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

Heading: FERC's Ability to Disapprove Wholesale Rates Based on Affiliate Fuel Costs

Text: 22 The D.C. Circuit's opinion has inspired responses by FERC, Congress, commentators and, most recently, the SEC. FERC proposed a revision to its fuel cost regulation, and advocated statutory reform to address the court's reading of PUHCA Sec. 13(b). 5 Congress considered amendments to authorize FERC to review and revise rates regardless of the SEC's prior approval of fuel prices, and also considered transferring regulatory authority under the PUHCA from the SEC to FERC. 6 Commentators have addressed these proposals, as well as the perceived wisdom of the D.C. Circuit's decision. 7 Additionally, the SEC has requested comment on the modernization of regulation of public utility holding companies, including the apportionment of responsibility between FERC and the SEC on rate and pricing reviews. Request for Comment, 59 Fed.Reg. 55573 (1994). The MRSC asks this court to weigh in on the controversy and reconsider each issue addressed by the D.C. Circuit. It is unnecessary, however, to engage in so broad a review. 23 FERC's regulation, 18 C.F.R. Sec. 35.14(a)(7), applies to fuel cost adjustment clauses, the vehicle by which a utility may pass through, in its wholesale rates, increases or decreases in the cost of fuel without obtaining prior FERC approval. In pertinent part, the regulation provides: 24 Where 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. ... With respect to the price of fuel purchases from company-owned or controlled sources pursuant to contracts which are not subject to regulatory authority, the utility company shall file such contracts and amendments thereto with the Commission for its acceptance at the time it files its fuel clause or modification thereof. Any subsequent amendment to such contracts shall likewise be filed with the Commission as a rate schedule change and may be subject to suspension under section 205 of the Federal Power Act. Fuel charges by affiliated companies which do not appear to be reasonable may result in the suspension of the fuel adjustment clause or cause an investigation thereof to be made by the Commission on its own motion under section 206 of the Federal Power Act. 25 (Emphasis added.) Ohio Power used a fuel adjustment clause to pass through the affiliate fuel costs challenged by the MRSC, and there is no dispute that the regulation applies to the costs at issue. The MRSC contend that the emphasized language is ambiguous, and that FERC's prior interpretation of the phrase shall be deemed to create only a rebuttable presumption of reasonableness should prevail. Additionally, the MRSC contend that this meaning of the language is supported by the last sentence of the regulation, which permits FERC to suspend fuel adjustment clauses or investigate fuel charges if the charges do not appear reasonable. 26 We find no ambiguity in the regulation, and are unpersuaded that the language shall be deemed means less than what it says. Courts construing the meaning of the word deemed when used in a statute have been nearly unanimous in concluding that a conclusive presumption is created. Ohio Power Co., 954 F.2d at 783 (citing H.P. Coffee Co. v. Reconstruction Finance Corp., 215 F.2d 818, 822 (Emer.Ct.App.1954), and collecting cases). Nor does the last sentence of the regulation create an ambiguity, in light of the fact that it follows two sentences limited to affiliate purchases which are not subject to regulatory authority. 18 C.F.R. Sec. 35.14(a)(7) (emphasis added). Simply put, the language at issue, when viewed both in isolation and in the context of the entire regulation, plainly creates a conclusive presumption. While in the ordinary case, considerable deference would be due to FERC's interpretation of the regulation, no such deference is due when an agency's interpretation is inconsistent with the regulation's terms. University of Cincinnati v. Bowen, 875 F.2d 1207, 1209 (6th Cir.1989). This is the situation here. 27 Finally, the MRSC contend that construing the highlighted language to create a conclusive presumption is inconsistent with FPA Sec. 205(f), 16 U.S.C. Sec. 824d(f), created by Sec. 208 of the Public Utility Regulatory Policies Act of 1978 (PURPA), Pub.L. 95-617, 92 Stat. 3117. FPA Sec. 205(f) provides that FERC is to conduct periodic review of automatic adjustment clauses in public utility rate schedules, as well as practices under those clauses. The particular provision relied on by the MRSC is FPA Sec. 205(f)(3): 28 (3) The Commission may, on its own motion or upon complaint, after an opportunity for an evidentiary hearing, order a public utility to-- 29 (A) modify the terms and provisions of any automatic adjustment clause, or 30 (B) cease any practice in connection with the clause, 31 if such clause or practice does not result in the economical purchase and use of fuel, electric energy, or other items, the cost of which is included in any rate schedule under an automatic adjustment clause. 32 The MRSC did not seek a modification of Ohio Power's fuel adjustment clause as permitted by subsection (3), but contends that FERC's power to conduct a review and order such relief supports its view that FERC's regulation creates only a rebuttable presumption that affiliate fuel costs are reasonable. We disagree. 33 The regulation at issue predated the enactment of FPA Sec. 205(f) by four years, and cannot be interpreted in accordance with a statutory provision that was not in existence at the time the regulation was promulgated. More importantly, the regulation as interpreted herein is not on its face inconsistent with FPA Sec. 205(f). FERC's statutory obligation to review utility practices and purchases to determine if they are economical must be read in connection with the FPA overriding requirement, undisturbed by PURPA, that wholesale power rates be just and reasonable. FPA Sec. 205(a), 16 U.S.C. Sec. 824d(a). FERC's regulation in essence provides that as to one category of transactions subject to FPA Sec. 205(f), i.e., prices applicable to purchases of fuel from affiliates which are subject to the jurisdiction of another regulatory body, FERC will defer to the other regulatory body and deem the price to be reasonable and includable. As stated by Judge Mikva in his concurrence in the first Ohio Power decision: 34 Although, as a general matter, FERC may have the authority to make an independent determination of reasonableness, section 35.14(a)(7) forecloses such a route to the extent that the price is already subject to the jurisdiction of another regulatory body. In other words, section 35.14(a)(7) establishes, as a policy matter, that if another regulatory body has already passed on the fuel price, then FERC will abide by that determination. This reading is entirely consistent with the purpose of section 35.14(a)(7), which is to avoid unreasonable fuel costs between affiliated companies, for if another agency (e.g., the SEC) has already made that determination, then there is no reason for FERC to second-guess that decision. 35 Ohio Power Co., 880 F.2d at 1414. 36 In sum, application of FERC's regulation requires the conclusion that Ohio Power's affiliate fuel costs, previously approved by the SEC, are reasonable and includable in Ohio Power's wholesale rates. Consequently, the MRSC's rate challenge properly was dismissed by FERC. Accordingly, we DENY the MRSC's petition for review.