption. By eliminating the relevant sentence, they
argue, this Commission would be able to exercise its full statutory
authority over affiliate fuel costs passed through wholesale fuel
adjustment clauses, while still continuing to take the relevant
decisions of other regulatory bodies into account on a case-by-case
basis.
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\5\ The Ohio Commission notes that the proposed rule does not
correct the essential jurisdictional problem created as the result
of Ohio Power, and urges the Commission to continue to direct its
efforts toward legislation required to solve this problem. See also
NOPR, IV FERC Stats. & Regs. at 32,803 n.1, 32,804 n.7.
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In this respect, the Municipal Customers also argue that it is not
clear when or to what the presumption of reasonableness attaches
because many state regulatory authorities have standards which differ
from this Commission's FPA standards. They maintain that elimination of
the presumption altogether would avoid litigation over when and to what
deference attaches.6 Additionally, according to NARUC, the
proposal would create a rebuttable presumption of reasonableness only
when a state commission has jurisdiction over and approves the price of
fuels sold by an affiliated supplier to a public utility. NARUC points
out, however, that state commissions do not exercise authority over a
fuel seller's prices, but, instead, regulate a fuel buyer's ability to
recover prudent expenditures, i.e., recovery of fuel costs. NARUC
states that while the recovery of a public utility buyer's costs in its
rates may be determined by reference to competitive prices available in
the marketplace, the affiliate seller's actual prices are not set by
the state commission.
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\6\ The Coalition also argues that to base a rebuttable
presumption on another agency's review, without independently
evaluating the quality of that review, is an abdication of this
Commission's authority.
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The Municipal Customers and the Coalition further argue that
amending Sec. 35.14(a)(7) to set forth a rebuttable presumption would
impose an unreasonable burden on the public utility's ratepayers who
seek to challenge that utility's rates. Because a utility may, for
example, request that its records be kept confidential,7 the
ratepayers may not be able to obtain access to information needed to
challenge the justness and reasonableness of affiliate fuel
costs.8 On the other hand, they argue, elimination of the
relevant sentence of Sec. 35.14(a)(7), and thus elimination of any
presumption, would place the burden of demonstrating justness and
reasonableness on the utility, ensuring comparable treatment between
the rates of utility subsidiaries of registered public utility holding
companies and the rates of all other utilities.
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\7\ 18 CFR 388.112.
\8\ The Municipal Customers and the Coalition submit that the
Commission's policy is to deny requests for hearing unless
complainants meet their initial burden of coming forward and
presenting evidence casting serious doubt as to the reasonableness
of the challenged costs, citing Municipal Resale Service Customers
v. Ohio Power Co., 63 FERC para. 61,336 at 63,201 (1993). The
Municipal Customers and the Coalition argue, however, that
complainants cannot meet this burden unless a hearing is first
ordered and discovery of the company's documents and data is
thereafter obtained. Thus, they contend, complainants are in a
``chicken and egg'' quandary, or a ``Catch-22'' situation, and have
no practical way to rebut the presumption.
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In this regard, the APPA further requests that this Commission make
FERC Form 580 (General Interrogatory on Fuel and Energy Purchase
Practices),9 and FERC Form 423 (Monthly Report of Cost and
Quality of Fuels for Electric Plants) 10 available to
[[Page 53807]]
the public in the absence of ``conclusive evidence'' that disclosure of
the information on those forms will damage the business interests of
the reporting utility. APPA argues that without the information in
these forms, the Commission's staff, as well as the general public, are
unable to rebut the presumption of reasonableness of fuel costs.
