[Federal Register Volume 68, Number 26 (Friday, February 7, 2003)]
[Notices]
[Pages 6444-6446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3114]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER03-304-000]


Before Commissioners: Pat Wood, III, Chairman; William L. Massey, 
and Nora Mead Brownell: Consolidated Edison Energy, Inc. and Rockland 
Electric Company; Order Granting Authorization To Make Affiliate Sales

Issued January 30, 2003.

I. Introduction

    1. In this order, we grant an application under section 205 of the 
Federal Power Act (FPA) \1\ by Consolidated Edison Energy, Inc. (CEE) 
and Rockland Electric Company (RECO) (collectively, Applicants), 
requesting that the Commission grant authorization for CEE to make 
sales to its affiliate RECO, pursuant to CEE's market-based rates 
tariff, as part of CEE's participation in the statewide auction bidding 
process approved by the New Jersey Board of Public Utilities (BPU). 
This order concludes that the BPU-approved bidding process as described 
below alleviates the Commission's concerns regarding affiliate abuse. 
This order benefits customers by permitting power to be bid into the 
BPU-approved auction while protecting against affiliate abuse.
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    \1\ 16 U.S.C. 824d (2000).

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[[Page 6445]]

II. Background

    2. On December 20, 2002, Applicants filed the instant application, 
stating that ``Commission approval is sought because both CEE and RECO 
have codes of conduct and electric tariffs that generally prohibit 
wholesale sales of electric power to affiliates absent approval from 
the Commission under [section] 205 of the FPA.'' \2\ Accordingly, they 
request, to the extent necessary, waiver of the applicable provisions 
of Applicants' market-based rate tariffs, codes of conduct and any 
other applicable Commission regulations. Applicants request expedited 
consideration to allow them to participate in the BPU-sponsored 
statewide auction that will commence on February 3, 2003.
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    \2\ Applicants' Transmittal Letter at 4.
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    3. CEE and RECO are corporate affiliates and subsidiaries of 
Consolidated Edison, Inc. (Con Ed). CEE has on file a Commission-
approved market-based rate tariff and code of conduct. RECO is a 
wholly-owned subsidiary of Orange and Rockland Utilities, Inc. (O&R) 
and provides retail electric service in New Jersey.
    4. Applicants state that the BPU approved two statewide bidding 
auctions as the means for procuring Basic Generation Service (BGS) \3\ 
for electric customers in New Jersey, the first of which was concluded 
in February 2002.\4\ They state that in December 2002, the BPU approved 
an auction design for a statewide auction to commence on February 3, 
2003, for the provision of all the BGS requirements for the period of 
August 1, 2003 to May 31, 2004 and a portion of the BGS requirements 
for the period of June 1, 2004 through May 31, 2006.
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    \3\ BGS is electric generation service that is provided by a New 
Jersey electric distribution company to any customer who has not 
chosen an alternative power supplier. BGS is known in other states 
as provider of last resort service or default service.
    \4\ See Electric Discount and Energy Competition Act of 1999, 
N.J.S.A. 48:3-49 et seq., which provides the framework for the 
transition from a regulated to a competitive market place in New 
Jersey.
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III. Notice of Filing and Pleadings

    5. Notice of Applicants' filing was published in the Federal 
Register, 68 FR 554 (2003), with protests and motions to intervene due 
on or before January 10, 2003. Public Service Electric and Gas Company 
(PSE&G) filed a timely motion to intervene \5\ and protest. On January 
17, 2003, Applicants filed an answer.
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    \5\ PSE&G states that it is the major supplier of electricity in 
New Jersey. It further states that it is a major distributor of 
electricity in New Jersey and a transmission-owning member of the 
PJM Interconnection LLC regional transmission organization and a 
provider of wholesale transmission service to surrounding regions.
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IV. Discussion

A. Procedural Matters

    6. Pursuant to Rule 214 of the Commission's Rules of Practice and 
Procedure,\6\ PSE&G's timely, unopposed motion to intervene serves to 
make it a party to this proceeding. Rule 213 of the Commission's Rules 
of Practice generally prohibits answers to protests unless otherwise 
ordered by the decisional authority.\7\ We will permit Applicants' 
answer because it has aided us in understanding the issues.
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    \6\ 18 CFR 385.214 (2002).
    \7\ 18 CFR 385.213 (2002).
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B. Substantive Matters

    7. As noted, Applicants ask the Commission to permit CEE to 
participate in the BPU-approved statewide auction process to the extent 
that CEE may bid to supply the electric load requirements of its 
affiliate RECO. Applicants also request, if necessary, waiver of the 
provisions of the applicable codes of conduct and market-based rate 
tariffs that, among other things, prohibit wholesale sales of electric 
power to affiliates absent approval from the Commission under section 
205 of the FPA.\8\
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    \8\ As noted above, CEE has a market-based rate tariff on file 
with the Commission. RECO is governed by the tariffs and code of 
conduct filed by O&R with the Commission on behalf of the Orange and 
Rockland System.
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    8. Applicants assert that the proposed sale in this case would 
originate through a competitive bid process supervised by the state 
regulatory authority with jurisdiction over the rates of the purchasing 
utility and that the auction process is designed to prevent affiliate 
abuse. They describe the auction process as follows:

    The auction process is a completely competitive one based 
entirely on price. The bids are submitted electronically through the 
internet. During the bidding process, there is no contact outside of 
the process between any one supplier and an [electric distribution 
company (EDC)] concerning the bids. Indeed, during the auction 
process, the EDCs do not know which suppliers are bidding to supply 
their BGS customer load. Only the auction manager, National Economic 
Research Associates, Inc. (``NERA''), an independent consultant, is 
privy to such information. The auction commences by an EDC setting, 
in consultation with the BPU and the auction manager, a starting 
price. Suppliers bid the percentage of the EDC's BGS customer load 
that they are willing to supply at that price. They do this by 
bidding the number of tranches, each of which is equal to a set 
percentage of the EDC's overall BGS customer load, that they are 
willing to supply at the applicable price. Generally speaking, the 
auction manager then gradually lowers the price and suppliers 
continue to bid the volume they are willing to supply until the 
price is at the lowest point where one hundred percent of the EDC's 
BGS customer load is still covered by the suppliers' volumetric 
bids. Once the lowest price is determined, and the BPU approves it, 
the EDC and each of the winning suppliers are required to enter into 
the applicable BGS Supplier Master Agreement that was approved by 
the BPU in its decision and order issued on December 4, 2002 in 
Docket No. EX01110754.\9\ There is no individualized negotiation of 
the BGS Supplier Master Agreement between the winning suppliers and 
the EDC. The price described above is the price that is paid under 
the BGS Supplier Master Agreement for the supply of BGS.\10\

    \9\ There are two applicable BGS Master Supplier Master 
Agreements (BGS-FP for Basic Generation Service--Hourly Energy 
Pricing and BGS-HEP for Basic Generation Service--Fixed Pricing). 
Applicants attached two pro forma BGS Supplier Master Agreements 
(one for BGS-FP and one for BGS-HEP) to their filing.
    \10\ Applicants' Transmittal Letter at 3-4.
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    9. The Commission has approved affiliate sales based upon a 
competitive bidding process only after the Commission has evaluated the 
bidding process and determined that, based on the evidence, the 
proposal was a result of direct head-to-head competition between the 
affiliates and competing unaffiliated suppliers in a formal 
solicitation or informal negotiation process.\11\ In Conectiv Energy 
Supply, Inc.,\12\ the Commission accepted for filing, among other 
things, a service agreement between Conectiv Energy Supply, Inc. (CESI) 
and its affiliate Atlantic City Electric Company (Atlantic) pursuant to 
which CESI would make sales of capacity, energy and ancillary services 
to Atlantic under CESI's market-based rate tariff. In that case, the 
Commission evaluated the first BPU bid process and determined that the 
process ``alleviates our concerns regarding affiliate abuse.''
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    \11\ See Connecticut Light & Power Company and Western 
Massachusetts Electric Company, 90 FERC ] 61,195 at 61,633-34 
(2000); Aquila Energy Marketing Corp., 87 FERC ] 61,217 at 61,857-58 
(1999); MEP Pleasant Hill, LLC, 88 FERC ] 61,027 at 61,059-60 
(1999); Boston Edison Co. Re: Edgar Electric Energy Co., 55 FERC ] 
61,382 at 62,167-69 (1991).
    \12\ 91 FERC ] 61,076 at 61,269 (2000).
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    10. PSE&G states that it does not oppose CEE's proposal to bid in 
the BGS auction. However, PSE&G requests that Applicants' filing be 
rejected, arguing that the Commission lacks jurisdiction over the BGS 
auction. It argues that BGS is a retail service subject to the BPU's 
jurisdiction because the underlying BGS supply contract, the BGS Master 
Supply Agreement (Agreement), creates a direct supply arrangement 
between the BGS supplier and the end-user of electricity

[[Page 6446]]

and that RECO's role would be that of an agent for BGS customers. PSE&G 
states that section 13.2 of the Agreement provides that ``[E]ach BGS-FP 
Supplier shall at all times be deemed to hold title to electric energy 
until delivery to the retail meter of the Customer at which time title 
shall be deemed to pass to such Customer.'' Thus, PSE&G argues that 
Commission approval is not required in order for CEE to bid in the BGS 
auction to sell to RECO. Alternatively, if the Commission does assert 
jurisdiction over BGS Agreements, PSE&G requests that it grant blanket 
waivers to all similarly-situated companies.
    11. In response to PS&G's protest, Applicants state:

    In view of the February 3, 2003 date for submitting bids in New 
Jersey's BGS auction, [Applicants] simply seek to clarify that the 
Commission does not have to resolve the wholesale-retail 
jurisdictional issue raised by PSE&G prior to February 3rd in order 
for CEE to participate in the RECO auction. It would suffice for the 
Commission to simply waive any affiliate-transaction limitations of 
[Applicants'] electric tariffs or codes of conduct insofar as they 
might apply. Granting such waivers prior to February 3rd would serve 
the public interest by enabling CEE to participate in the auction 
and thereby would increase overall participation and competition in 
the BGS auction. [Applicants] have no objection to PSE&G's 
alternative proposal that the Commission grant blanket waivers to 
permit participation in the BGS auction to all companies that are 
similarly situated to CEE and RECO.\13\
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    \13\ Applicants' Answer at 2.

