[Federal Register Volume 60, Number 102 (Friday, May 26, 1995)]
[Rules and Regulations]
[Pages 27878-27882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12990]



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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 2

[Docket No. RM93-19-001]


Inquiry Concerning the Commission's Pricing Policy for 
Transmission Services Provided by Public Utilities Under the Federal 
Power Act

    Issued May 22, 1995.

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; order on reconsideration and clarifying policy 
statement.

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SUMMARY: The Commission in its Transmission Pricing Policy Statement, 
issued on October 26, 1994, announced a new policy regarding the 
pricing of transmission services provided by public utilities and 
transmitting utilities under the Federal Power Act that allows greater 
transmission pricing flexibility than was allowed under previous 
Commission policies. The Commission traditionally had allowed only 
postage-stamp, contract-path pricing. the Policy Statement announced 
that the Commission also will allow a variety of other pricing methods 
that may be more suitable for competitive wholesale power markets, 
including distance-sensitive and flow-based pricing. In response to 
filings by certain entities, the Commission is denying requests for 
reconsideration of the Policy Statement; however, the Commission is 
clarifying certain matters concerning non-conforming transmission 
pricing proposals.

EFFECTIVE DATE: This order is effective as of May 22, 1995.

FOR FURTHER INFORMATION CONTACT:

Deborah B. Leahy, Office of the General Counsel, Federal Energy 
Regulatory Commission, 825 North Capitol Street NE, Washington, D.C. 
20426, Telephone: (202) 208-2039, (legal issues)
Stephen J. Henderson, Office of Economic Policy, Federal Energy 
Regulatory Commission, 825 North Capitol Street NE, Washington, D.C. 
20426, Telephone: (202) 208-0100, (technical issues)

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 Room 3104, at 941 North 
Capitol Street, N.E., Washington, D.C. 20426.
    The Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and may be accessed using a personal computer with a modem by 
dialing (202) 208-1397. To access CIPS, set your communications 
software to 19200, 14400, 12000, 9600, 7200, 4800, 2400, 1200 or 300 
bps, full duplex, no parity, 8 data bits and 1 stop bit. The full text 
of this document will be available on CIPS for 60 days from the date of 
issuance in ASCII and WordPerfect 5.1 format. After 60 days the 
document will be archived, but still accessible. The complete text on 
diskette in WordPerfect format may also be purchased from the 
Commission's copy contractor, La Dorn Systems Corporation, also located 
in Room 3104, 941 North Capitol Street NE., Washington, D.C. 20426.
Order on Reconsideration and Clarifying Policy Statement

    Issued May 22, 1995.

    On October 26, 1994, the Commission issued a Transmission Pricing 
Policy Statement.\1\ We announced a new policy regarding the pricing of 
transmission services provided by public utilities and transmitting 
utilities under the Federal Power Act (FPA) that allows greater 
transmission pricing flexibility than was allowed under previous 
Commission policies. The Commission traditionally had allowed only 
postage-stamp, contract-path pricing. The Policy Statement announced 
that the Commission also will allow a variety of other pricing methods 
that may be more suitable for competitive wholesale power markets, 
including distance-sensitive and flow-based pricing.

    \1\Inquiry Concerning the Commission's Pricing Policy for 
Transmission Services Provided by Public Utilities Under the Federal 
Power Act, Policy Statement, III FERC Stats. & Regs. para.31,005 
(1994); 59 FR 55031, Nov. 3, 1994. (Policy Statement).
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    The Policy Statement identified five principles for evaluating 
transmission pricing proposals. The first principle is that 
transmission pricing should conform to the traditional embedded cost 
revenue requirement. However, the Commission also provided procedures 
whereby utilities can propose rates that do not conform to the 
traditional revenue requirement and thus do not meet the first 
principle, i.e., non-conforming proposals. The second principle 
requires that any new transmission pricing proposal, conforming or non-
conforming, must meet the Commission's comparability standard.\2\ The 
remaining three principles (concerning economic efficiency, fairness, 
and practicality) reflect goals that an applicant must try to meet, but 
that may need to be balanced against one another in the Commission's 
determination of whether the proposed rates are just and reasonable.

