[Federal Register Volume 66, Number 55 (Wednesday, March 21, 2001)]
[Rules and Regulations]
[Pages 15793-15796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7001]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 382

[Docket No. RM00-7-001; 
Order No. 641-A]


Revision of Annual Charges Assessed to Public Utilities

March 15, 2001.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Order Denying Rehearing and Granting Clarification in Part.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
denying rehearing and granting clarification in part of its order 
amending its regulations to establish a new methodology for the 
assessment of annual charges to public utilities. Under this new 
methodology, annual charges will be assessed to public utilities that 
provide transmission service based on the volume of electricity 
transmitted by those public utilities. In effect, the Commission will 
assess annual charges on transmission rather than on both power sales 
and transmission.

EFFECTIVE DATE: This Order Denying Rehearing and Granting Clarification 
in Part will become effective on March 15, 2001.

FOR FURTHER INFORMATION CONTACT:
Herman Dalgetty (Technical Information), Office of the Executive 
Director and Chief Financial Officer, 888 First Street, N.E., 
Washington, D.C. 20426, (202) 219-2918.

Lawrence R. Greenfield (Legal Information), Office of the General 
Counsel, 888 First Street, N.E., Washington, D.C. 20426, (202) 208-
0415.

SUPPLEMENTARY INFORMATION:

Order Denying Rehearing and Granting Clarification in Part

Issued March 15, 2001.

I. Introduction

    In an effort to reflect changes in the electric industry and in the 
way the Federal Energy Regulatory Commission (Commission) regulates the 
electric industry, in Order No. 641,\1\ the Commission amended its 
regulations to establish a new methodology for the assessment of annual 
charges to public utilities. Under the new regulations, annual charges 
will be assessed to public utilities that provide transmission service 
based on the volume of electricity they transmit. The new regulations 
will result in the Commission's assessing annual charges on 
transmission rather than, as previously, assessing annual charges on 
both power sales and transmission.
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    \1\ Revision of Annual Charges Assessed to Public Utilities, 
Order No. 641, 65 FR 65,757 (November 2, 2000), FERC Stats. & Regs. 
para. 31,109 (2000) (Order No. 641).
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    On November 27, 2000, Public Service Electric and Gas Company 
(PSE&G) filed a request for rehearing of Order No. 641, and, 
separately, the California Independent System Operator Corporation 
filed a motion for clarification of Order No. 641. As discussed below, 
rehearing will be denied, and clarification will be granted in part.

II. Background

A. Commission Authority

    The Commission is required by section 3401 of the Omnibus Budget 
Reconciliation Act of 1986 (Budget Act) \2\ to ``assess and collect 
fees and annual charges in any fiscal year in amounts equal to all of 
the costs incurred * * * in that fiscal year.'' \3\ The annual charges 
must be computed based on methods which the Commission determines to be 
``fair and equitable.'' \4\ The Conference Report accompanying the 
Budget Act provides the Commission with the following guidance as to 
this phrase's meaning:
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    \2\ 42 U.S.C. 7178.
    \3\ This authority is in addition to that granted to the 
Commission in sections 10(e) and 30(e) of the Federal Power Act 
(FPA). 16 U.S.C. 803(e), 823a(e).
    \4\ 42 U.S.C. 7178(b).

    [A]nnual charges assessed during a fiscal year on any person may 
be reasonably based on the following factors: (1) The type of 
Commission regulation which applies to such person such as gas 
pipeline or electric utility regulation; (2) the total direct and 
indirect costs of that type of Commission regulation incurred during 
such year; [\5\] (3) the amount of energy--electricity, natural gas, 
or oil--transported or sold subject to Commission regulation by such 
person during such year; and (4) the total volume of all energy 
transported or sold subject to Commission regulation by all 
similarly situated persons during such year.[\6\]
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    \5\ The Commission is required to collect not only all its 
direct costs but also all its indirect expenses such as hearing 
costs and indirect personnel costs. See H.R. Rep. No. 99-1012 at 238 
(1986), reprinted in 1986 U.S.C.C.A.N. 3868, 3883 (Conference 
Report); see also S. Rep. No. 99-348 at 56, 66 and 68 (1986).
    \6\ See Conference Report at 239 (1986 U.S.C.C.A.N. at 3884).

