[Federal Register Volume 62, Number 208 (Tuesday, October 28, 1997)]
[Notices]
[Pages 55793-55796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28540]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission
[Docket No. EL95-3-001]


MidAmericna Energy Company (formerly Midwest Power Systems Inc.; 
Order Granting Intervention and Denying Rehearing

Issued October 22, 1997.
    Before Commissioners: James J. Hoecker, Chairman; Vicky A. 
Bailey, and William L. Massey.

    On June 13, 1997, Southern Company Services, Inc. (Southern) \1\ 
filed a motion to intervene out of time and a request for rehearing of 
the Commission's order issued May 15, 1997. MidAmerican Energy Company 
(formerly Midwest Power Systems, Inc.), 79 FERC para. 61,169 (1997) 
(May 15 order). For the reasons stated below, we will grant the motion 
to intervene and deny the rehearing request.
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    \1\ Southern states that it is acting as agent for Alabama Power 
Company, Georgia Power Company, Gulf Power Company, Mississippi 
Power Company, and Savannah Electric and Power Company (collectively 
referred to as the Southern Companies).
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Background

    In the May 15 order, the Commission: (a) dismissed as moot a 
request by Midwest Power, a division of Midwest Power Systems Inc. 
(Midwest Power or Applicant),\2\ for a declaratory order authorizing it 
to reduce its annual composite rate of depreciation for accounting 
purposes;\3\ and (b) clarified its order, issued April 19, 1994, in 
Midwest Power Systems Inc., 67 FERC para. 61,076 (1994) (Midwest 
Power), which noted that section 302(a) of the FPA, 16 U.S.C. 
Sec. 825a(a) (1994), requires that public utilities and licensees filed 
for Commission approval of proposed depreciation rate changes for 
accounting purposes. The Commission noted that, notwithstanding the 
clear language of section 302(a), there apparently was some confusion 
in the industry as to what should be done. Accordingly, the Commission 
did not require public utilities and licensees to file for formal 
approval of depreciation rate changes for accounting purposes where the 
depreciation rate changes were based on sound depreciation accounting 
practices and implemented prior to April 19, 1994. For changes in 
depreciation rates for accounting purposes implemented on or after 
April 19, 1994, and prior to the date of publication of the May 15 
order in the Federal Register,\4\ the Commission accorded public 
utilities and licensees an amnesty period extending to and including 
December 31, 1997, to make filings to change their depreciation rates 
for accounting purposes.\5\
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    \2\ By order issued June 22, 1995, the Commission authorized the 
merger of Midwest Power and Iowa-Illinois Gas and Electric Company. 
MidAmerican Energy Company is the surviving corporation. See Midwest 
Power Systems, Inc. and Iowa-Illinois Gas and Electric Company, 71 
FERC para. 61,386 (1995).
    \3\ Midwest Power did not make this proposal in the context of a 
ratemaking proceeding under sections 205 or 206 of the Federal Power 
Act (FPA). 16 U.S.C. Secs.  824d, e (1994). Accordingly, this order 
addresses only changes in depreciation rates for accounting 
purposes, and not recovery of depreciation-related expenses in, or 
changes in, electric rates and charges. Likewise, this order does 
not address requests to change depreciation rates that are made as 
part of proposals to change electric rates and charges under 
sections 205 or 206 of the EPA.
    \4\ The order was published in the Federal Register on May 22, 
1997.
    \5\ The Commission also clarified that requests for depreciation 
rate changes for accounting purposes may be made under Rule 204 of 
the commission's Rules of Practice and Procedure, 18 CFR 
Sec. 385.204 (1996), which does not require payment of a filing fee.
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Southern's Rehearing Request

    Southern has moved to intervene out of time in order to seek 
rehearing of the

[[Page 55794]]