    \2\See American Electric Power Service Corporation (AEP), 67 
FERC para.61,168 (1994), reh'g pending. The comparability standard 
generally provides that ``[a]n open access tariff that is not unduly 
discriminatory or anticompetitive should offer third parties access 
on the same or comparable basis, and under the same or comparable 
terms and conditions, as the transmission provider's uses of its 
system.'' Id. at 61,490. The Commission explained in the Policy 
Statement that comparability of service applies to price as well as 
to terms and conditions. Policy Statement at 31,142. The Commission 
recently issued a Notice of Proposed Rulemaking in which it proposes 
to require all public utilities to have on file non-discriminatory 
open access transmission tariffs and provides guidance on the 
comparability standard. See Promoting Wholesale Competition Through 
Open Access Non-discriminatory Transmission Services by Public 
Utilities; Recovery of Stranded Costs by Public Utilities and 
Transmitting Utilities, Docket Nos. RM95-8-000 and RM94-7-001, 
Notice of Proposed Rulemaking, 60 FR 17662 (Apr. 7, 1995), IV FERC 
Stats. & Regs. para.32,514 (1995) (Open Access NOPR).
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    On November 22, 1994, the Vermont Department of Public Service 
(Vermont Department) filed a request for reconsideration of the 
Commission's decision to treat opportunity cost pricing as a form of 
marginal cost pricing consistent with comparability principles. On 
November 23, 1994, the American Forest and Paper Association (American 
Forest and Paper) filed a request for rehearing and motion for 
reconsideration concerning several aspects of the Policy Statement. 
American Forest and Paper asks the Commission to replace the Policy 
Statement with a Notice of Proposed Rulemaking. Further, it opposes the 
Commission's decision to allow opportunity cost pricing and marginal 
[[Page 27879]] cost pricing. In addition, it asks the Commission to 
clarify that non-conforming proposals are subject to the notice and 
filing requirements of the FPA. Also on November 23, 1994, Catex Vitol 
Electric, Inc. (Catex) filed a request for reconsideration. Catex 
argues, among other things, that a generic approach specifying a 
standard method of transmission pricing is preferable to a case-by-case 
approach that allows experimentation.\3\

    \3\On November 28, 1994, the Rural Utilities Service (RUS), a 
credit agency in the U.S. Department of Agriculture, filed comments 
in response to the Policy Statement. RUS asks the Commission to 
consider the impact of transmission pricing decisions on the RUS 
electric program, under which RUS provides low-cost financial 
assistance to rural electric distribution and power generation and 
transmission cooperatives pursuant to the Rural Electrification Act 
(RE-Act). RUS suggests, for example, that in considering pricing 
mechanisms involving RUS borrowers, the Commission should not permit 
non-RE-Act beneficiaries to get the benefit of RUS loan subsidies to 
the detriment of RUS borrowers. Although styled as comments, RUS's 
pleading was submitted after the deadline for comments in this 
proceeding had closed. Accordingly, we will treat RUS's pleading as 
a motion for reconsideration and deny it because we believe the 
issues raised by RUS are best addressed on a case-by-case basis as 
they may arise in connection with a particular transmission pricing 
proposal.
    As discussed below, the requests for reconsideration of the Policy 
Statement are denied.\4\ However, the Commission clarifies certain 
matters concerning non-conforming transmission pricing proposals.

    \4\We stated in the Policy Statement that we would accept 
motions for reconsideration to help us refine the principles 
established therein and to provide an opportunity to respond to any 
questions or clarify any ambiguity. Policy Statement at 31,150. 
Although American Forest and Paper styled its pleading as both a 
request for rehearing and a motion for reconsideration, we will 
treat it as a motion for reconsideration only, as we find that 
rehearing does not lie. First, contrary to American Forest and 
Paper's argument that the Policy Statement has the force of a final 
rule ``because it changes the filing requirements for electric 
transmission rates'' (American Forest and Paper pleading at 1 n.1), 
as discussed below, the Policy Statement makes no such change in the 
filing requirements. Second, we find that rehearing does not lie 
because the Policy Statement constitutes a general statement of 
policy to be applied to transmission pricing proposals submitted in 
individual cases. See, e.g., Pacific Gas & Electric Company v. FPC, 
506 F.2d 33 (D.C. Cir. 1974).
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Discussion

