[Federal Register Volume 69, Number 199 (Friday, October 15, 2004)]
[Proposed Rules]
[Pages 61180-61184]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-23136]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM04-14-000]


Reporting Requirement for Changes in Status for Public Utilities 
With Market-Based Rate Authority

Issued October 6, 2004.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission), acting 
pursuant to section 206 of the Federal Power Act (FPA),\1\ is proposing 
to amend its regulations and to modify the market-based rate authority 
of current market-based rate sellers to establish a reporting 
obligation for changes in status that apply to public utilities 
authorized to make wholesale power sales in interstate commerce at 
market-based rates. In particular, the Commission proposes to amend its 
regulations to establish guidelines concerning the types of events that 
trigger this reporting obligation and to modify the market-based rate 
authority of current market-based rate sellers to ensure that all such 
events are timely reported to the Commission by eliminating the option 
to delay reporting of such events until submission of a market-based 
rate seller's updated market power analysis. We propose that this 
reporting requirement be incorporated into the market-based rate tariff 
of each entity that is currently authorized to make sales at market-
based rates, as well as that of all future applicants. The Commission 
seeks public comment on its proposal.
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    \1\ 16 U.S.C. 824e (2000).

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DATES: Comments are due November 15, 2004.

ADDRESSES: Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. Commenters unable to 
file comments electronically must send an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Office of the 
Secretary, 888 First Street, NE., Washington, DC, 20426. Refer to the 
Comment Procedures section of the preamble for additional information 
on how to file comments.

FOR FURTHER INFORMATION CONTACT:
Brandon Johnson, Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC 20426, (202) 502-6143.
Michelle Barnaby, Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC 20426, (202) 502-8407.

SUPPLEMENTARY INFORMATION: Before Commissioners: Pat Wood, III, 
Chairman; Nora Mead Brownell, Joseph T. Kelliher, and Suedeen G. Kelly.

Notice of Proposed Rulemaking

Introduction

    1. In order to facilitate our oversight of public utilities with 
market-based rate authority, to ensure that the rates being charged 
continue to be just and reasonable and to give guidance to market 
participants to facilitate compliance with the Commission's reporting 
requirements, this Notice of Proposed Rulemaking proposes to 
standardize and clarify market-based rate sellers' reporting 
requirement for changes in status. In previous orders authorizing 
wholesale power sales in interstate commerce at market-based rates, the 
Commission has required market-based rate sellers to inform the

[[Page 61181]]

Commission of any change in status that would reflect a departure from 
the characteristics the Commission relied upon in authorizing sales at 
market-based rates. Some sellers were given the option of filing a new 
market analysis every three years in lieu of reporting changes in 
status on an ongoing basis. Others were given the option to report such 
changes every three years in conjunction with an updated market 
analysis. With respect to the events that qualify as a change in 
status, the Commission has stated that they include, but are not 
limited to: (1) Ownership of generation or transmission facilities or 
inputs to electric power production other than fuel supplies; or (2) 
affiliation with any entity not disclosed in the filing that owns 
generation or transmission facilities or inputs to electric power 
production or affiliation with any entity that has a franchised service 
area.
    2. We propose to impose uniform standards on all market-based rate 
sellers by eliminating the option to delay reporting changes in status 
until submission of the triennial review, or to file a triennial review 
in lieu of reporting changes in status as they occur. To that end, 
acting pursuant to section 206 of the FPA, we propose to amend our 
regulations and to modify the market-based rate authority of current 
market-based rate sellers to include the requirement to timely report 
to the Commission any change in status that would reflect a departure 
from the characteristics the Commission relied upon in granting market-
based rate authority. We propose that this reporting requirement be 
incorporated into the market-based rate tariff of each entity that is 
currently authorized to make sales at market-based rates, as well as 
that of all future applicants. We propose that notice of such changes 
in status be filed no later than 30 days after the change in status 
occurs. As discussed below, we seek public comment on our proposal.