May 15 order. Southern argues that section 302 is an enabling statute 
and is not self-executing. Thus, Southern maintains, section 302 does 
not require public utilities and licensees to seek Commission 
authorization. Rather, while section 302 authorizes the Commission to 
fix depreciation rates, the Commission may do so only if the Commission 
first holds a hearing and provides prior notice to the affected state 
commissions.
    Southern argues that there is no evidence in the legislative 
history that congress intended section 302 to impose an affirmative 
obligation on public utilities and licensees to obtain formal pre-
approval of depreciation rates; rather, the Commission must comply with 
the preconditions of section 302(b) (i.e., to receive and consider the 
views of state commissions before prescribing any rules or requirements 
as to depreciation rates).
    Southern next argues that the Commission has never interpreted 
section 302 to impose an affirmative obligation on public utilities and 
licensees to secure formal Commission pre-approval for all depreciation 
rate changes, but has either avoided the issue, citing Arkansas Power & 
Light Co., 8 FPC 106 (1949) (AP&L),\6\ or held that section 205 of the 
FPA could be used as the procedural vehicle to set depreciation rates, 
citing Carolina Power & Light Co., 55 FPC 817 (1976) (CP&L).\7\ 
Southern adds that there is little judicial precedent regarding 
interpretation of section 302.\8\ Southern argues that because the May 
15 order departs from past precedent without a reasoned explanation, it 
is arbitrary and capricious.\9\
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    \6\ Southern states that in AP&L, 8 FPC at 121, the company had 
argued that this Commission could only require adjustments to the 
depreciation reserve in a proceeding under section 302(a), and 
inasmuch as this Commission had issued no rules or regulations under 
section 302(a), the prior action of the Arkansas Commission 
(authorizing the contested accounting entry) was controlling. 
Southern argues that, instead of responding to this argument, this 
Commission brushed it aside by clarifying that it was acting under 
section 301(a) of the FPA, 16 U.S.C. Sec. 825(a) (1994), and not 
section 302.
    \7\ Southern notes that in CP&L, 55 FPC at 819, the Commission 
stated:
    With respect to the issue of CP&L's increased depreciation rates 
reflected in its filing both [intervenors] contend that Section 302 
of the Federal Power Act requires that an increase in depreciation 
must be approved prior to the time it may be reflected in a 
company's rate filing and that the rate may only be permitted to be 
utilized prospectively from the Commission's finding. It is our view 
that the intervenor's reading of Section 302 of the Federal Power 
Act is too restrictive. Nothing in that section prevents rates 
utilizing an increased depreciation rate from being permitted to 
become effective subject to refund.
    (emphasis in original).
    \8\ Citing Jersey Central Power & Light Co. v. FPC, 129 F.2d 
183, 189 n.2 (3d Cir. 1942) (finding that the court had jurisdiction 
to review the Commission's determination that Jersey Central is a 
public utility within the meaning of the Federal Power Act, and 
reciting the applicable statutory provisions, including sections 301 
and 302); Hartford Electric Light Co. v. FPC, 131 F.2d 953, 963 n.20 
(2d Cir. 1942) (in which the court observed that since petitioner is 
a public utility subject to the Commission's jurisdiction, the 
Commission would have authority to fix depreciation rates under 
section 302); Safe Harbor Water Power Corp v. FPC, 179 F.2d 179, 199 
(3d Cir. 1949) (in which the court approved the Commission's finding 
that a straight-line depreciation method is proper under section 
302); and Union Electric Co. v. FPC, 326 F.2d 535, 539 n.1 (8th Cir. 
1964), rev'd on other grounds, 381 U.S. 90 (1965) (stating that the 
Commission may fix rates of depreciation and may prescribe what 
charges are to be treated as depreciation charges).
    \9\ We note that, contrary to Southern's claim, the Commission 
in its prior orders has never held that under section 302 of the FPA 
public utilities and licensees were not required to file for 
approval of changes in their depreciation rates for accounting 
purposes with the Commission. The Commission has also never stated 
that they could change their depreciation rates for accounting 
purposes unilaterally without a filing with the Commission.
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    Southern claims that the Commission violated the Administrative 
Procedure Act (APA) \10\ by failing to provide for prior notice and 
comment before issuing the May 15 order, which it characterizes as 
rulemaking. Further, Southern contends that any ``rule'' the Commission 