A. Policy Statement or Rulemaking

    American Forest and Paper and Catex support a generic approach to 
transmission pricing in lieu of the case-by-case approach envisioned in 
the Policy Statement. American Forest and Paper argues that the Policy 
Statement will increase uncertainty concerning transmission rates and 
thus inhibit the development of competitive power markets. It contends 
that the Policy Statement will allow utilities to propose widely 
varying tariffs that will make it difficult for a prospective customer 
to calculate transmission rates. American Forest and Paper and Catex 
argue that the customer will be forced to bear litigation costs and to 
wait until the completion of rate proceedings and any court review to 
know with certainty what rates, terms and conditions will be in effect. 
By that time, the customer may have lost the opportunity to win a 
competitive bid or otherwise finalize a long-term power plant 
financing. American Forest and Paper also argues that the Policy 
Statement will create a heavy administrative burden because the 
Commission will be required to adjudicate a high number of transmission 
rate cases. It requests that the Commission replace the Policy 
Statement with a Notice of Proposed Rulemaking of greater specificity.
    Catex similarly asks the Commission to consider adopting a generic 
approach to transmission pricing, arguing that transmitting utilities 
will use the case-by-case approach to file experimental tariffs that 
will inhibit the transition to competition and open access. It submits 
that power marketers may be foreclosed for economic reasons from 
participating in all of the rate cases that they deem important. Catex 
also argues that the case-by-case approach will create a patchwork of 
rate structures that will make it difficult for transmission customers 
to arrange multi-utility transactions or calculate rates.
    While we understand the concerns voiced by American Forest and 
Paper and Catex, we nevertheless do not believe that a ``simple, 
generic approach to transmission pricing''\5\ is advisable. As we noted 
in the Policy Statement, there was a strong consensus among the 165 
entities from whom the Commission received comments that we should 
allow greater pricing flexibility. We provided several reasons in the 
Policy Statement why greater pricing flexibility is required.\6\ First, 
exclusive use of methods that worked reasonably well in the past does 
not provide sufficient flexibility to accommodate the evolving needs of 
transmission owners and users in a more competitive era. Second, our 
existing ``or'' pricing policy may not always encourage the most 
efficient investments in and use of the transmission grid. Third, 
regional differences, such as power flow patterns and population 
densities, justify a more flexible policy that can account for such 
differences. Fourth, a more flexible pricing policy may be necessary to 
implement effectively our regional transmission group (RTG) policy, 
which encourages RTGs to deal with a broad range of issues, including 
pricing, and which indicates that the Commission will afford deference 
to RTG decision-making.

    \5\Catex pleading at 2.
    \6\Policy Statement at 31,139.
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    Our conclusion at this juncture in the transition to competitive 
bulk power markets is that, if the pricing flexibility envisioned in 
the Policy Statement is to be achieved, a case-by-case approach to 
transmission pricing, not a generic approach, is appropriate. As a 
result, we will deny the requests of American Forest and Paper and 
Catex to replace the Policy Statement with a generic proceeding.
    With regard to the concerns of American Forest and Paper and Catex 
as to transmission pricing certainty, as the Policy Statement makes 
clear, the Commission, too, supports pricing certainty. Indeed, the 
Policy Statement states that the comparability principle includes 
comparable pricing certainty.\7\ In addition, the fifth pricing 
principle is that transmission pricing should be practical and as easy 
to administer as appropriate given the other pricing principles. The 
Policy Statement recognizes, however, that certain of the Commission's 
goals may have to be balanced against one another. For example, we 
recognize the inevitability of tradeoffs between the sometimes 
competing goals of simplicity and better price signals.\8\ Some pricing 
proposals may be so complex that they are difficult to understand and 
analyze. The Policy Statement indicates that while such complexity is 
not fatal, it should be balanced by efficiency gains or other 
advantages.\9\

    \7\Id. at 31,143.
    \8\Id. at 31,139.
    \9\Id. at 31,144.
B. Opportunity Cost and Marginal Cost Pricing

    In the Policy Statement, the Commission explained that when the 
transmission grid is constrained and a utility chooses not to expand 
its system, we have allowed the utility to charge transmission-only 
customers the higher of embedded costs or legitimate and verifiable 
opportunity costs, but not the sum of the two (``or'' pricing). The 
opportunity costs are capped by incremental expansion costs.\10\ The 
Policy Statement reflects the Commission's support for the use of 
marginal cost pricing to promote efficient decision-making by both 
transmission owners and users. It states that, to the extent 
practicable, [[Page 27880]] transmission rates should be designed to 
reflect marginal costs, rather than embedded costs, in a manner 
consistent with the remaining pricing principles. As we explained, when 
lines are not congested, marginal transmission costs are primarily line 
losses. When lines are congested, marginal transmission costs are 
opportunity costs.\11\