Background

    3. The Commission has a statutory duty under the FPA to ensure that 
rates charged by public utilities authorized to make wholesale sales in 
interstate commerce at market-based rates are just and reasonable.\2\ 
The Commission uses a four-part test to determine whether to grant a 
public utility market-based rate authority. That test examines whether 
the applicant or its affiliates possess the potential to exercise 
market power by considering generation market power, transmission 
market power, barriers to entry, and the potential for affiliate abuse 
or reciprocal dealing. Sellers authorized to make sales at market-based 
rates are then required to file electric quarterly reports containing a 
summary of the contractual terms and conditions in every effective 
service agreement for market-based power sales and transaction 
information for their market-based rate sales during the most recent 
calendar quarter.\3\
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    \2\ 16 U.S.C. 824d(a) (2000).
    \3\ Revised Public Utility Filing Requirements, Order No. 2001, 
67 FR 31043 (May 8, 2002), III FERC Stats. & Regs. ] 31,127 (Apr. 
25, 2002). The required data sets for contractual and transaction 
information are described in Attachments B and C of Order No. 2001.
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    4. The Commission has also required that market-based rate sellers 
report any changes in status that would reflect a departure from the 
characteristics the Commission relied upon in its existing grant of 
market-based rate authority. When the Commission first granted market-
based rate authorizations, it required traditional utilities that 
satisfied the Commission's initial market power review to file an 
updated market power analysis every three years to allow the Commission 
to monitor competitive conditions and to determine whether the 
applicants still satisfied our market power concerns.\4\ Power 
marketers, on the other hand, were required to promptly notify the 
Commission of changes in status.\5\ Subsequently, the Commission has 
allowed market-based-rate sellers to choose between promptly reporting 
changes in status, filing a three-year update in lieu of reporting 
changes in status as they occurred,\6\ or reporting such changes in 
conjunction with the updated market analysis.\7\ The Commission 
reserved the right to require such an analysis at any time. The 
Commission proposes to continue to reserve this right.
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    \4\ See, e.g., Entergy Services, Inc., 58 FERC ] 61,234 (1992); 
Louisville Gas & Electric, 62 FERC ] 61,016 (1993).
    \5\ See, e.g., Citizens Power & Light Corporation, 48 FERC ] 
61,210 (1989); Enron Power Marketing, 65 FERC ] 61,305 (1993); 
InterCoast Power Marketing Co., 68 FERC ] 61,248 (1994).
    \6\ See, e.g., Morgan Stanley Capital Group, Inc., 69 FERC ] 
61,175 (1994).
    \7\ See, e.g., AEP Power Marketing, Inc., 76 FERC ] 61,307 at 
62,516 (1996); Montaup Electric Co., 85 FERC ] 61,313 at 62,232 
(1998); Sithe/Independence Power Partners, 101 FERC ] 61,210 at 
61,907 (2002).
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    5. To carry out its statutory duty under the FPA to ensure that 
market-based rates are just and reasonable, the Commission must rely on 
market-based rate sellers to provide accurate, up-to-date information 
regarding any relevant changes in status, such as ownership or control 
of jurisdictional facilities and affiliate relationships. In contrast 
to when the Commission first began to authorize market-based rate 
sales, wholesale markets now have many more sellers of different types 
(e.g., independent power producers, power marketers, affiliated 
generators). As markets have expanded and developed, both the number 
and types of sellers have increased and the complexity of wholesale 
markets has increased. Furthermore, market structure is rapidly 
evolving due to restructuring, corporate realignments and new types of 
contractual and subcontracting arrangements, in which utilities 
increasingly grant other firms control and/or influence over managing 
various aspects of their business such as power marketing. In light of 
these structural changes, the Commission has concluded that more timely 
reporting of changes in status is necessary.
    6. We believe that, in today's electric industry, granting market-
based rate sellers the option to delay reporting changes in status by 
up to three years does not provide the Commission with sufficient 
information to provide effective oversight of electricity markets.
    7. Therefore, the Commission proposes to eliminate the option to 
delay reporting changes in status until the next triennial review, or 
to file a triennial review in lieu of promptly reporting changes in 
status, and to standardize the change in status reporting requirement. 
Accordingly, the proposed regulations would require that, as a 
condition of obtaining and retaining market-based rate authority, all 
sellers will be required to timely report to the Commission any change 
in status that would reflect a departure from the characteristics the 
Commission relied upon in granting market-based rate authority.
    8. With respect to the types of events that should trigger the 
reporting obligation, the Commission proposes that, as an initial 
matter, the following events would qualify as changes in status: (1) 
Ownership or control of generation or transmission facilities or inputs 
to electric power production; or (2) affiliation with any entity not 
disclosed in the filing that owns or controls generation or 
transmission facilities or inputs to electric power production or 
affiliation with any entity that has a franchised service area.\8\
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    \8\ The Commission's regulations define ``affiliated companies'' 
as ``companies or persons that directly, or indirectly through one 
or more intermediaries, control, or are controlled by, or are under 
common control with, the [subject] company.'' 18 CFR 101 (2004). See 
also 18 CFR 161.2 (2004); Morgan Stanley Capital Group, et al., 72 
FERC ] 61,082 (1995).

