Opinion ID: 553830
Heading Depth: 2
Heading Rank: 1

Heading: The Cost of Fuel Consumed

Text: 13 The FERC found that a minimum take payment made pursuant to a coal supply contract constitutes part of the cost of fuel consumed. The Commission explained that a minimum take payment is an integral element of a utility's ongoing fuel procurement process. A payment made pursuant to the minimum take commitment may not itself put coal into the utility's boiler, but the underlying commitment assures the utility of a reliable fuel supply at the contract price. 14 Accordingly, liability under a take-or-pay arrangement like the one involved here is a routine cost of obtaining coal. As such, it is like the reclamation expense afforded fuel clause treatment in Kansas Municipal & Cooperative Electric Systems, 16 F.E.R.C. p 61,227 (1981), the only prior case in which the FERC allowed a utility to pass through the fuel clause an expense not patently within the terms of Account 151. In Kansas Municipal, the coal supplier billed the utility for the cost of surface reclamation required by statute. Although the reclamation work did not itself provide fuel to the utility, it was an unavoidable cost of mining and thus of obtaining a supply of coal; the FERC therefore found it to be a cost of ... fuel consumed. See also Southern Calif. Edison, 3 F.E.R.C. p 61,075, at 61,210-11 (declaring that minimum take payments under a fuel transportation contract might be passed through the fuel adjustment clause, but that the payments in that case were insufficiently documented to justify such treatment). 15 A minimum take payment is clearly different from most of the types of expense that the FERC has determined are not part of the cost of fuel consumed. A minimum take payment is inseparable from the contractual price of coal. Those other expenses generally involved either the purchase of a non-fuel material, Electric Coops. of Kansas, 14 F.E.R.C. p 61,176 (1981) (limestone used for pollution control), or payment for a non-fuel service, Minnesota Power & Light Co., 39 F.E.R.C. p 61,192 (1987) (attorney's fees and litigation expenses). See also Indianapolis Power & Light Co., 48 F.E.R.C. p 61,040 (1989) (audit and legal consulting fees); Kansas City Power & Light Co., 42 F.E.R.C. p 61,249 (1988) (equity interest in railroad cars). 16 The only case in need of further explanation involved a payment made in order to buy out or buy down a contractual liability that had not yet matured. Kentucky Utils. Co., 45 F.E.R.C. p 61,409 (1988). The FERC there said that buyout costs are the very antithesis of the cost of fuel consumed, as they are payments ... in consideration for not purchasing fuel required by contract. 45 F.E.R.C. at 62,292. The petitioners argue with some force that a minimum take payment is likewise occasioned by the buyer's not purchasing fuel required by contract. 17 The Commission explains that, unlike a buyout or a buydown, a minimum take payment does not amend or cancel a contractual term, but merely implements the fuel supply contract. 48 F.E.R.C. at 61,086 n. 17. A utility with a typical array of coal supply contracts may have to make minimum take payments repeatedly ... in the ordinary course of ... business as it continually reevaluates its fuel needs. Id. at 61,086. A contract buyout or buydown, in contrast, is a one-time, extraordinary decision that fundamentally alters an existing fuel supply arrangement. Id. Thus, the Commission has adequately explained why minimum take payments, but not buyout or buydown costs, are part of the cost of fuel consumed.