    \10\Id. at 31,138.
    \11\Id. at 31,143.
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    The Vermont Department asks us to reconsider our holding that 
opportunity cost pricing is a form of marginal cost pricing consistent 
with comparability principles. It argues that opportunity cost pricing 
is not marginal cost pricing because marginal cost pricing contemplates 
that all customers will be assessed the same marginal cost price and 
because opportunity costs are inherently unverifiable. The Vermont 
Department further contends that opportunity cost pricing makes rates 
unpredictable, contrary to the comparability requirement.\12\ The 
Vermont Department requests that the Commission either find that 
opportunity cost pricing is inconsistent with the comparability 
standard or provide that filings proposing opportunity cost pricing 
will be treated as non-conforming proposals.

    \12\The Vermont Department notes that the Policy Statement 
provides that comparability of pricing includes certainty of pricing 
and that a transmission customer should have the same price 
certainty as does the transmitting utility. Policy Statement at 
31,143. The Vermont Department (as well as American Forest and 
Paper) argue that price certainty is particularly important in light 
of the court's decision in Cajun Electric Power Cooperative, Inc. v. 
FERC,  F.3d 173 (D.C. Cir. 1994).
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    American Forest and Paper similarly urges the Commission to 
reconsider whether utilities should be permitted to propose opportunity 
cost pricing. It argues that opportunity cost pricing is unfair and 
anticompetitive. According to American Forest and Paper, the 
requirement that the utility charge itself the same opportunity costs 
as it charges others is unenforceable because the determination that 
opportunity costs exist is a subjective decision made by the utility.
    American Forest and Paper also opposes the use of marginal cost 
pricing, arguing that it will not create efficient transmission and 
generation siting decisions, as anticipated by the Policy Statement, in 
the absence of a competitive market for transmission. It suggests that 
the expansion of transmission capacity and the location of new 
generators and new load will be based on critical environmental, fuel 
supply, and siting factors rather than on marginal cost-based 
transmission rates.
    We stand by our policy of allowing utilities to include opportunity 
cost charges in their transmission rates. The rationale for that policy 
is discussed in the Policy Statement, is set forth in prior Commission 
orders, and has been affirmed by the Court of Appeals for the District 
of Columbia Circuit.\13\

    \13\See, e.g., Policy Statement at 31,137-38; Pennsylvania 
Electric Company, 58 FERC para.61,278, reh'g denied and pricing 
policy clarified, 60 FERC para.61,034, reh'g denied, 60 FERC 
para.61,244 (1992), affirmed sub nom. Pennsylvania Electric Company 
v. FERC, 11 F.3d 207 (D.C. Cir. 1993).
    Moreover, because any new transmission pricing proposal, whether 
conforming or non-conforming, must meet the comparability standard, we 
will have ample opportunity to address any concerns that opportunity 
cost pricing may be unfair and anticompetitive or otherwise 
inconsistent with the comparability standard in the course of our 
evaluation of a particular transmission pricing proposal. With regard 
to the Vermont Department's argument that opportunity cost pricing is 
not the equivalent of marginal cost pricing because marginal cost 
pricing contemplates that all customers will be charged the same price, 
we do not agree that marginal cost pricing requires that all customers 
be charged the same price. 14

    \14\Marginal cost pricing could be implemented either by 
charging all customers the same price or by charging a customer for 
marginal costs at the time it signs a contract. Under the contract 
version of marginal cost pricing, customers who sign contracts at 
different times would be charged different prices.
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    With regard to American Forest and Paper's opposition to marginal 
cost pricing, while we agree that environmental, fuel supply, and 
siting factors are important considerations in the expansion of 
transmission capacity and the location of new generators and load, we 
also believe that providing more efficient price signals through the 
use of marginal cost pricing can influence efficient siting decisions. 
As we make clear in the Policy Statement, we believe that marginal cost 
pricing will promote efficient decision-making by both transmission 
owners and users. 15 As a result, we encourage experimentation 
regarding marginal cost pricing proposals, but we expect such proposals 
to be fully supported. In the end, the Commission will determine the 
appropriateness of marginal cost pricing proposals on a case-by-case 
basis.