might promulgate can only be applied prospectively, and argues that the 
Commission erred in applying the ``rule'' announced in the May 15 order 
retroactively to the date of the Midwest Power decision.
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    \10\ 5 U.S.C. Secs. 551 et seq. (1994).
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    Southern next argues that while the May 15 order provides for 
notification to state commissions, this notification does not satisfy 
the requirements of section 302 because the states and interested 
parties were not accorded an opportunity to have their views heard 
before Commission announced its policy.\11\ Southern maintains that the 
Commission's decision in Prior Notice and Filing Requirements Under 
Part II of the Federal Power Act, 64 FERC para. 61,138, order on reh'g, 
65 FERC para. 61,081 (1993) (Prior Notice), confirms that the 
Commission should have provided prior notice and allowed for the filing 
of comments and participation by affected parties.\12\ Southern also 
argues that the May 15 order violates its due process rights because 
Southern was not allowed to challenge the Commission's requirements set 
forth in that order.\13\ Further, Southern argues that to the extent 
the May 15 order establishes an amnesty period to submit proposed 
depreciation rate changes, it again violates the requirements of 
section 302, the APA, and considerations of due process.\14\
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    \11\ While we, in fact, did provide for the May 15 order to be 
sent to all of the state commissions, and also published in the 
Federal Register, see 79 FERC at 61,795; 62 Fed. Reg. 28,105 (1997), 
not a single state commission has responded or otherwise indicated 
any objection to or disagreement with the order.
    \12\ The Prior Notice proceeding is distinguishable, as it 
involved questions of what agreements were jurisdictional in the 
first instance and therefore needed to be filed. See Prior Notice, 
64 FERC at 61,973, 61,977-78, 61,984-96. Here, in contrast, as 
discussed below, the need for public utilities and licensees to file 
for Commission authorization to change their depreciation rates for 
accounting purposes is plain on the face of the statute.
    \13\ In this regard, however, we note that Southern has had an 
opportunity here, on rehearing, to make its case. See, e.g., 
Accounting Release AR-14, 58 FERC para. 61,166 at 61,501 & n.45 
(1992). Moreover, we have not, in this proceeding, acted on any 
proposed depreciation rate change of Southern; rather, we have 
instead simply reiterated the need for public utilities and 
licensees to file with this Commission as required by section 302 of 
the FPA.
    When public utilities and licenses make filings seeking to 
change their depreciation rates for accounting purposes, our 
practice is to publish notice of such filings in the Federal 
Register. In fact, notice of Midwest Power's filing in this 
proceeding (i.e., its petition for a declaratory order) was 
published in the Federal Register. See 79 FERC at 61, 794; 59 Fed. 
Reg. 55,472 (1994).
    \14\ The amnesty period we provided for in the May 15 order was 
simply an accommodation to the industry to allow them the 
opportunity to make filings that would be considered timely. The 
Commission was not required to provide such an amnesty period, but 
chose to do so; the Commission's interest is in ensuring that public 
utilities and licensees comply with the statute's requirements, and 
the Commission believed that an amnesty period would further that 
policy.
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    Southern also argues that the May 15 order imposes unnecessary 
regulations and filing requirements, which are inconsistent with 
ongoing changes in the electric utility industry. Southern notes the 
increasing use of market-based rates by public utilities and power 
marketers. It submits that entities selling at market-based rates do 
not predicate their charges on their depreciation expenses or any other 
identified cost components. Southern also notes the availability of 
section 205 and 206 proceedings to establish and monitor depreciation 
rates.
    Finally, Southern notes that the overwhelming majority of plant and 
equipment affected by the May 15 order is used to provide retail 
electric service under state jurisdiction. It argues that if the 
Commission imposes a preapproval policy, public utilities could be 
subjected to incompatible regulatory requirements, with the Commission 
requiring one depreciation rate to be reflected in the utilities' books 
of account while a state commission could require a different 
depreciation rate. It maintains that the Commission should only 
regulate the depreciation accounting practices of jurisdictional public 
utilities to the extent the

