[Federal Register Volume 60, Number 147 (Tuesday, August 1, 1995)]
[Notices]
[Pages 39160-39163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18830]



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DEPARTMENT OF ENERGY
[Docket Nos. ER94-1384-001, ER94-1450-004, ER94-1685-001, ER94-1690-
001, ER94-1691-002, ER95-393-001]


Morgan Stanley Capital Group Inc., Coastal Electric Services 
Company, Citizens Lehman Power Sales, Engelhard Power Marketing, Inc., 
AIG Trading Corporation, CLP Hartford Sales, L.L.C.; Order Granting 
Rehearing in Part and Denying Rehearing in Part, Announcing Elimination 
of Power Marketer Business and Financial Arrangements Reporting 
Requirement, and Providing Guidance on Determining ``Affiliation'' 
Under Part II of the Federal Power Act

Issued July 26, 1995.
    Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. 
Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa, 
Jr.

Background

    In a November 8, 1994 order issued in Docket No. ER94-1384-000, 
Morgan Stanley Capital Group, Inc., 69 FERC para.61,175 (1994) 
(November 8 Order), the Commission accepted for filing the application 
of Morgan Stanley Capital Group Inc. (MS Capital) for authorization to 
engage in wholesale electric energy transactions as a marketer at 
market-based rates. In the November 8 Order, the Commission denied MS 
Capital's request for relaxed reporting requirements and imposed the 
same filing and reporting requirements as those applicable to other 
power marketers. The Commission announced that it would reconsider 
these reporting requirements in a future generic proceeding applicable 
to all public utilities selling power at market-based rates. The 
Commission also denied MS Capital's request for waiver of the annual 
charge obligation and clarified that such obligation is applicable to 
all power marketers.
    These cases present an appropriate vehicle for addressing the major 
issues in the November 8 Order. The Commission will address other 
issues as they become ripe for resolution.

Requests for Rehearing of November 8 Order

    On December 8, 1994, MS Capital filed a request for rehearing and 
modification of and for interim relief from the November 8 Order. MS 
Capital seeks relief from the November 8 Order in two respects. First, 
MS Capital asks the Commission to reverse its decision to require MS 
Capital to report business and financial arrangements between it (or an 
affiliate) and any entity that buys from or sells power to it, or at 
least to grant interim relief from that reporting requirement pending 
the outcome of the generic proceeding announced in the November 8 
Order. MS Capital argues, among other things, that compliance with the 
requirement to report business and financial arrangements would be 
needlessly onerous and would inhibit the participation of experienced 
and highly qualified financial companies such as MS Capital in the 
markets for wholesale sales of electricity. MS Capital also questions 
whether the business and financial arrangements reporting requirement 
would provide the Commission and its staff with any meaningful data 
that could be used to detect reciprocal dealing. If the Commission does 
not reverse or stay application of the business and financial 
arrangements reporting requirement, MS Capital proposes several 
limitations to the scope of that requirement.
    Second, MS Capital asks the Commission to reverse, or defer, its 
holding that power marketers are subject to the Commission's annual 
charge requirement. MS Capital asks the Commission, at a minimum, to 
defer its decision to collect annual charges from power marketers for a 
start-up (e.g., three-year) period ``until power marketers are better 
established,'' after which time the Commission could evaluate ``whether 
power marketers impose regulatory burdens on the Commission comparable 
to the burdens created by regulation of utilities with cost-based 
rates.'' MS Capital Rehearing Request at 3, 18.
    On December 8, 1994, the Electric Power Monitoring Group and its 
individual members\1\ filed a motion to intervene out-of-time and a 
request for rehearing of the November 8 Order. The Electric Power 
Monitoring Group seeks rehearing of the Commission's ruling requiring 
all power marketers to pay annual charges. The Electric Power 
Monitoring Group argues, among other things, that: (1) The Commission 
has not adequately justified its departure from past policy and 
precedent pursuant to which it previously declined to assess power 
marketers annual charges; (2) the Commission has limited jurisdiction 
over power marketers, which does not warrant subjecting them to the 
annual charge requirement; (3) the Commission does not devote 
significant resources to the regulation of power marketers as to 
justify subjecting them to the annual charge requirement;\2\ and (4) 
subjecting power marketers to the annual charge requirement effectively 
discriminates against power marketers, which will not be able to 
recover the annual charges in a cost of service rate as do other public 
utilities subject to the annual charge requirement.