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\9\ The Public Utility Regulatory Policies Act of 1978 (PURPA),
16 U.S.C. 2601, et seq., amended section 205 of the FPA, 16 U.S.C.
824d, by adding subsection (f)(2), which requires the Commission to
review, at least once each two years, the practices of public
utilities using automatic adjustment clauses to ensure that each
such public utility makes efficient use of resources (including
fuel). 16 U.S.C. 824d(f)(2). In response, the Commission instituted
an investigation, in Docket No. IN79-6, of practices under automatic
adjustment clauses. See Investigation of Practices Under Automatic
Adjustment Clauses, 7 FERC para. 61,090 (1979); see also
Consolidated Edison Company of New York, 39 FERC para. 61,329
(1987); Kentucky Utilities Company, 29 FERC para. 61,159 at 61,338
(1984). Pursuant to this investigation, the Commission (through its
staff) has issued interrogatories on Form 580 and its predecessors
(Forms 560 and 565) every two years, beginning in 1979. The Form 580
interrogatories are currently mailed to the over 120 public
utilities with significant fuel trades and with wholesale rates that
may contain automatic adjustment clauses.
\10\ A separate form must be completed by every electric power
producer for each of its electric generating plants (including
leased plants) that has a rated steam-electric generating capacity
of 50 MW or greater. 18 CFR 141.61.
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Similarly, if the Commission decides to adopt a rebuttable
presumption, the Municipal Customers request that in addition the
Commission also revise the fourth sentence of Sec. 35.14(a)(7). The
Municipal Customers request that the Commission require the filing of
all contracts, terms, conditions, and procedures (and all amendments)
relating to the purchase of fuel from company-owned or controlled
sources, whether or not the prices are subject to the jurisdiction of
another regulatory body. This revision, the Municipal Customers argue,
will allow ratepayers access to contracts where prices are subject to
regulatory authority (and thus to a presumption of reasonableness) so
that the ratepayers can have an opportunity to rebut the
presumption.11
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\11\ The fourth sentence now reads as follows: With respect to
the price of fuel purchases from company-owned or controlled sources
pursuant to contracts which are not subject to regulatory authority,
the utility company shall file such contracts and amendments thereto
with the Commission for its acceptance at the time it files its fuel
clause or modification thereof. (emphasis added)
The Municipal Customers propose the following modification: With
respect to the price of fuel purchases from company-owned or
controlled sources pursuant to contracts or other terms, conditions,
and procedures, whether subject to another regulatory authority or
not, the utility company shall file such contracts, terms,
conditions, procedures and amendments thereto with the Commission at
the time it files its fuel clause (or within 30 days of the
effective date of this regulation if the fuel clause is already on
file) or modifications thereof. (emphasis added)
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The Florida Cities argue that the Commission should clearly state
that the proposed revision represents a clarification that this
Commission will not conclusively presume reasonable affiliate fuel
costs subject to state jurisdiction.12 Similarly, the
Wisconsin Customers argue that the rule as currently drafted could be
read to limit this Commission's ability to review costs related to
wholesale sales when a regulatory body dealing with retail jurisdiction
has approved the fuel purchases at issue.
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\12\ The Florida Cities point to an ``Order on Motion of Florida
Cities to Compel Production of Certain Coal-Related Data,'' issued
July 16, 1993 in Florida Power Corporation, Docket Nos. ER93-299-000
and EL93-18-000. The presiding administrative law judge rejected
Florida Power Corporation's (Florida Power) argument that,
consistent with Ohio Power, Sec. 35.14(a)(7) should be construed as
conclusively foreclosing this Commission from deciding for itself
the prudence and reasonableness of the cost of fuel purchased from
Florida Power's affiliates since the Florida Public Service
Commission (Florida Commission) had ruled on those issues. The judge
found that if Sec. 35.14(a)(7) is construed, as claimed by Florida
Power, as conclusively foreclosing this Commission from ruling on
the justness and reasonableness of costs associated with the
utility's fuel purchases from affiliates, it would ``stand the FPA
on its head.'' The judge found that, under Florida Power's
construction of Sec. 35.14(a)(7), this Commission would have
unlawfully delegated to the state commission, and thus abdicated,
its statutory responsibility under the FPA. The judge thus limited
the application of Ohio Power's interpretation of Sec. 35.14(a)(7)
to situations involving FERC/SEC jurisdiction only. He stated the
following, at page 7 of the order:
Given the SEC's independent statutory authority under PUHCA to
set inter-affiliate fuel sales prices for all purposes it would be
lawful if that authority was recognized by FERC in 35.14(a)(7).