[[Page 55795]]

underlying capital is dedicated to jurisdictional, cost-based service.

Discussion

    Southern's motion to intervene out of time is unopposed, and 
Southern's interests may be affected by the outcome of this proceeding 
and cannot be represented by any other party. Nor would granting 
intervention result in undue prejudice. In these circumstances, we find 
good cause to grant Southern's motion to intervene out of time.
    We will deny Southern's rehearing request. Contrary to Southern's 
position, pursuant to the express language of section 302 of the FPA 
public utilities and licensees must obtain Commission approval for 
changes in depreciation rates for accounting purposes.
    Section 301(a) of the FPA, 16 U.S.C. Sec. 825(a) (1994), in the 
first instance empowers the Commission to require utilities to keep 
``accounts, records of cost-accounting procedures, correspondence, 
memoranda, papers, books and other records as the Commission may by 
rules and regulations prescribe as necessary or appropriate for 
purposes of the administration of this Act * * *.'' \15\ Section 302(a) 
of the FPA, 16 U.S.C. Sec. 825a(a) (1994), in turn, states that ``[t]he 
Commission may, after hearing, require licensees and public utilities 
to carry a proper and adequate depreciation account in accordance with 
such rules, regulations and forms of account as the Commission may 
prescribe * * *.'' \16\ (The Commission has, in fact, after notice and 
opportunity for hearing, adopted the Uniform System of Accounts,\17\ 
which prescribes depreciation accounting procedures for public 
utilities and licensees.\18\) Section 302(a) goes on to state that 
``[t]he licensees and public utilities subject to the jurisdiction of 
the Commission shall not charge to operating expenses any depreciation 
charges on classes of property other than those prescribed by the 
Commission, or charge with respect to any class of property a 
percentage of depreciation other than that prescribed therefor by the 
Commission.'' \19\
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    \15\ Accord, H.R. Rep. No. 74-1318, at 30 (1935); S. Rep. No. 
74-621, at 53 (1935). The Commission's authority to prescribe a 
uniform system of accounts and to require jurisdictional utilities 
to keep accounts in the manner prescribed is well-settled. See 
Kansas Gas and Electric Company, 43 FERC para. 61,248 at 61, 675 
(1988); accord, Union Electric Company, 52 FERC para. 61,279 at 
62,109 (1990) (Union Electric).
    This commission is not bound by a state commission's 
determinations regarding either accounting or ratemaking. See, e.g., 
Union Electric, 52 FERC at 62,112 (citing Kentucky Utilities Company 
v. FERC, 760 F.2d 1321, 1327 (D.C. Cir. 1985)).
    \16\ Accord, H.R. Rep. No. 74-1318, at 31 (1935).
    \17\ See, e.g., Uniform System of Accounts Prescribed for Class 
A and Class B Public Utilities and Licensees, 23 FPC 772, 773-74 
(1960).
    \18\ See e.g., 18 CFR Part 101, Definition 12 and Account 108 
(1996).
    \19\ Accord, H.R. Rep. No. 74-1318, at 31 (1935).
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    Contrary to Southern's argument, therefore, section 302 is not a 
mere enabling provision, but, rather, expressly imposes a mandatory 
obligation on public utilities and licensees not only to comply with 
the Commission's regulations governing depreciation accounting, but, 
more importantly for present purposes, to employ as depreciation 
charges and rates only those charges and rates that have been 
prescribed by the Commission.\20\ Section 302 thus requires that before 
a public utility or licensee may change its depreciation rates for 
accounting purposes it must secure Commission authorization to do so.
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    \20\ See Midwest Power, 67 FERC at 61,209-09. As the Commission 
stated in Midwest Power, 67 FERC at 61,208, the Commission has a 
``statutory obligation to ensure that proper amounts of depreciation 
are charged to expense in each financial reporting period.''
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    Nor are we persuaded by Southern's argument that it was denied 
notice and opportunity to comment as required by the APA and the Due 
Process Clause of the United States Constitution. We believe that the 
May 15 order did little more than reiterate the statutory obligation 
imposed on public utilities and licensees by Congress in 1935--