    12. As noted above, Applicants' transmittal letter assumes that, if 
CEE is a successful bidder, the proposed transaction would involve a 
wholesale sale by CEE to its affiliate RECO that requires Commission 
approval. In these circumstances, we will assume (without deciding) 
that we have jurisdiction.\14\ The BGS competitive bid process 
described by Applicants alleviates the Commission's concerns regarding 
affiliate abuse. Therefore, we will grant Applicants' request for 
authorization for CEE to make sales to its affiliate RECO, pursuant to 
CEE's market-based rates tariff, as part of CEE's participation in the 
BPU-approved statewide auction process.
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    \14\ We note that the pro forma Agreements contain several 
indicia that would suggest a finding that entry by a successful 
bidder into the requisite BPU-approved supply agreement and 
performance thereunder will result in a wholesale sale. (The 
relevant provisions are the same in the BGS-FP Agreement and the 
BGS-HEP Agreement.) As an initial matter, the parties to the 
Agreements are the BGS Supplier (here, CEE) and the electric 
distribution company (here, RECO). There is no provision in the 
Agreements that establishes privity of contract between the retail 
customers and the BGS Supplier; retail customers cannot enforce the 
contract against the BGS Supplier, nor can the BGS Supplier enforce 
the contract against the retail customer. (E.g., BGS-FP Agreement, 
Article 2.1). Further, the electric distribution Company (here, 
RECO) would execute the contract in its own name and be obligated to 
pay the BGS Supplier from its own funds. (E.g., BGS-FP Agreement, 
Article 2.2). The Agreements also provide that the agreement is a 
``legal and binding obligation of the Company [(i.e., RECO)].'' 
(E.g., BGS-FP Agreement, Article 3.2). In addition, the ``Company's 
performance under this agreement is not contingent upon the 
performance of [the retail] Customers or the ability of [the retail] 
Customers to pay rates;'' the Company's non-payment, insolvency, 
illegality (including Federal Energy Regulatory Commission 
obligations), or material breach are all events of default for the 
Company and upon default, the BGS Supplier would receive damages 
from RECO, including liquidation and termination; and certain PJM 
penalties and costs are allocated among the BGS Supplier and the 
Company. (E.g., BGS-FP Agreement, Articles 3.2, 5.1 and 5.3). 
Further, the Agreements provide that to the extent that the 
Agreement is deemed to be subject to the Commission's jurisdiction, 
the standard of review for changes to any sections of the Agreement 
specifying the rate(s) or other material economic terms and 
conditions will be the Mobile-Sierra ``public interest'' standard of 
review. (E.g., BGS-FP Agreement, Article 11.2).
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    13. Because we believe that the BPU auction process alleviates our 
concerns as to affiliate abuse, the Commission would authorize 
similarly-situated public utilities (with Commission-approved market-
based rate tariffs and with tariff prohibitions on affiliate sales 
absent prior Commission authorization) to make sales to their 
affiliates as part of their participation in the BPU-approved auction. 
Such similarly-situated public utilities must either make an 
appropriate section 205 filing \15\ or file a petition explaining why 
they believe we lack jurisdiction.\16\
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    \15\ See Aquila, Inc., 101 FERC ] 61,331 at P 12 (2002).
    \16\ In the Prior Notice Order, the Commission advised that 
``[t]o the extent a utility remains uncertain, even after consulting 
this order and the Appendix, as to its obligation to file rates and 
charges for a particular transaction or type of transaction, it 
should assume the initiative to seek a specific ruling. The easiest 
and most efficient way to do this is to file the agreement pursuant 
to part 35 of the Commission's regulations * * * and simultaneously 
request the Commission to disclaim jurisdiction.'' See Prior Notice 
and Filing Requirements Under part II of the Federal Power Act, 64 
FERC ] 61,139 at 61,977-78 (1993) (Prior Notice Order) (emphasis 
deleted).
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    The Commission orders:
    (A) Applicants' application for authorization for CEE to make sales 
to its affiliate RECO, pursuant to CEE's market-based rates tariff, as 
part of CEE's participation in the BPU-approved statewide auction 
process is hereby granted, as discussed in the body of this order.
    (B) The Secretary shall promptly publish this order in the Federal 
Register.

    By the Commission.
Magalie R. Salas,
Secretary.
[FR Doc. 03-3114 Filed 2-6-03; 8:45 am]
BILLING CODE 6717-01-P