The Commission may assess these charges by making estimates based upon 
data available to it at the time of the assessment.\7\
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    \7\ 42 U.S.C. 7178(c).

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[[Page 15794]]

    The annual charges do not enable the Commission to collect amounts 
in excess of its expenses, but merely serve as a vehicle to reimburse 
the United States Treasury for the Commission's expenses.\8\
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    \8\ Id. at 7178(f). Congress approves the Commission's budget 
through annual and supplemental appropriations.
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B. Pre-Existing Annual Charge Billing Procedure

    As required by the Budget Act, the Commission's regulations 
provided for the payment of annual charges by public utilities.\9\ The 
Commission intended that these electric annual charges in any fiscal 
year would recover the Commission's estimated electric regulatory 
program costs (other than the costs of regulating Federal Power 
Marketing Agencies (PMAs) and electric regulatory program costs 
recovered through electric filing fees) for that fiscal year. In the 
next fiscal year, the Commission would adjust its annual charges up or 
down, as appropriate, to eliminate any over- or under-recovery of the 
Commission's actual costs and to correct any over- or under-charging of 
any particular person.\10\
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    \9\ 18 CFR Part 382; see Annual Charges Under the Omnibus Budget 
Reconciliation Act of 1986, Order No. 472, 52 FR 21263 and 24153 
(June 5 and 29, 1987), FERC Stats. & Regs. Regulations Preambles 
1986-1990 para. 30,746 (1987), clarified, Order No. 472-A, 52 FR 
23650 (June 24, 1987), FERC Stats. & Regs. Regulations Preambles 
1986-1990 para. 30,750, order on reh'g, Order No. 472-B, 52 FR 36013 
(Sept. 25, 1987), FERC Stats. & Regs. Regulations Preambles 1986-
1990 para. 30,767 (1987), order on reh'g, Order No. 472-C, 53 FR 
1728 (Jan. 22, 1988), 42 FERC para. 61,013 (1988).
    \10\ 18 CFR 382.201; see Order No. 472, FERC Stats. & Regs. 
Regulations Preambles 1986-1990 at 30,612-18; accord Annual Charges 
Under the Omnibus Budget Reconciliation Act of 1986, Order No. 507, 
53 FR 46445 (Nov. 17, 1985), FERC Stats. & Regs. Regulations 
Preambles 1986-1990 para. 30,839 at 31,263-64 (1988); Texas 
Utilities Electric Company, 45 FERC para. 61,007 at 61,027 (1988) 
(Texas Utilities).
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    In calculating annual charges, the Commission first determined the 
total costs of its electric regulatory program and subtracted all PMA-
related costs and electric filing fee collections to determine total 
collectible electric regulatory program costs. It then used the data 
submitted under FERC Reporting Requirement No. 582 (FERC-582) to 
determine the total volumes of long-term firm wholesale sales and 
transmission, and short-term sales and transmission and exchanges, for 
all assessable public utilities. The Commission divided those 
transaction volumes into its collectible electric regulatory program 
costs to determine the unit charge per megawatt-hour for each category 
of long-term and short-term transactions. Finally, the Commission 
multiplied the transaction volume in each category for each public 
utility by the relevant unit charge per megawatt-hour to determine the 
annual charges for each assessable public utility.\11\
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    \11\ 18 CFR 382.201; see Annual Charges Under the Omnibus Budget 
Reconciliation Act of 1986 (Phibro Inc.), 81 FERC para. 61,308 at 
62,424-25 (1997).
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    Public utilities subject to these annual charges were required to 
submit FERC-582 to the Office of the Secretary by April 30 of each 
year.\12\ The Commission issued bills for annual charges, and public 
utilities then were required to pay the charges within 45 days of the 
date on which the Commission issued the bills.\13\
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    \12\ 18 CFR 382.201(b)(4).
    \13\ See Texas Utilities, 45 FERC at 61,026.
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C. Order No. 641

