Petition for Writ of Certiorari — micro_IA40386011_1140

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92-289. Fri

ene i:

Iu the Supreme Cont of the United States

OCTOBER TERM, 1992

FEDERAL ENERGY REGULATORY COMMISSION,

PETITIONER

OHIO POWER COMPANY, ET AL.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

JOHN G. ROBERTS, JR.

Acting Solicitor General

EDWIN S. KNEEDLER

Assistant to the Solicitor General

JAMES A. FELDMAN

Assistant to the Soliciter General

Department of Justice

WILLIAM S. SCHERMAN Washington, D.C. 20530

General Counsel (202) 514-2217

JEROME M. FEIT

Solicitor

JOSEPH S. DAVIES

Deputy Solicitor

TIMM L. ABENDROTH

Attorney

Federal Energy Regulatory Commission

Washington, D.C. 20426

_ — — - -_

QUESTIONS PRESENTED

When this case was previously before this Court,

the Court unanimously reversed the D.C. Circuit’s

ruling that the orders of the Securities and Ex-

change Commission (SEC) under the Public Utility

Holding Company Act (PUHCA) ousted the Federal

Energy Regulatory Commission (FERC) of jurisdic-

tion to consider the reasonableness of including the

cost of respondent’s coal purchases in its rates, and

remanded the case to the D.C. Circuit to determine,

inter alia, whether the FERC-prescribed rate was

just and reasonable. Arcadia, Ohio v. Ohio Power

Ce., 111 S. Ct. 415, 422 (1990). Instead of doing so,

the D.C. Circuit on remand again ruled that PUHCA

ousted FERC of jurisdiction. The questions pre-

sented are:

1. Whether Section 13(b) of PUHCA, 15 U.S.C.

79m(b), which provides that sales of goods or services

among affiliates of holding companies must be con-

ducted “‘at cost,” ousts FERC of its jurisdiction un-

der Sections 205 and 206 of the Federal Power Act,

16 U.S.C. 824d and 824e, to determine whether it is

just and reasonable for a utility to include the entire

cost of such goods or services in its wholesale rates.

2. Whether FERC reasonably construed its fuel

adjustment clause regulation, 18 C.F.R. 35.14(a) (7),

as establishing a rebuttable, rather than a conclu-

sive, presumption that the price a utility subject to

another regulatory body’s jurisdiction pays its affili-

ate for coal constitutes a just and reasonable price.

PARTIES TO THE PROCEEDING

In addition to the Federal Energy Regulatory Com-

“mission and Ohio Power Company, the following were

parties in the court below: the municipalities of

Arcadia, Bloomdale, Bryan, Carey, Cygnet, Deshler,

Greenwich, Ohio City, Plymouth, Republic, Shiloh,

St. Clairsville, Syeamore, Wapakoneta, and Wharton,

Ohio, LCP Chemicals, Inc., Mobay Corp., Olin Corp.,

and PPG Industries, Inc.

TABLE OF CONTENTS

Page

Opinions below ]

Jurisdiction D

Statutes and regulations involved . 2

Statement 2

Reasons for granting the petition _. 14

Conclusion ects tac nie 27

Appendix A ... la

Appendix B EO ed a 15a

Appendix C 17a

Appendix D Tes ——

Appendix E ; 46a

Appendix F 82a

Appendix G oF et eT OE OR ARO cbieccay ae

TABLE OF AUTHORITIES

Cases:

Arcadia, Ohio v. Ohio Power Co., 111 S. Ct. 415

(1990) Ree 10, 11, 15, 19, 21

Arkansas V. Oklahoma, 112 S. Ct. 1046 (1992) 24

Associated Gas Distribs. v. FERC, 706 F.2d 344

o:5 R 6 Tie) >) Sn a 24

Board of Water, Light & Sinking Fund Comm’rs

V. FERC, 931 F.2d 94 (D.C. Cir. 1991) 24

Bowers V> United States, 226 F.2d 424 (5th Cir.

1955) ' 23

Brimm v. Cache Valley Banking Co., 269 P.2d

859 (Utah 1954) 23

Carolina Power & Light Co., 17 F.E.R.C. © 61,118

(1981) e 25

City of Lafayette v. SEC, 454 F.2d 941 (D.C. Cir.

1971), aff’d sub nom. Gulf States Utilities Co. v.

FPC, 411 U.S. 747 (1973) 17

Connecticut National Bank v. Germain, 112 S. Ct.

+) ey} eee eee ae 16

(111)

Cases—Continued: Page

Delmarva Power & Light Co., 24 F.E.R.C. © 61,199

(1983) 25

Electric Cooperatives of Kansas, 14 F.E.R.C.

FPC vy. Panhandle Eastern Pipe Line Co., 337 U.S.