    \15\Policy Statement at 31,143.
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C. Procedures For Filing Non-Conforming Proposals

    American Forest and Paper argues that two of the procedures in the 
Policy Statement relating to non-conforming proposals may be 
inconsistent with the FPA. First, it notes that the Policy Statement 
would permit a utility to submit a non-conforming proposal in the form 
of a petition for declaratory order. However, American Forest and Paper 
suggests that the FPA requires utilities to file and support proposed 
changes in rates and requires ``a hearing in which [the utilities'] 
customers can be afforded due process of law.'' 16 Second, 
American Forest and Paper objects that the Policy Statement would 
improperly exempt non-conforming proposals from the notice provisions 
of section 205. It asks the Commission to clarify that the FPA controls 
the notice and filing requirements for utilities submitting non-
conforming proposals.

    \16\American Forest and Paper pleading at 7.
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    The clarification that American Forest and Paper seeks concerning 
non-conforming proposals submitted via a petition for declaratory order 
is unnecessary. A non-conforming proposal that is submitted in a 
petition for declaratory order will be subject to a notice and comment 
period. If, at the end of the declaratory order proceeding, the 
Commission finds that a non-conforming pricing proposal meets the 
statutory criteria, the Policy Statement provides that ``the utility 
would still need to file a rate reflecting the proposal pursuant to FPA 
section 205.'' 17 As the Policy Statement suggests, ``[p]resumably 
the section 205 proceeding would be straightforward (i.e. akin to a 
compliance filing) * * * since the Commission would have already 
addressed the merits of the proposal in the declaratory order.'' 
18 However, such a non-conforming proposal would, in any event, be 
subject to the notice and filing requirements, and opportunity for 
hearing, under section 205.

    \17\Policy Statement at 31,148.
    \18\Id.
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    With regard to non-conforming proposals submitted under section 205 
in conjunction with conforming proposals, the Policy Statement provides 
that ``[t]he conforming proposal would be subject to the notice and 
suspension procedures of section 205. The non-conforming proposal would 
not.'' 19 The phrase ``notice and suspension procedures of section 
205'' was intended to refer to those provisions of section 205 that 
require a public utility to give 60 days' notice to the Commission and 
the public before making a rate change and that permit the Commission 
to suspend the effective [[Page 27881]] date of such rates. 20 
These provisions are not applicable to non-conforming proposals 
because, as the Policy Statement indicates, a non-conforming proposal 
will be permitted to go into effect only prospectively from the date 
the Commission determines that such a pricing proposal meets the 
statutory requirements. 21 Although American Forest and Paper 
apparently has interpreted the statement that non-conforming proposals 
would not be subject to the notice and suspension procedures of section 
205 to mean that public utilities would not be required to provide 
notice of the submission of non-conforming proposals, that was not the 
Commission's intention. Accordingly, we clarify that any non-conforming 
proposal submitted in conjunction with a conforming proposal must still 
be filed with the Commission. As with any rate filing under section 
205, the Commission would notice the filing of both pricing proposals 
(i.e., conforming and non-conforming) and provide a period for public 
comment.

    \19\Id. at 31,147.
    \20\See 16 U.S.C. Secs. 824d(d),(e); Policy Statement at 31,136.
    \21\Policy Statement at 31,136. As the Policy Statement 
provides, if ``the Commission determines that the alternative, non-
conforming rate proposal is acceptable under the FPA, the Commission 
will allow the utility to make a compliance rate filing, and the 
rates will be put into effect prospectively.'' Id. at 31,147.
    We also wish to clarify the procedures for filing non-conforming 
pricing proposals. In the Policy Statement, the Commission described 
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those procedures as follows:

    Any public utility that seeks non-conforming pricing must have 
on file with the Commission an open access transmission tariff 
offering comparable services. Such comparability tariff must have 
been accepted for filing by the Commission before a non-conforming 
pricing proposal will be considered. Moreover, utilities proposing 
non-conforming transmission pricing must submit such pricing 
proposals either: (a) in conjunction with a section 205 conforming 
transmission pricing proposal (the non-conforming proposal would be 
reflected as alternative ``pro forma'' rate sheets to the conforming 
proposal); or (b) in a petition for declaratory order.22

    \22\Id.