However, this is not the case if the section were applied to the
[Florida Commission] since that agency lacks any federal statutory
authority over affiliate fuel sales prices and at most it has
Florida State authority over such prices for retail rate setting
purposes only.
It would be anomalous if the section were applied to foreclose
FERC determination of the reasonableness and prudence of affiliate
fuel purchases. Such transactions are not arms length and are more
suspect than fuel purchases from non-affiliates. Yet section
35.14(a)(7), on its face applies to affiliate but not to non-
affiliate fuel purchases. We should not extend that anomalism by
interpreting 35.14(a)(7) in the manner sought by Florida Power.
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Commission Ruling
We decline to eliminate the presumption. The Commission's intent in
this proceeding was to address Ohio Power's reading of Sec. 35.14(a)(7)
as creating a conclusive presumption. The revision adopted here
accomplishes that--creating a rebuttable presumption when another
regulatory body both has and exercises its jurisdiction to approve the
price of affiliate fuel.
This is not to suggest that we are either abdicating our
responsibility or doing more than we are permitted. While we will
retain a presumption, it will apply only when another regulatory body
has jurisdiction and exercises that jurisdiction by approving the price
of the affiliate fuel, and even in that circumstance it will be
rebuttable; the reasonableness, and thus the recovery in Commission-
jurisdictional rates, of affiliate fuel costs will ultimately be for
the Commission to determine.13
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\13\ The FPA requires this Commission, not other regulatory
bodies such as state commissions, to determine the justness and
reasonableness of wholesale rates. This Commission will not and,
indeed, cannot tie itself to state determinations involving retail
rates, but must independently determine the justness and
reasonableness of wholesale rates. As we stated in Southern
California Edison Co., Opinion No. 361, 55 FERC para. 61,074 at
61,223, reh'g denied, Opinion No. 361-A, 56 FERC para. 61,117
(1991), petition for review denied, City of Vernon v. FERC, 983 F.2d
1089 (D.C. Cir. 1993), ``the Commission must fulfill its statutory
responsibilities and cannot defer to the actions of a state
regulatory agency. Even where the wholesale customer agrees for
wholesale ratemaking purposes to abide by the decision of a state
ratemaking authority, this Commission has an independent
responsibility to review such an agreement.''
Accord, Bangor Hydro-Electric Co., 35 FERC para. 61,200 at
61,473 (1986) (in refusing to bind itself to state treatment of
Seabrook-related abandonment charges, the Commission stated: ``this
Commission cannot simply rely on the state commission's evaluation .
. . ; rather, we must make our own, independent evaluation.'');
Union Electric Co., 36 FERC para. 61,234 at 61,573 (1986) (prudence
disallowances by, inter alia, three state commissions do not support
a finding that wholesale rates that include contested costs were
substantially excessive and warranted a five-month suspension; the
Commission stated: ``[a]s to the decisions of the State commissions,
while they may bring into question the prudence of [a utility's]
expenditures, they are not controlling upon this Commission for
suspension or other purposes.''). Cf. Alabama Power Co. v. FERC, 993
F.2d 1557, 1564 (D.C. Cir. 1993) (``We know of no doctrine that
requires the Commission, in determining a just and reasonable rate
for an off-system sale, to give dispositive weight to the fact that
a state commission has assumed, for purposes of establishing native
load rates, that the off-system rate would be higher. In other
contexts, the Commission has not done so, and we see no reason why
it should here'').