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[[Page 61182]]

    9. Although the market-based rate change in status provision has 
not specifically referenced ``control'' of assets, we have historically 
considered control of an asset to be a factor on which we rely in 
granting market-based rate authority. In order to eliminate any market 
uncertainty, we propose that the regulations specifically reference 
``control'' as well as ownership as a factor relied upon by the 
Commission. In the Commission's early orders granting market-based rate 
authority, we acknowledged that sellers may exercise market power 
through contractual arrangements granting them control of generation or 
transmission facilities just as effectively as they could through 
ownership.\9\ Similarly, the Commission's guidelines for the assessment 
of mergers and its generation market power analysis for market-based 
rate authority provide that, for the purposes of the market power 
analysis, the capacity associated with contracts that confer 
operational control of a given facility to an entity other than the 
owner must be assigned to the entity exercising control over that 
facility, rather than to the entity that is the legal owner of the 
facility.\10\ In addition, with respect to notifications of changes in 
status, the Commission has found that an entity controls the facilities 
of another when it controls the decision-making authority over sales of 
electric energy, including discretion as to how, when and to whom it 
could sell power generated by these facilities.\11\
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    \9\ See, e.g., Citizens Power & Light Corp., 48 FERC ] 61,210 
(1989). In this order, we stated that: ``[u]sually, the source of 
market power is dominant or exclusive ownership of the facilities. 
However, market power also may be gained without ownership. 
Contracts can confer the same rights of control. Entities with 
contractual control over transmission facilities can withhold supply 
and extract monopoly prices just as effectively as those who control 
facilities through ownership.''
    \10\ See AEP Power Marketing, Inc., et al., 107 FERC ] 61,018 at 
P 95 (2004), order on reh'g, 108 FERC ] 61,026 at P 65 (2004); 
Inquiry Concerning the Commission's Merger Policy Under the Federal 
Power Act: Policy Statement, Order No. 592, 61 FR 68595 (1996), FERC 
Stats. & Regs., Regulations Preambles July 1996-December 2000 ] 
31,044 (1996), reconsideration denied, Order No. 592-A, 62 FR 33341 
(1997), 79 FERC ] 61,321 (1997) (Merger Policy Statement); see also 
Revised Filing Requirements Under Part 33 of the Commission's 
Regulations, Order No. 642, 65 FR 70983 (2000), FERC Stats. & Regs., 
Regulations Preambles July 1996-December 2000 ] 31,111 at note 39 
(2000), order on reh'g, Order No. 642-A, 66 FR 16121 (2001), 94 FERC 
] 61,289 (2001).
    \11\ El Paso Electric Power Co., et al., 108 FERC ] 61,071 at P 
14 (2004), reh'g pending.
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    10. The Commission's general practice has been to require 
notifications of changes in status when the market-based rate applicant 
obtained ownership of new inputs to electric power production, other 
than fuel supplies. However, since the Commission is interested in 
being informed of significant acquisition of ownership or control of 
any inputs to electric power production, we propose to require a 
reporting obligation to this effect. The Commission seeks comments on 
this proposal.
    11. We recognize that the language in the proposed regulations may 
be susceptible to different interpretations among market-based rate 
sellers concerning the scope of their reporting requirement. 
Accordingly, we seek public comment as to whether and how this language 
should be modified to ensure that the types of changes in status that 
could impact the continued basis of a grant of market-based rate 
authority are identified and timely reported to the Commission.
    12. For example, should there be a threshold level of increases in 
generation (such as generation addition through acquisition, self-
build, long-term power purchases, repowering) that would trigger the 
reporting requirement? If so, what amount of increase in generation 
should trigger the reporting requirement?
    13. Should the applicant have a reporting requirement if portions 
of the applicant's transmission system are taken out of service for a 
significant period of time (thus potentially affecting the scope of the 
relevant geographic market)? If so, what criteria should trigger this 
reporting requirement?
    14. Beyond ownership or control of generation or transmission 
facilities or inputs to electric power production and affiliation with 
any entity not disclosed in the filing that owns or controls generation 
or transmission facilities or inputs to electric power production or 
affiliation with any entity that has a franchised service area, we seek 
comment as to whether there are other arrangements, contractual or 
otherwise, that should be promptly reported to the Commission. For 
example:
     What types of arrangements, contractual or otherwise, do 
market-based rate sellers enter into that could cause a need for the 
Commission to revisit the continuing basis of the grant of market-based 
rate authority for such sellers?
     What threshold of materiality, if any, of such 
arrangements should be met before such arrangements need be reported to 
the Commission?
     Should marketing alliances, brokering arrangements, 
tolling agreements or other sales-oriented arrangements be reported?
    15. With respect to the form and content of such reports, we 
propose that the market-based rate seller be required to submit a 
transmittal letter including a description of the change in status and 
a narrative explaining whether (and, if so, how) this change in status 
reflects a departure from the characteristics relied upon by the 
Commission in originally granting the seller market-based rate 
authority, in particular whether the change in status affects the 
results of any of the prongs of the four-part test that the Commission 
uses to determine whether a public utility qualifies for market-based 
rate authority (i.e. generation market power, transmission market 
power, barriers to entry, affiliate abuse/reciprocal dealing). If the 
market-based rate seller believes that a change in status does not 
affect the continuing basis of the Commission's grant of market-based 
rate authority, it should clearly state the reasons on which it bases 
this conclusion.
    16. In addition to including this reporting requirement in the 
Commission's regulations, we propose that this reporting requirement be 
incorporated into the market-based rate tariff of each entity that is 
currently authorized to make sales at market-based rates, as well as 
that of all future applicants. Market-based rate sellers would be 
required to submit a conforming provision to their market-based rate 
tariffs at the time that they file any amendment to their tariffs or 
(if earlier) when they apply for continued authorization to sell at 
market-based rates (e.g., in their three-year updated market power 
analysis). However, the Commission proposes that the obligation to 
report be effective at the time that the Final Rule becomes effective.
    17. With respect to the procedures for reporting notifications of 
changes in status, the proposed rule requires that such notifications 
be filed no later than 30 days after the occurrence of the triggering 
event. We seek comment as to whether this proposed time period is 
appropriate.