    The Policy Statement states that, for alternative (a) above, the 
Commission and interested parties would review the non-conforming 
proposal in conjunction with review of the companion conforming pricing 
proposal.
    The above-quoted language is somewhat unclear. On one hand, it 
states that the Commission will not consider a non-conforming proposal 
unless a comparability tariff has already been accepted for filing. On 
the other hand, it contemplates that a utility may file a non-
conforming pricing proposal simultaneously with the filing of a 
conforming pricing proposal--one that has not already been accepted for 
filing.
    We wish to clarify that if a public utility does not already have 
on file an open access comparability tariff, it may simultaneously file 
both a conforming pricing proposal and a non-conforming pricing 
proposal in conjunction with its filing of an open access comparability 
tariff;23 however, the non-conforming proposal must consist of 
``pro forma'' rate sheets that can take effect, if at all, only on a 
prospective basis at the end of the section 205 proceeding. If a public 
utility chooses to submit a non-conforming proposal via a petition for 
a declaratory order, it must already have a comparability tariff that 
has been accepted for filing by the Commission.

    \23\We note that in Entergy Services, Inc., et al., 70 FERC 
para.61,006 (1995) (Entergy), the Commission rejected the non-
conforming pricing proposal that Entergy Services, Inc. (Entergy) 
filed simultaneously with a conforming pricing proposal. The 
Commission gave three reasons for its decision, one of which was 
that Entergy's non-conforming proposal was premature because Entergy 
did not have on file (i.e., accepted by the Commission) an open 
access tariff offering comparable services. Although our 
clarification in this order of the procedures for submitting non-
conforming pricing proposals eliminates prematurity as a basis for 
rejecting Entergy's non-conforming proposal, the other two bases 
remain valid. As a result, our clarification here does not require 
reversal of the Entergy result.
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    We also clarify that if a utility already has an open access 
comparability tariff on file and later seeks to file a non-conforming 
pricing proposal, the utility can submit the non-conforming proposal 
either in a section 205 filing or in a petition for a declaratory 
order. In other words, the utility may submit the non-conforming 
proposal alone in a section 205 filing, to take effect, if at all, only 
on a prospective basis at the end of the section 205 proceeding; it 
does not have to re-file the conforming proposal that already has been 
accepted or file a new conforming proposal. In any event, the open 
access comparability tariff must be filed before or simultaneously with 
the non-conforming proposal.
    Similarly, we clarify that if a public utility already has an 
approved non-conforming proposal and seeks to submit a replacement non-
conforming proposal, the utility can submit the new non-conforming 
proposal either in a section 205 filing, to take effect, if at all, 
only on a prospective basis at the end of the section 205 proceeding 
(the utility need not file a conforming proposal) or in a petition for 
a declaratory order. In those cases in which the utility chooses the 
declaratory order procedure, and the Commission finds that the 
utility's proposal meets the statutory criteria, the utility would 
still need to file a rate reflecting the proposal pursuant to FPA 
section 205.24

    \24\See Policy Statement at 31,148.
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    We hope that this clarification removes any uncertainty that may 
have existed regarding the procedures for filing non-conforming pricing 
proposals. As we noted in the Policy Statement, we believe that those 
procedures are flexible enough to permit utilities to propose non-
conforming pricing innovations which they believe will benefit 
ratepayers and promote the development of a competitive bulk power 
market.25

    \25\Id. at 31,150.
    In addition to allowing utilities to propose non-conforming pricing 
proposals, the Policy Statement also allows considerable flexibility in 
the types of conforming proposals that may be filed. As we stated in 
the Policy Statement, we anticipate that a wide variety of pricing 
proposals may be reconciled with the traditional revenue 
requirement.26 However, only a few such proposals have been filed 
to date.27 Accordingly, we reiterate here that many varieties of 
cost-based pricing are possible and encourage utilities to consider 
innovative pricing approaches that conform to the traditional revenue 
requirement. We anticipate that many utilities will consider filing 
such pricing proposals in conjunction with non-discriminatory open 
access (comparability) tariffs that could be filed either prior to 
issuance of a final rule on open access or in Stage Two proceedings 
following issuance of any final rule.28

    \26\Id. at 31,144-46.
    \27\We are aware of only two pricing proposals filed since the 
issuance of the Policy Statement that propose an alternative to 
postage-stamp, contract-path pricing. See Jersey Central Power & 
Light Company, et al., Docket No. ER95-791-000; Southern Company 
Services, Inc., Docket No. ER95-969-000.
    \28\Under the Commission's recently proposed Open Access NOPR, 
if utilities have not filed open access comparability tariffs by the 
time a final rule is issued, the Commission in Stage One would place 
on file for such utilities open access tariffs reflecting postage-
stamp embedded cost rates. Such utilities could seek a different 
rate methodology in Stage Two. See Open Access NOPR, IV FERC Stats. 
& Regs. para.32,514 at ____, mimeo at 288-95.
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D. Miscellaneous