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Likewise, we are not doing more than we are permitted to do. The
D.C. Circuit's alternate ground for its decision in Ohio Power--that
this Commission is barred, in the case of affiliate fuel purchases
among the members of registered public utility holding company systems
(where, under PUHCA, the SEC is authorized to review the prices of such
purchases), from either altering the affiliate fuel price or from
disallowing full recovery of the affiliate fuel price in Commission-
jurisdictional rates--remains. That alternative ground continues to bar
Commission review of both the reasonableness of registered public
utility holding company affiliate fuel costs, and of the recovery of
such costs in Commission-jurisdictional rates.
The relevant sentence of Sec. 35.14(a)(7) refers to the price of
affiliate fuel being subject to the jurisdiction of a regulatory body,
and that sentence as amended here also refers to the price of affiliate
fuel being approved by such a body. NARUC, however, notes that the
states normally do not possess jurisdiction to regulate the price of
affiliate fuel, i.e., the price charged by the fuel supplier (as
opposed to rate recovery of the costs of affiliate fuel). NARUC then
questions the precise reach of that sentence in Sec. 35.14(a)(7) and of
the presumption found there. Section 35.14(a)(7) has always drawn an
express distinction between the price charged for affiliate fuel by the
affiliate fuel supplier, and the cost of that affiliate fuel incurred
by
[[Page 53808]]
the public utility buyer and passed through to ratepayers. Thus, the
second sentence has always provided that only when the ``price'' of
affiliate fuel is subject to the jurisdiction of a regulatory body,
``such cost'' was deemed to be reasonable and includable in the fuel
adjustment clause.14 This distinction pre-dated Ohio Power,
and the Commission has not proposed to change it, and is not changing
it, here.
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\14\ See 954 F.2d at 783 (``adopt[ing] Judge Mikva's approach''
that ``[u]nder the regulation, because the prices of Ohio Power's
fuel from its affiliate are subject to the jurisdiction of the SEC,
such costs must be conclusively presumed reasonable,'' and
``agree[ing] with Judge Mikva that `section 35.14(a)(7) establishes
as a policy matter, that if another regulatory body has already
passed on the fuel price, then FERC will abide by that
determination' ''); accord, id. at 784 (``By precluding FERC from
declaring a SEC-approved price unreasonable, our interpretation of
Sec. 35.14(a)(7) provides Ohio Power with some succor . . . .''),
786 (``[W]e hold that 18 CFR Sec. 35.14(a)(7) prevents FERC from
finding the coal price approved by the SEC not includable in
determining Ohio Power's wholesale rate.''); see also Fuel
Adjustment Clauses in Wholesale Rate Schedule, 52 FPC 1304, 1306
(1974) (in explanatory discussion of text of Sec. 35.14(a)(7),
Commission distinguished between price paid to a fuel supplier and
costs incurred by a utility buyer); Wholesale Rate Schedules Fuel
Adjustment Clause, 39 FR 28,910, 28,911 (1974) (in Notice of
Proposed Rulemaking, in discussing proposed text of what would
become Sec. 35.14(a)(7), Commission drew distinction between prices
charged on the one hand and costs incurred and recovered in rates on
the other hand).
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Several of the commentors object to the continued use of a
presumption because complaining parties will not have access to the
data necessary to challenge the utility's recovery in rates of the
price of affiliate fuel, and utilities may, in fact, invoke claims of
privilege to keep this data confidential.15 Put simply, our
past experience suggests that there does not seem to have been any
unreasonable barriers to complainants making a sufficient showing to
justify an investigation before Ohio Power, and we are not aware of any
reason why that may have changed since Ohio Power. 16
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\15\ On November 24, 1993, in Treatment of Responses to FERC
Form No. 580 Interrogatories, 58 FR 63312 (Dec. 1, 1993), IV FERC
Stats. & Regs., Proposed Regulations para. 32,503 (1993), the
Commission issued a Notice of Proposed Rulemaking in which it
proposed to amend its regulations to codify an existing requirement
that each public utility with a steam-electric generating station of
50 megawatts or more file responses to FERC Form 580
interrogatories, and explicitly disqualifying these responses to
Form 580 interrogatories from claims of privilege under 18 CFR
388.112. The Commission also proposed to make public past responses
to Form 580 interrogatories. That Notice is pending.
