[Federal Register Volume 63, Number 230 (Tuesday, December 1, 1998)]
[Rules and Regulations]
[Pages 66011-66013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31960]


-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM93-24-001; Order No. 600-A]


Revision of Fuel Cost Adjustment Clause Regulation Relating to 
Fuel Purchases From Company-Owned or Controlled Source; Order Denying 
Rehearsing and Other Relief

Issued November 24, 1998.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; Order denying rehearing and other relief.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission (Commission) denies a 
request, filed October 21, 1998, by Pacific Gas and Electric Company, 
for clarification, reconsideration or rehearing of the Final Rule, 
issued September 21, 1998, in which the Commission amended 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.

FOR FURTHER INFORMATION CONTACT: Wayne W. Miller, Federal Energy 
Regulatory Commission, Office of the General Counsel, 888 First Street, 
NE, Washington, DC 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, NE, Room 2A, Washington, DC 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

[[Page 66012]]

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, 
12000, 9600, 7200, 4800, 2400, or 1200 bps, full duplex, no parity, 8 
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, NE, Washington, DC 20426.

    Before Commissioners: James J. Hoecker, Chairman; Vicky A. 
Bailey, William L. Massey, Linda Breathitt, and Curt Hebert, Jr.

    On October 21, 1998, Pacific Gas and Electric Company (PG&E) filed 
a request for clarification, reconsideration or rehearing of the Final 
Rule, issued September 21, 1998.1 The Final Rule amended 
section 35.14(a)(7) of the Commission's regulations, 18 CFR 
Sec. 35.14(a)(7) (1998), relating to fuel adjustment clauses, to state 
that where a regulatory body has jurisdiction over the price of fuel 
purchased by a utility from a company-owned or controlled source, and 
that regulatory body exercises that jurisdiction to approve such price, 
the Commission will presume, subject to rebuttal (rather than 
conclusively ``deem'') the cost of fuel so purchased to be reasonable 
and includable in the fuel adjustment clause. We deny the request for 
rehearing and other relief.
---------------------------------------------------------------------------

    \1\ Revision of Fuel Cost Adjustment Clause Regulation Relating 
to Fuel Purchases From Company-Owned or Controlled Source, Order No. 
600, 63 FR 53,085 (October 7, 1998), FERC Stats. & Regs. para. 31, 
066 (1998) (Final Rule).
---------------------------------------------------------------------------

Background

    In 1993, the Commission proposed to amend section 35.14(a)(7) of 
the Commission's regulations, relating to fuel adjustment clauses, to 
state that where a regulatory body has jurisdiction over the price of 
fuel purchased by a utility from a company-owned or controlled source, 
and that regulatory body exercises that jurisdiction to approve such 
price, the Commission will presume, subject to rebuttal (rather than 
conclusively ``deem'') the cost of fuel so purchased to be reasonable 
and includable in the fuel adjustment clause.2 The 
Commission explained that the need for this amendment arises from the 
decision of the D.C. Circuit in Ohio Power Company v. FERC, 954 F.2d 
779 (D.C. Cir.), cert. denied, 506 U.S. 981 (1992) (Ohio Power). In 
Ohio Power, among other things, the D.C. Circuit held that section 
35.14(a)(7) establishes a conclusive presumption that a Securities and 
Exchange Commission (SEC)-approved price for an inter-affiliate fuel 
purchase is just and reasonable and, accordingly, cannot be upset by 
the Commission. In analyzing section 35.14(a)(7), the court focused on 
the meaning of the word ``deemed,'' finding that it establishes a 
conclusive presumption regarding the reasonableness of SEC-approved 
prices. The court thus rejected the Commission's position that the word 
``deemed'' sets only a rebuttable presumption.3
---------------------------------------------------------------------------

    \2\ Revision of Fuel Cost Adjustment Clause Regulation Relating 
to Fuel Purchases From Company-Owned or Controlled Source, 58 FR 
51,259 (October 1, 1993), IV FERC Stats. & Regs. para. 32,502 (1993) 
(NOPR).
    \3\ 954 F.2d at 783-84.
---------------------------------------------------------------------------

