[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 
the texts of formal documents issued by the Commission. CIPS can be 
accessed via Internet through FERC's Homepage (http://www.ferc.fed.us) 
using the CIPS Link or the Energy Information Online icon. The full 
text of this document will be available on CIPS in ASCII and 
WordPerfect 6.1 format. CIPS is also available through the Commission's 
electronic bulletin board service at no charge to the user and may be 
accessed using a personal computer with a modem by dialing 202-208-
1397, if dialing locally, or 1-800-856-3920, if dialing long distance. 
To access CIPS, set your communications software to 19200, 14400, 
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data bits and 1 stop bit. User assistance is available at 202-208-2474 
or by E-mail to [email protected].
    This document is also available through the Commission's Records 
and Information Management System (RIMS), an electronic storage and 
retrieval system of documents submitted to and issued by the Commission 
after November 16, 1981. Documents from November 1995 to the present 
can be viewed and printed. RIMS is available in the Public Reference 
Room or remotely via Internet through FERC's Homepage using the RIMS 
link or the Energy Information Online icon. User assistance is 
available at 202-208-2222, or by E-mail to [email protected].
    Finally, the complete text on diskette in WordPerfect format may be 
purchased from the Commission's copy contractor, RVJ International Inc. 
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