\16\ E.g., Kentucky Utilities Company, 29 FERC para. 61,159
(1984) (order on complaint instituting investigation regarding fuel
costs). While this particular case involved non-affiliate fuel
costs, we are not aware of any reason why access to the relevant
information would be any more or less difficult in the case of
affiliate fuel costs.
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C. Response to Comments: The Meaning of the Term ``Regulatory Body''
Allegheny, EEI, the Registered Systems, Paul, Janofsky and Transok
contend that the Commission's use of the term ``regulatory body'' in
the NOPR and the proposed revision is confusing, since that term can be
construed to apply to the SEC as well as to state commissions. They
request that, to eliminate confusion and avoid litigation, the
Commission expressly acknowledge in the text of Sec. 35.14(a)(7) that
it has no authority to review affiliate fuel prices for registered
public utility holding company systems.17
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\17\ The Municipal Customers, the Coalition and NARUC also argue
that it is unclear what is meant by the term ``approve'' as it
applies to SEC determinations, since the SEC currently conducts no
review of individual affiliate fuel contracts and makes no findings
regarding the reasonableness of affiliate fuel prices.
Given the alternate ground for decision in Ohio Power, discussed
above, the issue of whether the SEC has ``approved'' affiliate fuel
prices within the meaning of Sec. 35.14(a)(7) as amended here is
presently moot. As to whether other regulatory bodies may have
``approved'' such prices, that is a matter best left to
determination on a case-by-case basis.
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Commission Ruling
The term ``regulatory body'' appears in the current
Sec. 35.14(a)(7), and we did not propose any change to it. We thus
decline to modify the proposed rule in the manner requested by these
commentors. We also believe that at this time there is no reason to
distinguish expressly among various regulatory bodies in the text of
the regulation. Our silence, however, should not be construed to imply
a failure on our part to follow the alternate ground for decision in
Ohio Power, discussed above--i.e., that in instances involving a
conflict between this Commission and the SEC over affiliate fuel prices
for registered public utility holding company systems under Ohio Power,
the SEC ruling controls.18
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\18\ See, e.g., Municipal Resale Service Customers v. Ohio Power
Company, 62 FERC para. 61,207, reh'g denied, 64 FERC para. 61,034
(1993), petition for review denied, Municipal Resale Serv. Customers
v. FERC, 43 F.3d 1046 (6th Cir. 1995) (declining to order an
investigation of affiliate fuel prices for registered public utility
holding company as a consequence of Ohio Power).
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D. Response to Comments: Retroactivity Concerns
The Florida Cities observe that Ohio Power unsettled the otherwise
settled law that affiliate fuel purchases subject to state jurisdiction
were also subject to this Commission's review for wholesale rate
purposes. The Florida Cities argue that the Commission should provide
for retroactive application of the proposed revision, or at least its
application to pending and future cases involving past fuel clause
collections, to ensure that the Commission's responsibilities are not
abandoned with regard to past fuel adjustment clause collections. If
the Commission decides not to make the proposed rule retroactive, the
Florida Cities request that the Commission steer clear of prejudging
the issue of the applicability of Ohio Power to affiliate fuel
transactions that have been subject to state retail ratemaking
jurisdiction. Instead, the Florida Cities argue, this issue should be
addressed when it is squarely presented to the Commission in a pending
case.19
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\19\ The Florida Cities argue that such an issue was pending in
Florida Power Corporation, Docket Nos. ER93-299-000 and EL93-18-000.
See supra n.11. This Commission, by letter-order issued March 30,
1994 in Florida Power Corporation, 66 FERC para. 61,365 (1994),
approved a settlement agreement filed by the parties and terminated
these dockets.