    Since the issuance of Order No. 472, in 1987, the Commission 
explained in Order No. 641, the industry had undergone sweeping 
changes, and, as the landscape of the industry had changed and 
continued to change, the nature of the work of the Commission likewise 
had changed. Order No. 641 reflected these changes--changing the way in 
which the Commission assesses annual charges to recover its collectible 
electric regulatory program costs to reflect recent industry and 
Commission changes, by assessing annual charges to public utilities 
that provide transmission service based on the volumes of electric 
energy transmitted.\14\
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    \14\ Order No. 641, FERC Stats. & Regs. at 31,842; accord id. at 
31,843-56.
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III. Discussion

    On rehearing of Order No. 641, PSE&G makes two arguments. Neither 
of these arguments, as we explain below, is persuasive. Accordingly, we 
will deny rehearing.
    First, PSE&G argues that Order No. 641 does not collect annual 
charges in a ``fair and equitable'' manner. PSE&G argues that, by 
treating so-called unbundled retail transmission as transmission for 
purposes of calculating annual charges, those utilities that have 
unbundled their sales to their retail customers, in whole or in part, 
so that they are now providing unbundled retail transmission, will pay 
more in annual charges than those utilities that have not unbundled 
their sales to their retail customers. PSE&G argues that this is unfair 
and inequitable.\15\
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    \15\ PSE&G Rehearing at 2-5.
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    The Commission finds, however, that there is nothing unfair or 
inequitable about this. The statutory directive found in the Budget Act 
is to recover the Commission's costs. Where sales of electric energy to 
retail customers remain bundled (i.e., the power and transmission 
components associated with the sale of electric energy to retail 
customers are provided together, part and parcel, in a single, bundled 
package), the sale is not subject to Commission review and the 
Commission incurs no costs associated with its regulation; the sale is 
regulated by the states. Where sales of electric energy to retail 
customers have been unbundled (i.e., the power and transmission 
components are provided as distinct products or services to retail 
customers), the transmission component--the unbundled retail 
transmission--is subject to Commission review and the Commission incurs 
costs associated with its regulation. Unbundled retail transmission is 
a Commission-jurisdictional transmission service, just like any other 
Commission-jurisdictional transmission service.\16\ It is regulated by 
the Commission, just as any other Commission-jurisdictional 
transmission service is regulated by the Commission. And so it should 
not be excused, but instead should be included in the calculation of 
annual charges, just as any other Commission-jurisdictional 
transmission service is reflected in the calculation of annual charges.
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    \16\ See Order No. 641, FERC Stats. & Regs. at 31,849 n.51. This 
jurisdictional determination, made in Order No. 888, was affirmed by 
the District of Columbia Circuit in Transmission Access Policy Study 
Group, et al. v. FERC, 225 F.3d 667, 690-95 (D.C. Cir. 2000), cert. 
granted,--U.S.L.W.--(U.S. Feb. 26, 2001).
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    It is certainly true that those utilities that have unbundled to a 
comparatively greater extent than other utilities will be assessed a 
comparatively greater annual charge than other utilities. That fact, 
however, merely reflects that they are providing comparatively more 
Commission-jurisdictional transmission service, and so are 
comparatively more subject to Commission regulation--and thus will be 
comparatively more responsible for the Commission's costs. They should, 
therefore, be assessed a comparatively greater annual charge. They are 
not, however, thereby being charged a ``disproportionate'' share of the 
Commission's costs, as PSE&G claims.\17\ In addition, as we explained 
in Order No. 641, in the past the regulation of transmission bundled 
with retail power sales was done by the states, and any costs 
associated with such regulation would have been incurred by state 
regulatory commissions and would have been subject to the regulatory 
assessments of those commissions. Now, the regulation of transmission