Information Collection Statement

    18. Office of Management and Budget (OMB) regulations require OMB 
to approve certain information collection requirements imposed by 
agency rule.\12\ Comments are solicited on the Commission's need for 
this information, whether the information will have practical utility, 
the accuracy of provided burden estimates, ways to enhance the quality, 
utility and clarity of the information to be collected, and any 
suggested methods for minimizing

[[Page 61183]]

respondents' burden, including the use of automated information 
techniques.
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    \12\ 5 CFR 1320.11 (2004).
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    19. Estimated Annual Burden: To satisfy the reporting requirement, 
the Commission expects respondents to submit a transmittal letter 
including a description of the change in status and a narrative 
explaining whether (and, if so, how) this change in status reflects a 
departure from the characteristics relied upon by the Commission in 
originally granting the seller market-based rate authority. The 
Commission estimates that, on average, it will take respondents six 
hours per response and that approximately 25 percent of current market-
based rate sellers would experience a change in status in any given 
year.

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                                                     Number of       Number of       Number of     Total annual
                 Data collection                    respondents        hours         responses         hours
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FERC-516........................................           1,238               6             .20           1,486
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    Title: Electric Rate Schedules and Filings, Reporting Requirement 
for Changes in Status For Public Utilities With Market-Based Rate 
Authority (FERC-516).
    Action: Proposed Collection.
    OMB Control No.: 1902-0096.
    Respondents: Businesses or other for profit.
    Frequency of Responses: On occasion.
    Necessity of Information: The proposed regulations will revise 
market-based rate sellers' reporting obligation and are intended to 
ensure that rates and terms of service offered by market-based rate 
sellers remain just and reasonable.
    Internal review: The Commission has reviewed the proposed amendment 
to its regulations to establish a reporting obligation for changes in 
status and has determined that these regulations are necessary to 
ensure just and reasonable rates. These regulations, moreover, conform 
to the Commission's plan for efficient information collection, 
communication, and management within the electric utility industry. The 
Commission has assured itself, by means of internal review, that there 
is specific, objective support for the burden estimates associated with 
the information/data retention requirements.
    20. Interested persons may obtain information on the reporting 
requirements by contacting: Federal Energy Regulatory Commission, 888 
First Street, NE, Washington, DC 20426, Attention: Michael Miller, 
Office of the Executive Director, phone: (202) 502-8415, fax: (202) 
273-0873, e-mail: [email protected]. Comments on the proposed 
requirements of the subject rule may also be sent to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Washington, DC 20503, Attention: Desk Officer for the Federal Energy 
Regulatory Commission, phone: (202) 395-4650.