498 (1949) 16

FTC v. Ticor Ins. Co., 112 8. Ct. 2169 (1992) 24

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555

(1980) 23

McDowell County Consumers Council, Ine. V.

American Electric Power Co., 54 F.P.C. 361

(1975) 25

Mississippi Power & Light Co. Vv. Mississippi, 487

U.S. 354 (1988) 9

Mobil Oil Exploration & Producing Southeast Inc.

v. United Distribution Cos., 111 S. Ct. 615

(1991) 19

Mullins Coal Co. v. Director, OWCP, 484 U.S. 135

(1987) 23-24

Nantahala Power & Light Co. v. Thornburg, 476

U.S. 953 (1986) 9

Ohio Power Co.:

SEC HCAR No. 17383 (Dec. 2, 1971) 4

SEC HCAR No. 20515, 14 SEC Dkt. 928 (Apr.

24, 1978) 5

Public Serv. Co. of N.H., 6 F.E.R.C. © 61,299

(1979) 24

Public Serv. Co. of N.M., 17 F.E.R.C. © 61,123

(1981) ; 3

Public Serv. Co. of N.M. Vv. FERC, 832 F.2d 1201

(10th Cir. 1987) 3

Public Util. Comm’n v. Attleboro Steam & Elec.

Co.,: 278 US. 83 -(1927) ....... i8

Rosenberg V. United States, 346 U.S. 273 (1953). 16

Ruckelshaus Vv. Monsanto Co., 467 U.S. 986 (1984) 16

Southern Ohio Coal Co., SEC HCAR No. 21008,

17 SEC Dkt. 310 (Apr. 17, 1979) 5

Udall v. Tallman, 380 U.S. 1 (1965) ..... 23

Constitution, statutes and regulations: Page

= + . y g* f ’ . *] ;

U.S. Const. Art. VI, Cl. 2 (Supremacy Clause) 26

Federal Power Act, Tit. II, 16 U.S.C. 791a-828c 2

§ 205, 16 U.S.C. 824d 3, 13, 22, 24

3 205(d), 16 U.S.C. 824d (d) 18

S 205(e), 16 U.S.C. 824d (e) 18

§ 206, 16 U.S.C. 824e 13, 22, 24

> 206 (a), 16 U.S.C. 824e(a) 18

§$ 313(b), 16 U.S.C. 8251 (b) 23

318(q), 16 U.S.C. 825q 5, 6, 7, 9, 10, 15, 21, 88a

Public Utility Holding Company Act, Tit. I, 15

U.S.C. 79a to 79z-6 2

l(b) (2), 15 U.S.C. 79a(b) (2) 17

1(b) (3), 15 U.S.C. 79a (b) (3) 17

6,15 U.S.C. 79f 4

9, 15 U.S.C. 79i

7 ee 6 mn oe

§ 10, 15 U.S.C. 79)

$s 13(b), 15 U.S.C. 79m (b) 1, 13, 25, 26, 88a

§ 21,15 U.S.C. 79u 18

Public Utility Act of 1935, ch. 687, 49 Stat. 803 4

18 C.F.R. 35.14 24

18 C.F.R. 35.14 (a) (7) 9, 11, 12, 22-23, 24. 25

Miscellaneous:

44 Fed. Reg. 28,684 (1979) 25

In the Supreme Court of the United States

OCTOBER TERM, 1992

No.

FEDERAL ENERGY REGULATORY COMMISSION,

PETITIONER

Vv.

OHIO POWER COMPANY, ET AL.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

The Acting Solicitor General, on behalf of the

Federal Energy Regulatory Commission, respectfully

petitions for a writ of certiorari to review the judg-

ment-of the United States Court of Appeals for the

District of Columbia Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra,

la-14a) is reported at 954/F.2d 779. The opinion of

this Court remanding this case to the court of ap-

peals is reported at 111 S. Ct. 415. The earlier opin-

ion of the court of appeals (App., infra, 17a-43a) is

reported at 880 F.2d 1400. The decision of the Fed-

eral Regulatory Commission (FERC) (App., infra,

46a-8la) is reported at 39 F.E.R.C. © 61,098. The

decision of FERC denying rehearing (App., infra,

82a-87a) is reported at 43 F.E.R.C. © 61,046.

—"

JURISDICTION

The judgment of the court of appeals was entered

on February 4, 1992. A petition for rehearing was

denied on April 14, 1992. App., infra, 15a. By

order of July 8, 1992, Chief Justice Rehnquist ex-

tended the time for filing a petition for a writ of

certiorari to and including August 12, 1992. This

Court has jurisdiction under 28°U.S.C. 1254(1).

STATUTES AND REGULATIONS INVOLVED

The relevant statutory and regulatory provisions

are reproduced at App., infra, 88a-90a.