[[Page 15795]]

associated with unbundled retail power sales will be done by this 
Commission, and the costs of such regulation will be incurred by this 
Commission and will appropriately be recovered in the annual charge 
assessments of this Commission. So, the end result is more a shifting 
of costs and assessments, rather than an absolute increase.\18\
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    \17\ PSE&G Rehearing at 3.
    \18\ Order No. 641, FERC Stats. & Regs. at 31,851.
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    Second, PSE&G argues that, because the Commission cannot ``say 
exactly how the annual [charges] will be cast among regulated 
parties,'' \19\ i.e., the Commission cannot identify ``the likely 
impacts of its new [annual charge] allocation method on all 
utilities,'' \20\ Order No. 641 must be reversed.\21\ PSE&G is wrong on 
several counts, however. Preliminarily, we note that the Commission is 
not required, contrary to PSE&G's implication, to have perfect 
information before it acts.\22\ Indeed, what PSE&G asks in this regard 
is contradicted by its own counter-proposal, for which there is no 
better information and no greater certainty compared to Order No. 641. 
PSE&G argues that the Commission should adopt ``an allocation method 
based on each utility's or [Regional Transmission Organization's] 
transmission revenue requirement,'' \23\ but that approach provides no 
greater certainty of the effect from year to year on any individual 
utility than the approach adopted in Order No. 641, or, for that 
matter, the approach used since the late 1980's. Neither PSE&G on 
rehearing, nor PSE&G and the others with whom it filed in their 
original comments, provides any explanation or justification of how 
this proposed allocation method would provide greater certainty.
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    \19\ PSE&G Rehearing at 6.
    \20\ Id. at 7.
    \21\ Id. at 5-7.
    \22\ United States Department of the Interior v. FERC, 952 F.2d 
538, 546 (D.C. Cir. 1992) (Commission is not required ``to have 
perfect information before it takes any action,'' and such a 
requirement would be ``contrary to the statutory standard that 
requires [a court] to affirm any [Commission] factual finding 
supported by substantial evidence'' and ``[m]ore practically . . . 
would hamstring the agency;'' ``[v]irtually every decision must be 
made under some uncertainty''); see also City of New Martinsville, 
West Virginia v. FERC, 102 F.3d 567, 572 (D.C. Cir. 1996) (''We 
recognize that the Commission must often work with incomplete 
information.'').
    \23\ PSE&G Rehearing at 7. In the original comments cited by 
PSE&G, see id. at 7 nn.15-16, PSE&G and the others with whom it 
filed proposed basing annual charges ``on the relative share of the 
total transmission revenue requirement * * * of each transmission 
provider as compared to the total share of the [transmission revenue 
requirements] of all transmission providers.'' Comments of Atlantic 
City Electric Company, et al. at 2; accord id. at 6-7.
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    Moreover, PSE&G's counter-proposal would, in fact, provide no 
greater certainty. Just as the public utilities' transmission volumes 
which Order No. 641 uses change from year to year, transmission rates 
and the underlying transmission revenue requirements on which PSE&G 
would rely likewise change from year to year--as public utilities file 
changes in their transmission rates to reflect their changing costs. 
Similarly, the Commission's costs, the other piece of the annual 
charges equation, also change from year to year--and the Commission's 
costs change regardless of whether transmission volumes (per Order No. 
641) or transmission revenue requirements (per PSE&G) are used to 
calculate the annual charge assessments.
    In addition, we note that, in their original comments, PSE&G and 
the others with whom it filed never made the argument that PSE&G 
advances here--PSE&G and the others never argued that the approach 
proposed by the Commission must fail because the effect on individual 
utilities could not be ascertained with certainty in advance.
    The approach taken by the Commission, and the Commission's reliance 
on the factors it has relied on, are, in fact, expressly authorized by 
the Budget Act and the accompanying Conference Report. As noted above, 
the Commission is required by section 3401 of the Budget Act to 
``assess and collect fees and annual charges in any fiscal year in 
amounts equal to all of the costs incurred . . . in that fiscal year.'' 
\24\ The Commission thus sets its annual charges to recover its costs, 
and, as relevant here, thus sets its electric annual charges to recover 
its collectible electric regulatory program costs.
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    \24\ See supra note 3 and accompanying text.
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    The annual charges also must be computed based on methods which the 
Commission determines are ``fair and equitable,'' \25\ and the 
Conference Report accompanying the Budget Act explains that the annual 
charges ``may be reasonably based on'' four factors:
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    \25\ See supra note 4 and accompanying text.