Environmental Analysis

    21. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\13\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. Included in the exclusion are rules that are clarifying, 
corrective, or procedural or that do not substantially change the 
effect of the regulations being amended.\14\ This proposed rule, if 
finalized, is procedural in nature and therefore falls under this 
exception; consequently, no environmental consideration would be 
necessary.
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    \13\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & 
Regs. Preambles 1986-1990 ] 30,783 (Dec. 10, 1987).
    \14\ 18 CFR 380.4(a)(2)(ii) (2004).
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Regulatory Flexibility Act Certification

    22. The Regulatory Flexibility Act of 1980 (RFA)\15\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small 
entities.\16\ The Commission is not required to make such analyses if a 
rule would not have such an effect.
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    \15\ 5 U.S.C. 601-612 (2000).
    \16\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business which is independently 
owned and operated and which is not dominant in its field of 
operation. 15 U.S.C. 632 (2000). The Small Business Size Standards 
component of the North American Industry Classification System 
defines a small electric utility as one that, including its 
affiliates, is primarily engaged in the generation, transmission, 
and/or distribution of electric energy for sale and whose total 
electric output for the preceding fiscal years did not exceed 4 
million MWh. 13 CFR 121.201 (Section 22, Utilities, North American 
Industry Classification System, NAICS) (2004).
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    23. The Commission does not believe that the proposed amendment to 
our regulations would have such an impact on small entities. Based on 
past experience, most of the sellers having changes in status that 
would likely trigger a filing under the proposed regulations would be 
entities that do not meet the RFA's definition of a small entity. 
Therefore, the Commission certifies that this rule will not have a 
significant economic impact on a substantial number of small entities.

Comment Procedures

    24. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice to be adopted, including 
any related matters or alternative proposals that commenters may wish 
to discuss. Comments are due November 15, 2004. Comments must refer to 
Docket No. RM04-14-000, and must include the commenter's name, the 
organization they represent, if applicable, and their address in their 
comments.
    25. Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. The Commission 
accepts most standard word processing formats and commenters may attach 
additional files with supporting information in certain other file 
formats. Commenters filing electronically do not need to make a paper 
filing. Commenters that are not able to file comments electronically 
must send an original and 14 copies of their comments to: Federal 
Energy Regulatory Commission, Office of the Secretary, 888 First Street 
NE., Washington, DC 20426.
    26. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

Document Availability

    27. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First

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Street, NE., Room 2A, Washington, DC 20426.
    28. From FERC's Home Page on the Internet, this information is 
available in the Commission's document management system, eLibrary. The 
full text of this document is available on eLibrary in PDF and 
Microsoft Word format for viewing, printing, and/or downloading. To 
access this document in eLibrary, type the docket number excluding the 
last three digits of this document in the docket number field.
    29. User assistance is available for eLibrary and the FERC's 
website during normal business hours. For assistance, please contact 
FERC Online Support at 1-866-208-3676 (toll free) or 202-502-6652 (e-
mail at [email protected]), or the Public Reference Room at 
202-502-8371, TTY 202-502-8659 (e-mail at 
[email protected]).

List of Subjects in 18 CFR Part 35

    Electric power, Reporting and recordkeeping requirements.


    By direction of the Commission.
Magalie R. Salas,
Secretary.

    In consideration of the foregoing, the Commission proposes to amend 
Part 35, Chapter I, Title 18 of the Code of Federal Regulations, as set 
forth below:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

    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. In Sec.  35.27, paragraph (c) is added to read as follows:


Sec.  35.27  Power sales at market-based rates.

* * * * *
    (c) Reporting requirement. Any public utility with the authority to 
engage in sales for resale of electric energy in interstate commerce at 
market-based rates shall be subject to the following:
    (1) As a condition of obtaining and retaining market-based rate 
authority, a public utility with market-based rate authority must 
timely report to the Commission any change in status that would reflect 
a departure from the characteristics the Commission relied upon in 
granting market-based rate authority. A change in status includes, but 
is not limited to each of the following:
    (i) Ownership or control of generation or transmission facilities 
or inputs to electric power production, or
    (ii) Affiliation with any entity not disclosed in the application 
for market-based rate authority that owns or controls generation or 
transmission facilities or inputs to electric power production or 
affiliation with any entity that has a franchised service area.
    (2) Any change in status subject to paragraph (c)(1) of this 
section must be filed no later than 30 days after the change in status 
occurs.

[FR Doc. 04-23136 Filed 10-14-04; 8:45 am]
BILLING CODE 6717-01-P