reminding public utilities and licensees of the obligation to file, 
according them an amnesty period to do so, and suggesting how they 
might wish to structure their filings. Thus, we believe that the May 15 
order properly may be characterized as an ``interpretative rule'' 
exempt from the formal notice and comment procedures of the APA.\21\ 
Courts have found that an interpretative rule is merely a statement of 
what an agency thinks a given statute or regulation means, and thus 
only reminds affected parties of their duties.\22\ In Fertilizer 
Institute, et al. v. EPA, 935 F.2d 1303, 1308 (D.C. Cir. 1991), the 
United States Court of Appeals for the District of Columbia Circuit 
explained that ``as a general rule, an agency can declare its 
understanding of what a statute requires without providing notice and 
comment * * *.'' The court also explained that agency action does not 
require notice and comment merely because if it ``affect[s] how parties 
act * * *--regardless of the consequences of a rulemaking, a rule will 
be considered interpretative if it represents an agency's explanation 
of a statutory provision.''
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    \21\ Under the APA, 5 U.S.C. Sec. 553(b)(A) (1994), the notice 
requirements otherwise applicable to notices of proposed rulemaking 
are not required for ``interpretative rules, general statements of 
policy, or rules of agency organization, procedure, or practice, * * 
*'' unless specifically required by statute. Additionally, the FPA 
itself contains no requirement for formal notice and comment 
procedures. See 16 U.S.C. Sec. 825h (1994); accord, 16 U.S.C. 
Secs. 825(a), 825a(a) (1994) (sections 301 and 302 of the FPA 
nowhere specifically provide for formal notice and comment 
procedures before the Commission may adopt rules and regulations 
applicable to accounting or depreciation).
    Moreover, consistent with the Commission's practice to publish 
notice of requests to change depreciation rates for accounting 
practices, see supra note 13, Midwest Power's request for 
declaratory order in this proceeding was noticed in the Federal 
Register. See 79 FERC at 61,794; 59 Fed. Reg. 55, 472 (1994). We 
note that the Iowa Utilities Board filed a notice of intervention in 
response to the Federal Register notice and thus was a party to the 
proceeding, see 79 FERC at 61,794, but it did not file in response 
to the May 15 order.
    \22\ See, e.g., General Motors Corp. v. Ruckelshaus, 742 F.2d 
1561, 1565 (D.C. Cir. 1984), cert. denied, 471 U.S. 1074 (1985); 
accord, Orengo Caraballo v. Reich, 11 F.3d 186, 195 (D.C. Cir. 
1993); United Technologies Corp. v. EPA, 821 F.2d 714, 718-20 (D.C. 
Cir. 1987).
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    In American Mining Congress, et al. v. Mine Safety & Health 
Administration, et al., 995 F.2d 1106, 1112 (D.C. Cir. 1993),\23\ the 
court determined that, in contrast to an ``interpretative rule,'' an 
agency's rule is a ``legislative rule,'' and thus subject to the formal 
notice and comment procedures of the APA, if any of the following 
questions could be answered in the affirmative:
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    \23\ Accord, National Wildlife Federation v. Babbitt, 835 F. 
Supp. 654, 666-67 (D.D.C. 1993).
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    (1) whether in the absence of the rule there would not be an 
adequate legislative basis for enforcement action or other agency 
action to confer benefits or ensure that the performance of duties, (2) 
whether the agency has published the rule in the Code of Federal 
Regulations, (3) whether the agency has explicitly invoked its general 
legislative authority, or (4) whether the rule effectively amends a 
prior legislative rule.
    The May 15 order does not require an affirmative answer to any of 
these questions. First, as noted, section 302(a) of the FPA expressly 
requires public utilities and licensees to employ as their depreciation 
charges and rates only those charges and rates that have been 
prescribed by the Commission, and thus to secure Commission 
authorization to change their depreciation rates for accounting 
purposes. Accordingly, there is no legislative gap that required the 
May 15 order as a predicate to enforcement action. Nor did the 
Commission purport to act legislatively either by including the May 15 
order in