    As a consequence, the Commission proposed to amend section 
35.14(a)(7) to clearly specify only a rebuttable presumption of 
reasonableness, making it clear that the Commission has no intention of 
abdicating its statutory responsibility to independently review 
wholesale rates (including fuel adjustment clauses) to ensure that they 
are just and reasonable. The Commission noted a special need for 
Commission review when affiliate transactions are involved.
    The Commission received 12 comments in response to this NOPR; PG&E 
did not submit any comments. While generally in accord with (or at 
least neutral to) the intent of the NOPR, the commenters suggested 
various changes to the proposed regulation. The suggested modifications 
principally involved three concerns: (a) whether the relevant sentence 
of section 35.14(a)(7) should simply be eliminated, rather than revised 
to set forth a rebuttable presumption; (b) the meaning of the term 
``regulatory body'' in the proposed rule; and (c) retroactivity. After 
reviewing and considering the comments, the Commission issued its Final 
Rule amending section 35.14(a)(7) in the manner initially proposed in 
the NOPR.
    As relevant here, in the Final Rule, the Commission stated that, as 
to challenges to affiliate fuel prices recovered through the fuel 
adjustment clause prior to the effective date of this rule change 
(November 6, 1998) (and which are not subject to an alternate ground 
for decision in Ohio Power), how the Commission should address such 
challenges is best decided in each individual case in which the issue 
arises, rather than generically in the abstract.4
---------------------------------------------------------------------------

    \4\ FERC Stats. & Regs. para. 31,066 at 30,727. The Commission 
noted that 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. Consequently, the 
Commission stated that it has sanctioned after-the-fact review and 
refunds in later proceedings. Without later review and the ability 
to order refunds, the Commission explained, overcharges collected 
through the fuel adjustment clause would be exempt from all scrutiny 
and refunds. Id. at 30,727, n.21.
---------------------------------------------------------------------------

PG&E's Request

    PG&E requests clarification that the Commission did not intend to 
apply the new rule to inter-affiliate fuel purchases that occurred, and 
were approved by regulatory authorities with jurisdiction over the 
purchases, prior to the effective date of the Final Rule. If the 
Commission did intend to leave the door open to such retroactive 
application, then PG&E requests reconsideration or rehearing. PG&E 
contends that any retroactive application of the new rule to inter-
affiliate fuel purchases before the effective date of the Final Rule 
exceeds the Commission's authority under the Federal Power Act (FPA), 
and the Administrative Procedure Act (APA). PG&E argues that the 
Commission may not circumvent this prohibition by implementing a new 
legislative rule retroactively in case-by-case 
adjudications.5 Additionally, PG&E argues that, because the 
NOPR was

[[Page 66013]]

silent on potential retroactive application of the rule, retroactive 
application violates the APA's notice and comment 
procedures.6
---------------------------------------------------------------------------

    \5\ PG&E maintains that the precedents cited by the Commission 
in footnote 21 of the Final Rule are inapplicable because in none of 
those cases did the Commission apply a new legislative rule 
retroactively in later adjudications. Instead, PG&E argues, the 
Commission retroactively reviewed the reasonableness of costs flowed 
through formula rates, applying the same regulations that were in 
effect at the time the costs were incurred. PG&E Request at 3.
    \6\ 5 U.S.C. 553 (1994).
---------------------------------------------------------------------------

Discussion

    We will deny PG&E's request for clarification, reconsideration and 
rehearing.
    We disagree with PG&E that the Commission must clarify or 
reconsider the Final Rule at this time because of retroactivity 
concerns. In the Final Rule, the Commission did not state that it 
necessarily would take any particular action. Rather, the Commission 
merely stated that challenges to affiliate fuel prices recovered 
through the fuel adjustment clause prior to the effective date of this 
rule change are best decided on a case-by-case basis. When the 
Commission is presented with a case involving fuel adjustment clause 
recovery before the effective date of the Final Rule of the price of 
affiliate fuel purchases, the Commission can determine at that time how 
best to proceed.

The Commission Orders

    PG&E's request for clarification, reconsideration and rehearing is 
hereby denied, as discussed in the body of this order.

    By the Commission.

( S E A L )
David P. Boergers,
Secretary.
[FR Doc. 98-31960 Filed 11-30-98; 8:45 am]
BILLING CODE 6717-01-P