    (1) The type of Commission regulation which applies to such 
person such as gas pipeline or electric utility regulation; (2) the 
total direct and indirect costs of that type of Commission 
regulation incurred during such year; (3) the amount of energy--
electricity, natural gas, or oil--transported or sold subject to 
Commission regulation by such person during such year; and (4) the 
total volume of all energy transported or sold subject to Commission 
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regulation by all similarly situated persons during such year.[\26\]

    \26\ See supra note 6 and accompanying text.

These four factors are precisely the factors that the Commission has 
used in Order No. 641. Order No. 641, per factor (1), distinguishes 
electric regulation and its costs from gas regulation and its 
costs.\27\ Order No. 641, per factor (2), looks at the Commission's 
total electric regulatory program costs, and assesses in annual charges 
those costs not already recovered in filing fees or from the PMAs. Most 
critically and most relevant here, Order No. 641, per factors (3) and 
(4), looks, each year, to the total amounts of electric energy 
transmitted by all jurisdictional public utilities in developing the 
per unit charge for that year, and then it looks to each individual 
jurisdictional public utility's transmission in assessing an annual 
charge to that public utility.\28\
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    \27\ Accord Conference Report at 238-39 (1986 U.S.C.C.A.N. at 
3883-84).
    \28\ In fact, the Conference Report also stated that the 
conferees expected the Commission ``to assess annual charges 
proportionately on the basis of annual sales or volumes 
transported.'' Conference Report at 239 (1986 U.S.C.C.A.N. at 3884).
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    Moreover, the Commission has consistently taken this approach. The 
Commission in its pre-existing annual charge regulations, adopted in 
Order No. 472 in the late 1980's, assessed annual charges to public 
utilities in each year by identifying its collectible electric 
regulatory program costs to be collected from those utilities, and then 
identifying the total volume of transactions (at that time, both power 
sales and transmission) over which those costs would be spread. The 
results were per unit charges, which the Commission then used to 
determine (based on each public utility's volume of transactions) the 
annual charges to be assessed to each public utility.\29\
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    \29\ See supra notes 9-13 and accompanying text.
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    This same approach is the approach that the Commission continues to 
employ in Order No. 641. The only difference between what the 
Commission did before and what the Commission will do now is in the 
transaction volumes used. Previously, the Commission looked to both 
power sales and transmission transactions (and also did separate 
calculations to develop separate per unit charges for long-term and 
short-term transactions). Now, the Commission will look to only 
transmission transactions (and also will no longer distinguish between 
long-term and short-term transactions--all transmission transactions, 
regardless of length, will be treated identically).
    The California ISO does not seek rehearing of Order No. 641, but 
rather seeks clarification. As explained below, we will grant 
clarification in part.

[[Page 15796]]