    \1\The members of the Electric Power Monitoring Group joining in 
the pleading are Enron Power Marketing, Inc., Valero Power Services 
Company, Electric Clearinghouse, Inc., Intercontinental Energy 
Corporation, and KCS Energy Management Services, Inc.
    \2\The Electric Power Monitoring Group argues that the 
Commission has failed to supply documentation to support its claim 
that it ``can spend as much (if not more) time evaluating power 
marketer requests as it can other types of rate applications.'' 69 
FERC at 61,697. The Electric Power Monitoring Group submits that 
such an analysis should be performed in a rulemaking proceeding of 
general applicability.
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    On December 8, 1994, Citizens Lehman Power Sales (CL Sales) also 
filed a motion for leave to intervene out-of-time and a request for 
rehearing of the November 8 Order. CL Sales asks the Commission, 
pending its generic proceeding, to drop the business and financial 
arrangements reporting requirement and to rely upon existing complaint 
procedures. If the Commission decides to maintain the reporting 
requirement in the interim, CL Sales asks the Commission to clarify 
that its decision to exclude transitory holdings in connection with 
investment or merchant banking, market-making, or asset management 
activities for purposes of determining generation dominance\3\ also 
applies to the business and financial arrangements reporting 
requirement.

    \3\See 69 FERC at 61,693.
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    On December 9, 1994, Calpine Power Marketing Inc. (Calpine) filed a 
motion for leave to intervene out-of-time and a request for 
clarification of the November 8 Order. Like CL Sales, Calpine asks the 
Commission to clarify that the November 8 Order's exclusion of 
transitory holdings for purposes of assessing market power is equally 
applicable to reciprocal dealing concerns and thus also applies to the 
business and financial arrangements reporting requirement.
    On July 7, 1995, MS Capital filed a motion for interim relief from 
the 

[[Page 39161]]
business and financial arrangements reporting requirement and for 
prompt initiation and completion of the generic reporting requirements 
proceeding. MS Capital again asks the Commission, pending the outcome 
of the generic proceeding announced in the November 8 Order, to stay 
the business and financial arrangements reporting requirement or to 
limit its scope.
    As we explain below, we will grant MS Capital's request for 
rehearing concerning the business and financial arrangements reporting 
requirement.4 With the issuance of this order, we will no longer 
require MS Capital, or any power marketer with market-rate authority, 
to report business and financial arrangements between the marketer (or 
an affiliate of the marketer) and the entities that buy power from, 
sell power to, or transmit power on behalf of, the marketer. We also 
provide guidance in this order concerning the determination of 
affiliation under Part II of the Federal Power Act (FPA). Further, we 
will deny the requests for rehearing of our decision in the November 8 
Order to apply the annual charge obligation to all power marketers.

    \4\In light of our decision to eliminate altogether the business 
and financial arrangements reporting requirement for power 
marketers, we will dismiss as moot the requests of CL Sales and 
Calpine for rehearing and clarification, respectively, as to the 
scope of that requirement.
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Discussion

    Pursuant to Rule 214 of the Commission's Rules of Practice and 
Procedure, 18 CFR 385.214 (1995), the Commission finds that the late 
interventions in this proceeding of CL Sales, the Electric Power 
Monitoring Group (and its individual members identified supra note 1), 
and Calpine will not prejudice the interests of any party and that good 
cause exists to permit the late interventions.

Business and Financial Arrangements Reporting Requirement

    We will grant MS Capital's request for rehearing with regard to the 
business and financial arrangements reporting requirement. We will, 
effective as of the date of issuance of this order, no longer require 
power marketers to comply with that reporting requirement.
    As the Commission explained in the November 8 Order, the Commission 
has required power marketers, as a condition of market rate approval, 
to report business and financial arrangements involving the marketer 
(or an affiliate of the marketer) and the entities that buy power from, 
sell power to, or transmit power on behalf of, the marketer. 69 FERC at 
61,694.5 This reporting requirement was designed to assist the 
Commission in detecting reciprocal dealing.