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The Registered Systems request that if the Commission, as the
result of new legislation, ultimately is afforded jurisdiction over the
type of transaction at issue in Ohio Power, it should only apply the
proposed revision of Sec. 35.14(a)(7) to affiliate fuel contracts
entered into after both the conferral of jurisdiction on this
Commission through new legislation and the effective date of this rule.
The Registered Systems explain that prior investments by registered
public utility holding company systems in affiliate fuel operations
were based on the SEC's findings that the fuel supply arrangements were
in the public interest. Moreover, they argue, since 1974, the
registered public utility holding company systems made these
investments knowing that this Commission's regulation ensured the
inclusion in the utility's wholesale fuel adjustment clause of the
prices paid pursuant to SEC approval; the Registered Systems object to
retroactive application of a rule change that would result in cost-
trapping. Further, the Registered Systems argue, considerations of
fairness preclude altering profoundly the rules upon which investors
relied when they financed the previously-approved
arrangements.20
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\20\ The Registered Systems also note that all of their
affiliate fuel supply arrangements were in place well before the
Commission announced its preference for a market-based rate recovery
standard in Public Service Co. of New Mexico, Opinion No. 133, 17
FERC para. 61,123 (1981), order on reh'g, Opinion No. 133-A, 18 FERC
para. 61,036 (1982), aff'd, 832 F.2d 1201 (10th Cir. 1987).
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Commission Ruling
As to challenges to affiliate fuel prices recovered in rates after
the effective date of this rule change (and which are not subject to
the alternate ground for
[[Page 53809]]
decision in Ohio Power, discussed above), we will apply this rule
change; our responsibility under the FPA to ensure that wholesale rates
are just and reasonable, as discussed at length above, permits us to do
nothing less. As to challenges to affiliate fuel prices recovered
through the fuel adjustment clause prior to the effective date of this
rule change (and which are not subject to the alternate ground for
decision in Ohio Power, discussed above), we believe that whether we
should apply this rule change or not is best decided in each individual
case in which the issue arises rather than generically in the
abstract.21
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\21\ The fuel adjustment clause allows public utilities to pass
through to their ratepayers increases or decreases in the cost of
their fuel, without having to make separate filings to reflect each
change in fuel cost, and without having to obtain prior Commission
review of each change in fuel cost. Missouri Public Service Company,
Opinion No. 327, 48 FERC para. 61,011 at 61,078 (1989); Fuel
Adjustment Clauses in Wholesale Rate Schedules, 52 FPC 1304, 1305-06
(1974); see also Public Service Co. of New Hampshire v. FERC, 600
F.2d 944, 947, 952 (D.C. Cir.), cert denied, 444 U.S. 990 (1979).
Consequently, the Commission has sanctioned after-the-fact review
and refunds in later proceedings. See, e.g., Central Vermont Public
Service Corporation, 44 FERC para. 61,127 at 62,027 (1988); Alamito
Co., 33 FERC para. 61,286 at 61,574 (1985); see also Louisiana Power
& Light Company, Opinion No. 366, 57 FERC para. 61,101 at 61,388-89
(1991). Without later review and the ability to order refunds,
overcharges collected through the fuel adjustment clause would be
exempt from all scrutiny and refunds. See Kansas Municipal and
Cooperative Electric Systems, 16 FERC para. 61,227 at 61,488, reh'g
denied, 17 FERC para. 61,141 (1981).
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Finally, we do not believe that it is appropriate for the
Commission, at this time, to address in the abstract the Registered
Systems' concern regarding retroactivity in the event future
legislation gives this Commission, rather than the SEC, authority to
determine the reasonableness of the recovery in rates of affiliate fuel
costs for registered public utility holding company systems.