    The California ISO notes that, under Order No. 641, annual charge 
assessments can be recovered from transmission customers as a 
legitimate cost of providing transmission service, but that the 
specifics of such recovery are left to be addressed by individual 
public utilities in case-by-case filings with the Commission.\30\ The 
California ISO explains that, because there is uncertainty as to the 
level of annual charges to be assessed against each individual public 
utility, and therefore uncertainty as to the design of an appropriate 
cost-recovery mechanism, the Commission should clarify that individual 
public utilities may recover annual charges in transmission rates from 
transmission customers even if there is some uncertainty as to the 
level of annual charges being assessed against those public utilities, 
and that annual charges assessed by the Commission may, in turn, be 
recovered in transmission rates in the year that the charges are billed 
to those public utilities (even though the annual charges assessed by 
the Commission are developed using data that reflects the prior year's 
transactions).\31\ The California ISO adds that, as a revenue-neutral, 
not-for-profit entity that passes through all of its costs to the 
market participants that use the transmission system it operates, there 
is a special need for clarification, and that, in the first year that 
the new annual charge methodology is used, there is likewise a special 
need for clarification.\32\ The California ISO also commits to modify 
any annual charge cost-recovery mechanism that it proposes ``as needed 
to prevent over- or under-recovery of such costs once it receives the 
initial assessment of annual charges under the new methodology.'' \33\
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    \30\ California ISO Clarification at 1-2.
    \31\ Id. at 2, 7-8, 11-13. In the alternative, the California 
ISO objects to Order No. 641 in the absence of additional 
information concerning the level of annual charges that will be 
assessed under Order No. 641. Id. at 2, 7, 8-11. As noted earlier, 
annual charges are intended to recover the Commission's collectible 
electric regulatory program costs (i.e., its total electric 
regulatory program costs, less any electric filing fees and less the 
costs of regulating the PMAs). Under Order No. 641, these 
collectible electric regulatory program costs will now be recovered 
from public utilities based on transmission volumes (rather than, as 
in the past, both power sale and transmission volumes). To the 
extent that the California ISO's pleading may be construed as 
seeking rehearing of Order 641, its arguments are addressed in the 
discussion earlier concerning PSE&G's similar arguments.
    \32\ Id. at 6-7, 12.
    \33\ Id. at 12
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    The Commission explained, in Order No. 641, that the purpose of 
Order No. 641 was to change the methodology by which the Commission 
assessed annual charges to public utilities, and that the issue of the 
rate recovery of annual charge assessments by the public utilities to 
whom they were assessed was a different issue and outside the scope of 
Order No. 641. The Commission noted that it already had in place 
regulations that address rate recovery of utility costs, i.e., Part 35 
of its regulations, but added that, to allay public utility concerns, 
it would state in Order No. 641 that the annual charges assessed by the 
Commission were ``costs that can be recovered in transmission rates as 
a legitimate cost of providing transmission service.'' \34\
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    \34\ Order No. 641, FERC Stats. & Regs. at 31,857.
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    We reaffirm those determinations here. We also note that our 
regulations provide great flexibility in how public utilities may 
develop their rates, including their transmission rates. Our 
regulations provide that rates may be based on data for historical 
periods, such as the so-called Period I test period, and that rates may 
also be based on data for future periods, such as the so-called Period 
II test period.\35\ We thus have long allowed rates to be based on 
estimates, as long as the estimates were reasonable when made.\36\ This 
flexibility is sufficient, we believe, to allow public utilities like 
the California ISO to recover in their transmission rates for the first 
year under the new annual charges methodology adopted in Order No. 641, 
i.e., calendar year 2002, the annual charges that will be assessed by 
the Commission in that same year, i.e., calendar year 2002 (even though 
those charges are calculated from transactions that occurred during the 
preceding year, calendar year 2001).\37\ To this extent, therefore, we 
clarify Order No. 641.
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    \35\ See 18 CFR 35.13. Accord, e.g., Revised Requirements for 
Filing Changes in Electric Rate Schedules, Order No. 91, 45 FR 
46,352 (July 10, 1980), FERC Stats. & Regs. Regulations Preambles 
1977-1981 para. 30,170 at 31,146-48 (1980), reh'g denied, Order No. 
91-A, 12 FERC para. 61,206 (1980).
    \36\ E.g., New England Power Company, Opinion No. 379, 61 FERC 
para. 61,331 at 62,217 & n.62 (1992), reh'g denied, Opinion No. 379-
A, 65 FERC para. 61,036 (1993), aff'd, 53 F.3d 377, 380 (D.C. Cir. 
1995); Southern California Edison Company, Opinion No. 359, 53 FERC 
para. 61,408 at 62,415 & n.22 (1990), reh'g denied, Opinion No. 359-
A, 54 FERC para. 61,320 (1991).
    \37\ Particularly given the California ISO's commitment to 
modify any annual charge cost-recovery mechanism that it proposes as 
needed to prevent over- or under-recovery of such costs once it 
receives the initial assessment of annual charges under this new 
methodology. See supra note 33 and accompanying text.
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The Commission Orders

    PSE&G's request for rehearing is hereby denied, and the California 
ISO's request for clarification is hereby granted in part, as discussed 
in the body of this order.

    By the Commission.
David P. Boergers,
Secretary.
[FR Doc. 01-7001 Filed 3-20-01; 8:45 am]
BILLING CODE 6717-01-P