    \5\See, e.g., Louis Dreyfus Electric Power, Inc., 61 FERC 
para.61,303 (1992). In Enron Power Marketing, Inc., 65 FERC 
para.61,305 (1993), order on clarification and reh'g, 66 FERC 
para.61,244 (1994), the Commission limited the reporting requirement 
to the activities of any affiliates located or doing business in the 
United States, Puerto Rico, Canada, and Mexico.
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    We have given careful consideration to the concerns voiced by MS 
Capital (and other power marketers) that the costs and burdens of the 
business and financial arrangements reporting requirement far outweigh 
any possible benefits of such reporting. We find that MS Capital has 
raised valid concerns as to, among other things, the breadth of such 
reporting requirement, the ``potentially impossible compliance burden'' 
that the requirement imposes on marketers such as MS Capital that are 
``involved in numerous, disparate investments and business arrangements 
pertaining to thousands of different business matters,''6 and the 
adequacy of the resulting data in detecting reciprocal dealing.

    \6\MS Capital Rehearing Request at 4, 5.
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    On this basis, we conclude that the business and financial 
arrangements reporting requirement imposes costs and burdens on power 
marketers (in terms of compiling and filing the data) as well as on the 
Commission (in terms of reviewing the data for the purpose of detecting 
reciprocal dealing) that are not justified by the potential benefits of 
such reporting. As a result, although the possibility of reciprocal 
dealing remains a valid concern, we do not believe that the business 
and financial arrangements reporting requirement is an effective means 
of detecting such behavior by power marketers. Rather, we believe that 
this matter can be appropriately addressed through a complaint 
mechanism.
    In several orders issued in the other dockets that are captioned in 
this order, we indicated that the same reporting requirements and 
reporting options that the Commission imposed on MS Capital apply to 
other power marketers with market-based rate authority.7 
Consistent with our holdings in that regard, we clarify that our 
decision to eliminate the business and financial arrangements reporting 
requirement, effective on the date of issuance of this order, applies 
not just to MS Capital, but to all other power marketers with 
authorization to engage in wholesale electric energy transactions at 
market-based rates, including, but not limited to, the power marketer 
applicants in Docket Nos. ER94-1450, ER94-1685, ER94-1690, ER94-1691, 
and ER95-393.8

    \7\See Engelhard Power Marketing, Inc., 70 FERC para.61,250 
(1995) (Engelhard); CLP Hartford Sales, L.L.C., 71 FERC para.61,127 
(1995) (CLP Hartford); AIG Trading Corporation, 71 FERC para.61,148 
(1995) (AIG); Citizens Lehman Power Sales, 71 FERC para.61,149 
(1995) (Citizens Lehman); Coastal Electric Services Company, 71 FERC 
para.61,374 (1995) (Coastal).
    \8\Of course, the elimination of the business and financial 
arrangements reporting requirement should not be construed as 
affecting, in any way, a power marketer's obligation to file 
quarterly transaction reports. See infra note 15 (discussing the 
need for power marketers to file reports of jurisdictional 
transactions).
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Determination of Affiliation

    In the November 8 Order, the Commission directed MS Capital, as a 
condition to authorization to transact at market-based rates, to 
report, among other things, affiliation with any entity that owns 
generation or transmission facilities or inputs to electric power 
production, or affiliation with any entity that has a franchised 
service area. 69 FERC at 61,695. The Commission also directed MS 
Capital to revise its proposed rate schedule to eliminate all sales to 
affiliates at market-based rates.9 Indicating that it has not yet 
determined affiliation under Part II of the FPA based on a bright line 
test, the Commission directed MS Capital, ``until the Commission 
provides more guidance,'' to determine affiliation by applying the 
definition set forth in the Uniform System of Accounts. 69 FERC at 
61,693 n.4. Under that definition, ``affiliated companies'' are defined 
as ``companies or persons that directly, or indirectly through one or 
more intermediaries, control, or are controlled by, or are under common 
control with, the [subject] company.'' 18 CFR Part 101, Definitions, 5.