[[Page 55796]]

the Code of Federal Regulations or by invoking its general legislative 
authority under Part II of the FPA. Finally, the May 15 order does not 
constitute an amendment of a prior legislative rule. We conclude, 
therefore, that the May 15 order is an interpretative rule.
    Moreover, in this regard, the May 15 order did not set a 
depreciation rate for accounting purposes for Southern (or any public 
utility or licensee).\24\ It merely reminded all public utilities and 
licensees of the need to obtain Commission authorization for changes in 
their depreciation rates for accounting purposes.
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    \24\ Indeed, even Midwest Power's request for a declaratory 
order was dismissed, as Midwest Power's depreciation rate change for 
accounting purposes was effective prior to Midwest Power and was 
based on sound depreciation accounting practices. 70 FERC at 61,793.
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    We also are not persuaded by Southern's arguments that changes in 
the electric utility industry somehow warrant allowing entities not to 
comply with the requirement that we approve their depreciation rates 
for accounting purposes. While Southern suggests that the movement to 
market-based power sales rates warrants our relieving public utilities 
and licensees of the requirement that they file, the fact is that there 
yet remain many cost-based power sales rates, as well as cost-based 
transmission rates, that reflect the companies' depreciation rates.\25\ 
Nevertheless, we have strived to comply with out statutory 
responsibilities in the least burdensome, and the most expeditious, 
manner possible. Our intent is not to unduly burden the industry, but 
to fulfill our statutory responsibilities. Thus, we have allowed an 
amnesty period until the end of the year for these filings. 
Additionally, we allow these filings to be made under Rule 204 of the 
Commission's Rules of Practice and Procedure, 18 CFR Sec. 285.204 
(1996), which does not require payment of a filing fee. We also expect 
that the vast majority of these filings can be processed expeditiously 
by the Office of the Chief Accountant.\26\
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    \25\ See, e.g., American Municipal Power-Ohio, Inc., et al., 57 
FERC para. 61,358 at 62,161 & n.5 (1991), reh'g denied, 58 FERC 
para. 61,182 (1992). For power marketers or other entities that only 
sell at market-based rates, the Commission does not prescribe 
depreciation rates for accounting purposes. Indeed, the Commission's 
accounting requirements under Part 101 of its regulations are 
typically waived for such entities. See, e.g., PEC Energy Marketing, 
Inc. 79 FERC para. 61,329 at 62,433 (1997). Accordingly, those 
entities would not need to submit any filings pursuant to section 
302 of the FPA.
    \26\ See 79 FERC at 61,794 n.8.
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    Finally, we disagree with Southern's contention that this 
Commission should regulate depreciation accounting practices of 
jurisdictional public utilities only to the extent that the underlying 
capital is dedicated to jurisdictional service. The Commission's 
authority to prescribe a uniform system of accounts and to require a 
public utility to keep accounts accordingly is not open to doubt.\27\ 
If a state desires a utility to keep a separate set of books for retail 
ratemaking purposes, however, the state is free to direct the utility 
to do so.\28\
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    \27\ See supra note 15 and accompanying text.
    \28\ Arkansas Power & Light Co. v. FPC, 185 F.2d 751, 752 (D.C. 
Cir. 1950), cert. denied, 341 U.S. 909 91951); accord, H.R. Rep. No. 
74-1318, at 30-31 (1935); S. Rep. No. 74-621, at 53 (1935).
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The Commission orders

    (A) Southern's motion to intervene out of time is hereby granted, 
as discussed in the body of this order.
    (B) Southern's request for rehearing is hereby denied, as discussed 
in the body of this order.
    (C) The Secretary shall promptly publish a copy of this order in 
the Federal Register.
    (D) The Secretary shall promptly serve copies of this order on all 
State commissions, as defined in section 3(15) of the Federal Power 
Act.

    By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 97-28540 Filed 10-27-97; 8:45 am]
BILLING CODE 6717-01-M