    Catex urges the Commission to: (1) emphasize that rates must be 
simple and predictable; (2) require a utility to give the same 
transmission rate discounts to a competitor as are given to the 
utility's affiliates or to support the utility's own sales; (3) avoid 
subsidies and the loading of fixed costs onto non-firm 
[[Page 27882]] transmission rates; and (4) require power pools to meet 
the comparability standard. We will deny Catex's motion for 
reconsideration with regard to these issues. The first three issues are 
already adequately addressed in the pricing principles set forth in the 
Policy Statement as discussed briefly below. The fourth (i.e., that 
power pools be required to meet the comparability standard) has already 
been proposed by the Commission in the Open Access NOPR.29

    \29\See Open Access NOPR, IV FERC Stats. & Regs. para.32,514 at 
____, mimeo at 96-97; 290-91.
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    With regard to Catex's request that the Commission emphasize 
simplicity and predictability in transmission rates, we note that the 
Policy Statement already reflects the Commission's support of 
transmission pricing that is simple and predictable. Indeed, one of the 
Policy Statement's pricing principles is that transmission pricing 
should be practical. To this end, the Policy Statement provides that a 
transmission user should be able to calculate how much it will be 
charged for transmission service.30 At the same time, however, the 
Policy Statement recognizes that this principle may need to be balanced 
on a case-by-case basis against the other pricing principles, such as 
the principle that transmission pricing should promote economic 
efficiency. In addition, although Catex contends that charges to a 
transmission customer should not be raised after the fact, for example, 
to compensate for loop flows on other systems, the Commission believes 
that whether a transmission rate should be increased, as opposed to 
fixed for the term of a transaction, is a matter to be determined based 
on the facts and circumstances of a particular case.31

    \30\Policy Statement at 31,144.
    \31\However, we note that our ``or'' policy permits transmission 
rates to reflect the higher of embedded or opportunity costs and 
that the calculation of such costs can be on an annual basis. See 
Florida Power & Light Company, 70 FERC para.61,158 at 61,483 (1995), 
rehearing pending.
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    With regard to Catex's concern about discounts, we note that the 
Commission historically has prohibited preferential pricing to 
affiliates.32 Moreover, such preferential pricing would be 
inconsistent with the requirement of non-discriminatory open access 
transmission.33 As the Policy Statement makes clear, the 
requirement that transmission pricing must reflect comparability 
prohibits the transmission owner from selling itself transmission 
service at a discount.34

    \32\See, e.g., Heartland Energy Services, Inc., 68 FERC 
para.61,223 at 62,062-63 (1994); Ocean State Power, 44 FERC 
para.61,261 at 61,983-85 (1988).
    \33\See AEP, 67 FERC at 61,490; Open Access NOPR, IV FERC Stats. 
& Regs. para.32,514 at ____, mimeo at 87-88.
    \34\Policy Statement at 31,142-43.
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    As to Catex's concern that subsidies be avoided, we reiterate that 
the Policy Statement provides that, consistent with the principle that 
transmission pricing must reflect comparability, a transmission owner 
that uses its own transmission system to make off-system sales should 
pay for transmission service at the same rate that third-party 
customers pay for the same service. As a result, a transmission owner 
is prohibited from selling itself transmission service at a discount 
that would be subsidized by native load and transmission-only 
customers.35 With respect to Catex's concerns about appropriate 
pricing of non-firm transmission services, the Commission will consider 
on a case-by-case basis whether non-firm transmission customers are 
subsidizing other transmission users.

    \35\Id. at 31,142-43.
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The Commission Orders

    (A) The motions for reconsideration of American Forest and Paper, 
Catex, the Vermont Department, and RUS are hereby denied as set forth 
in the body of this order.
    (B) The Commission's Policy Statement is hereby clarified as set 
forth in the body of this order.

    By the Commission.
Linwood A. Watson, Jr.,
Acting Secretary.
[FR Doc. 95-12990 Filed 5-25-95; 8:45 am]
BILLING CODE 6717-01-P