    \9\The Commission noted that its decision in this regard was 
consistent with recent orders in which the marketer voluntarily 
agreed to a ban on sales to affiliates in order to ameliorate any 
possible concern for affiliate abuse. 69 FERC at 61,694 n.5. See 
Heartland Energy Services, Inc., 68 FERC para.61,223 at 62,063 
(1994) (Heartland); InterCoast Power Marketing Company, 68 FERC 
para.61,248 at 62,133 (1994); LG&E Power Marketing Inc., 68 FERC 
para.61,247 at 62,123 (1994). At the same time, the Commission 
explained that the general ban on sales to affiliates ``is without 
prejudice to MS Capital filing in the future a specific proposal to 
sell power to an affiliate, which would provide the Commission with 
an opportunity to consider the possibility of affiliate abuse in the 
context of a specific transaction.'' 69 FERC at 61,694.
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    We take this opportunity to provide further guidance to MS Capital, 
and to all public utilities,10 concerning the determination of 
affiliation under Part II of the FPA. The Commission believes that it 
is appropriate, in the move toward competitive bulk power markets, to 
adopt a definition of affiliation that 

[[Page 39162]]
will provide greater certainty to all market participants. To this end, 
we announce that all non-EWG public utilities should, effective as of 
the date of this order, define ``affiliate'' as that term is used in 
the Commission's regulations regarding Standards of Conduct for 
Interstate Pipelines with Marketing Affiliates, for matters arising 
under Part II of the FPA.11 Under Sec. 161.2 of the Commission's 
regulations, a voting interest of 10 percent creates a rebuttable 
presumption of control for purposes of determining the existence of an 
affiliate relationship.

    \10\See 16 U.S.C. 824(e) (1988).
    \11\18 CFR 161.2 (1995). Section 161.2(a) defines ``affiliate'' 
as ``another person which controls, is controlled by, or is under 
common control with, such person.'' Section 161.2(b) states that 
``control (including the terms `controlling,' `controlled by,' and 
`under common control with') . . . includes, but is not limited to, 
the possession, directly or indirectly and whether acting alone or 
in conjunction with others, of the authority to direct or cause the 
direction of the management or policies of a company. A voting 
interest of 10 percent or more creates a rebuttable presumption of 
control.''
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    We recognize that Congress, in promulgating section 214 of the 
FPA,12 as added by the Energy Policy Act of 1992, specified that 
the Commission must use the Public Utility Holding Company Act of 1935 
(PUHCA) section 2(a) definition of ``affiliate'' (which, inter alia, 
contains a 5 percent voting interest test) for purposes of determining 
whether an electric utility is an affiliate of an EWG for purposes of 
evaluating EWG rates. Therefore, all EWG public utilities should, as of 
the effective date of this order, use the PUHCA section 2(a) definition 
of ``affiliate'' for matters arising under Part II of the FPA. However, 
we do not believe there is any reason for the Commission to adopt the 
same affiliation standard for public utilities that are not EWGs. 
Instead, we believe that the 10 percent rebuttable presumption that the 
Commission has adopted for determining affiliation of natural gas 
marketers with interstate pipelines is also appropriate for determining 
affiliation for non-EWG public utilities.

    \12\16 U.S.C.A. 824m (West Supp. 1995).
    We reiterate here our holding in the November 8 Order that, for 
purposes of complying with the requirement to report affiliation with 
any entity that owns generation or transmission facilities or inputs to 
electric power production, MS Capital ``need not report the mere 
transitory holdings of its affiliates in electric facilities and 
inputs.'' 69 FERC at 61,695. However, MS Capital must ``report all of 
its own investments in electric facilities and inputs.'' Id. As we 
stated in the November 8 Order, ``there is no reason to ascribe 
generation ownership or control to MS Capital because of transitory 
holdings of electric utility stocks by Morgan Stanley13 in 
connection with investment or merchant banking, market-making, or asset 
management activities.'' Id. at 61,693.

    \13\As used in the November 8 Order, the term ``Morgan Stanley'' 
refers to any and all Morgan Stanley Group Inc. affiliates other 
than MS Capital. See 69 FERC at 61,691.
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Annual Charge Requirement

    We will deny rehearing of the requests of MS Capital and the 
Electric Power Monitoring Group for waiver of the Commission's annual 
charge requirement established in Part 382 of the Commission's 
regulations. We addressed this issue in detail in the November 8 Order, 
where we stated:

    There is no reason that public utilities that are power 
marketers should not pay their fair share of the Commission's annual 
charges. Indeed, waiver of annual charges for power marketers would 
give them a benefit that other public utilities do not enjoy and 
would result in such utilities picking up those costs incurred by 
the Commission in regulating power marketers.

