Opinion ID: 685626
Heading Depth: 2
Heading Rank: 2

Heading: Ohio Power Company and Prior Litigation

Text: 6 Intervenor Ohio Power Company is a subsidiary of the American Electric Power Company, a registered public utility holding company. Ohio Power produces electricity with coal-burning generation plants, and purchases coal from two affiliates, Southern Ohio Coal Company (SOCCO) and Central Ohio Coal Company (COCCO). In 1971, the SEC authorized Ohio Power to establish and capitalize SOCCO. The SEC's first order approved the purchase and sale of SOCCO's stock, and stated that SOCCO's charges for coal would be based on actual costs. Subsequent orders provided that SOCCO's prices would not exceed its cost. 1 In 1982, the SEC approved Ohio Power's transfer to COCCO of the Muskingum mine, from which coal purchases were made in this case, including contract terms providing for the coal price to be paid by Ohio Power to COCCO. Ohio Power Co., SEC Holding Company Act Release No. 22770 (Dec. 10, 1982). 7 Ohio Power filed a rate increase application with FERC in 1982, to which fifteen of its municipal customers objected on the ground that the rates passed through the full cost of coal that Ohio Power had purchased from SOCCO's Martinka mine. Litigating under the name Municipal Wholesale Electric Customers of Ohio Power Company, the municipalities claimed that those costs exceeded the market price of coal and therefore violated FERC's comparable market test, under which a utility purchasing goods from an affiliate is permitted to pass on only the market price, not the cost, of those goods. FERC agreed, rejecting Ohio Power's argument that its cost-based rates should be approved because the fuel costs had been approved by the SEC. FERC concluded that SOCCO's coal price exceeded the prevailing market price, and was unreasonable and not includable in Ohio Power's wholesale rates. Ohio Power Co., 39 FERC p 61,098 (1987). 8 On appeal, the D.C. Circuit reversed, with two judges concluding that Ohio Power was subject to conflicting requirements of the SEC and FERC, and that FERC's authority was ousted by FPA Sec. 318, 16 U.S.C. Sec. 825q, pertaining to conflicts of jurisdiction arising as a result of requirements of the PUHCA and the FPA with respect to the same subject matter. Ohio Power Co. v. FERC, 880 F.2d 1400 (D.C.Cir.1989), rev'd, 498 U.S. 73, 111 S.Ct. 415, 112 L.Ed.2d 374 (1990). Then-Judge Abner Mikva concurred in the judgment only, disagreeing that Sec. 318 applied, but stating that FERC's own regulation, 18 C.F.R. Sec. 35.14(a)(7), precluded its disapproval of Ohio Power's rates. Id. at 1412-14. 9 The Supreme Court reversed, holding that FPA Sec. 318 did not apply because Ohio Power was not subject to SEC and FERC requirements with respect to the same subject matter as required by the statute. Arcadia v. Ohio Power Co., 498 U.S. 73, 83-85, 111 S.Ct. 415, 421-22, 112 L.Ed.2d 374 (1990). The Court remanded the case for determinations as to whether FERC's decision violated its own regulation, as suggested by Judge Mikva, and whether the FERC-prescribed rate was not just and reasonable because it trapped costs which the SEC had approved, disregarding a governmental assurance, possibly implicit in the SEC approvals, that Ohio Power will be permitted to recoup the cost of acquiring and operating SOCCO. Id. at 85, 111 S.Ct. at 422. 10 On remand, the D.C. Circuit followed the routes identified by the Supreme Court. Ohio Power Co. v. FERC, 954 F.2d 779 (D.C.Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 483, 121 L.Ed.2d 388 (1992). The court first looked to FERC's regulation, 18 C.F.R. Sec. 35.14(a)(7), which addresses fuel price adjustment clauses filed in rate schedules, and provides in part that [w]here the utility purchases fuel from a company-owned or controlled source, the price of which is subject to the jurisdiction of a regulatory body, such cost shall be deemed to be reasonable and includable in the adjustment clause.  (Emphasis added.) Relying on the plain language of this regulation, the court held that FERC was obligated to find reasonable and includable in Ohio Power's wholesale rates its fuel costs as approved by the SEC. 954 F.2d at 783-84. 11 The broader, independent basis for invalidating FERC's action was Sec. 13(b) of the PUHCA, 15 U.S.C. Sec. 79m(b), which, the court found, requires the SEC to approve cost-based pricing of captive coal purchases. The court rejected the argument that no conflict between the SEC and FERC could exist simply because FERC regulates Ohio Power's wholesale power rates rather than its fuel costs. By declaring a portion of the SOCCO coal price unreasonable and therefore not includable in Ohio Power's wholesale rate, FERC is undeniably affecting the economic relationship between Ohio Power and SOCCO, a relationship approved by, and under the jurisdiction of, the SEC. 954 F.2d at 784. The court resorted to the familiar maxim that a specific statutory provision (PUHCA Sec. 13(b)'s requirement that affiliate contracts be performed at cost) takes precedence over a general provision (FERC's general mandate to ensure just and reasonable wholesale rates under FPA Sec. 205(a)). The court concluded that FERC may not set a cost-trapping rate level where that effect is occasioned by a recovery calculation inconsistent with an SEC determination governing an interassociate transfer subject to Sec. 13(b) of the PUHCA. 954 F.2d at 786. 12 FERC and the municipalities filed petitions for certiorari, challenging both bases of the D.C. Circuit's opinion, but the Supreme Court denied their petitions. Arcadia v. Ohio Power Co., --- U.S. ----, 113 S.Ct. 483, 121 L.Ed.2d 388 (1992).