III. Environmental Statement
Commission regulations require that an environmental assessment or
an environmental impact statement be prepared for any Commission action
that may have a significant adverse effect on the human
environment.22 The Commission has categorically excluded
certain actions from this requirement as not having a significant
effect on the human environment.23 No environmental
consideration is necessary for the promulgation of a rule that involves
electric rate filings that public utilities submit under sections 205
and 206 of the FPA and the establishment of just and reasonable rates.
24 Because this final rule involves such filings submitted
under sections 205 and 206 of the FPA and the establishment of just and
reasonable rates, no environmental consideration is necessary.
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\22\ Regulations Implementing the National Environmental Policy
Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations
Preambles 1986-90 para. 30,783 (1987).
\23\ 18 CFR 380.4.
\24\ 18 CFR 380.4(15).
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IV. Regulatory Flexibility Act Certification
The Regulatory Flexibility Act (RFA) 25 requires
rulemakings to either contain a description and analysis of the impact
the rule will have on small entities or to certify that the rule will
not have a substantial economic impact on a substantial number of small
entities. Because most of the entities that would be required to comply
with this rule are large public utilities that do not fall within the
RFA's definition of small entities, 26 the Commission
certifies that this rule will not have a ``significant impact on a
substantial number of small entities.''
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\25\ 5 U.S.C. 601-12.
\26\ 5 U.S.C. 601(3) (citing section 3 of the Small Business
Act, 15 U.S.C. 632). Section 3 of the Small Business Act defines a
small business concern as a business that is independently owned and
operated and that is not dominant in its field of operation. 15
U.S.C. 632(a).
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V. Information Collection Statement and Public Reporting Burden
The Office of Management and Budget (OMB) regulations in 5 CFR
1320.11 require that OMB approve certain information collection
requirements imposed by an agency. This rule neither contains new
information collection requirements nor significantly modifies any
existing information collection requirements in Part 35; 27
therefore, it is not subject to OMB approval. However, the Commission
will submit a copy of this rule to OMB for information purposes only.
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\27\ These requirements were previously submitted to OMB and
assigned control number 1902-0096.
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Interested persons may send comments regarding collections of
information to the Federal Energy Regulatory Commission, 888 First
Street, N.E., Washington, D.C. 20426 [Attention: Michael Miller, (202)
208-1415]; and to the Office of Information and Regulatory Affairs of
the Office of Management and Budget (OMB) [Attention : Desk Officer for
the Federal Energy Regulatory Commission]. Telephone: (202) 395-3087.
FAX: (202) 395-7285.
VI. Effective Date and Congressional Notification
This Final Rule will take effect on November 6, 1998. The
Commission has determined, with the concurrence of the Administrator of
the Office of Information and Regulatory Affairs of the Office of
Management and Budget, that this rule is not a ``major rule'' within
the meaning of section 351 of the Small Business Regulatory Enforcement
Fairness Act of 1996.28 The Commission will submit the rule
to both houses of Congress and the Comptroller General prior to its
publication in the Federal Register.
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\28\ 5 U.S.C. 804(2).
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List of Subjects in 18 CFR Part 35
Electric power rates, Electric utilities, Electricity, Reporting
and recordkeeping requirements.
By the Commission.
David P. Boergers,
Secretary.
In consideration of the foregoing, the Commission amends part 35,
chapter I, title 18, Code of Federal Regulations, as set forth below.
PART 35--FILING OF RATE SCHEDULES
1. The authority citation for part 35 continues to read as follows:
Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.
2. Section 35.14 is amended by revising the second sentence of
paragraph (a)(7) to read as follows:
Sec. 35.14 Fuel cost and purchased economic power adjustment clauses.
(a) * * *
(7) * * * Where the utility purchases fuel from a company-owned or
controlled source, the price of which is subject to the jurisdiction of
a regulatory body, and where the price of such fuel has been approved
by that regulatory body, such costs shall be presumed, subject to
rebuttal, to be reasonable and includable in the adjustment clause. * *
*
* * * * *
[FR Doc. 98-26888 Filed 10-6-98; 8:45 am]
BILLING CODE 6717-01-P