69 FERC at 61,697.14

    \14\In several orders issued subsequent to the November 8 Order, 
we have denied rehearing of requests by other power marketers for 
waiver of the annual charge requirement. See, e.g., Citizens Lehman, 
71 FERC at 61,475; AIG, 71 FERC at 61,473; CLP Hartford, 71 FERC at 
61,409.
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    Neither MS Capital nor the Electric Power Monitoring Group has 
presented any persuasive reasons for us to depart from this conclusion 
or to defer our decision to collect annual charges from power 
marketers. We disagree with MS Capital's and the Electric Power 
Monitoring Group's assertions that Commission jurisdiction over power 
marketers somehow is more ``limited'' than its jurisdiction over other 
FERC-jurisdictional public utilities, and their belief that the time 
and resources expended on regulation of power marketers are so 
insignificant as to compel waiver of the annual charge requirements for 
this entire class of public utilities (to the detriment of other 
classes of public utilities).15

    \15\For example, the Electric Power Monitoring Group incorrectly 
asserts that the quarterly transaction reports that power marketers 
are required to file with the Commission ``are collected simply to 
maintain potential evidence in the event of a complaint being filed 
against a power marketer.'' Electric Power Monitoring Group 
Rehearing Request at 7. As the Commission has previously indicated, 
``the requirement that marketers file quarterly reports detailing 
the purchase and sale transactions undertaken in the prior quarter 
is necessary to ensure that contracts relating to rates and services 
are on file, as required by section 205(c) of the FPA, 16 U.S.C. 
824d(c) (1988), and to allow the Commission to evaluate the 
reasonableness of the charges and to provide for ongoing monitoring 
of the marketer's ability to exercise market power.'' Heartland, 68 
FERC at 62,065-66.
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    We also disagree with the contention of the Electric Power 
Monitoring Group that the Commission has not adequately justified its 
decision to overturn its earlier statement in Howell Gas Management 
Company, 40 FERC para.61,336 (1987) (Howell Gas) that ``annual charges 
are not occasioned if a utility is exempt from the requirements to file 
Form No. 1'' (40 FERC at 62,025 n.8). As the Commission explained in 
the November 8 Order:

    At the time of Commission action in Howell Gas, annual charges 
comprised only a small portion of the Commission's fee assessment 
program, while most of the Commission's revenues were collected as 
filing fees assessed on individual applications. Since then, the 
Commission has eliminated most of its filing fees and now recovers 
the bulk of its revenues as annual charges established in section 
382 of the regulations. Therefore, a material change in 
circumstances has occurred subsequent to Howell Gas, and we 
specifically overturn our statement quoted above.

69 FERC at 61,697.
    The Electric Power Monitoring Group objects that the Commission, in 
``conclusory fashion,'' determined that the shift in emphasis from 
filing fees to annual charges constitutes a ``material change in 
circumstances'' and ``offered no analysis supporting'' this 
determination.16 We find this argument to be without support. We 
believe that the shift from filing fees to annual charges on its face 
constitutes a material change in circumstances. Moreover, as we made 
clear in the November 8 Order, the annual charges at issue in Howell 
Gas were assessed under the now-deleted section 36.1 of the 
Commission's regulations, the predecessor to current section 382. As we 
noted, ``[a]t no time has any marketer successfully requested, or has 
the Commission granted, waiver of section 382.'' Id. at 61,697 n.12. In 
these circumstances, we believe that the Commission has amply explained 
its decision to subject power marketers to the annual charge 
requirement.

    \16\Electric Power Monitoring Group Rehearing Request at 4.
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The Commission Orders

    (A) The motions to intervene out-of-time of CL Sales, the Electric 
Power Monitoring Group, and Calpine are hereby granted.
    (B) The requests for rehearing and clarification of the November 8 
Order are hereby granted in part and denied in 

[[Page 39163]]
part (or dismissed) as discussed in the body of this order.

    By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 95-18830 Filed 7-31-95; 8:45 am]
BILLING CODE 6717-01-P