STATEMENT

This case involves the respective responsibilities of

the Federal Energy Regulatory Commission (FERC)

and the Securities and Exchange Commission (SEC)

under the Public Utility Act of 1935, ch. 687, 49

Stat. 803. Title I of that Act, the Public Utility

Holding Company Act (PUHCA), 15 U.S.C. 79a to

79z-6, authorizes the SEC to regulate transfers of

property between public utility holding company af-

filiates. Title II of the Act, the Federal Power Act

(FPA), 16 U.S.C. 791a-828c, authorizes FERC to

regulate the rates that public utilities, including utili-

ties affiliated with holding companies, charge their

wholesale customers. This case raises the question

whether the court of appeals, on remand from this

Court, construed those statutes correctly and in a

manner consistent with this Court’s earlier ruling in

this case.

1. In 1982, Ohio Power Company (Ohio. Power),

a utility operating subsidiary of American Electric

Power Company, Inc., made a rate increase filing

pursuant to Section 205 of the FPA, 16 U.S.C. 824d.

American Electric Power is a registered public util--

ity holding company under PUHCA. In the proceed-

ings that resulted from the filing, FERC staff and

15 small Ohio municipalities that purchase power

from Ohio Power challenged the filing on the ground

that the rates were premised on recovery of the full

costs of coal that Ohio Power had purchased from its

subsidiary, Southern Ohio Coal Company (SOCCO).

FERC staff and the municipalities claimed that those

costs far exceeded the market price of coal. Under

FERC’s “comparable market test,” a utility purchas-

ing goods from an affiliated firm can pass on the

market price—not the cost—of those goods to its

customers.’ Accordingly, FERC staff and the munici-

palities argued that Ohio Power ought to be permit-

ted to include only the market price—not the cost—

of its “captive” coal in its rate base.

Ohio Power contended that, because its transac-

tions -with SOCCO had been approved by the SEC

pursuant to PUHCA, FERC had to permit it to pass

on the full costs of the coal in its rates. Under

PUHCA, it is unlawful for a holding company or its

subsidiary to issue or sell a security or to alter the

1The FERC order establishing the comparable market

price test for the sale of “captive” coal was issued in 1981.

Under that test, FERC ruled that “the interests of the con-

sumers will best be protected by permitting utilities that

purchase coal] from affiliates to recover no more from their

ratepayers than the price that would have been incurred if a

comparable coal supply contract had been made with a non-

affiliated supplier.” Public Serv. Co. of N.M., 17 F.E.R.C.

€ 61,123, at p. 61,246 (1981). The test was upheld by the

Tenth Circuit in Public Serv. Co. of N.M. v. FERC, 832 F.2d

1201 (1987).

rights of those who hold securities without SEC ap-

proval, see PUHCA § 6, 15 U.S.C. 79f, or to acquire

any securities without SEC approval, see PUHCA

$$ 9, 10,15 U.S.C. 79i, 79j. Most important for pres-

ent purposes, under Section 13(b) of PUHCA, 15

U.S.C. 79m(b), it is also unlawful for a holding com-

pany subsidiary “to enter into or take any step in the

performance of” any sales or service contract with an

associated firm ‘‘except in accordance with such terms

and conditions and subject to such limitations and

prohibitions” as the SEC shall prescribe. Section

13(b) also prevides that the SEC’s “terms and con-

ditions” and “limitations and prohibitions” shall be

“as necessary or appropriate in the public interest

or for the protection of investors or consumers and

to insure that such contracts are performed economi-

cally and efficiently for the benefit of such associate

companies at cost, fairly and equitably allocated

among such companies” (emphasis added).°

To comply with the above provisions of PUHCA,

Ohio Power applied for and received SEC approval

when Ohio Power proposed to establish and capitalize

SOCCO as a wholly owned subsidiary in 1971 “[i]n

order to assure a reliable supply of coal for [its] gen-

erating facilities.” Ohio Power Co., SEC Holding

Company Act Release (HCAR) No. 17383 (Dec. 2,

1971). Ohio Power similarly applied for and received

2 Section 13(b) does “not apply to such transactions as the

[SEC] by rules and regulations or order may conditionally or

unconditionally exempt as being necessary or appropriate in

the public interest or for the protection of investors or con-

sumers,” if such transactions “involve special or unusual cir-

cumstances or are not in the ordinary course of business” or

meet another statutory condition. 15 U.S.C. 79m(b). The

complete text of Section 13(b) is set out in the Appendix,

o infra, 88a.

SEC approval on three additional occasions in 1978,

1979, and 1980, when Ohio Power transferred its coal

producing assets to SOCCO and undertook further fi-

nancing of SOCCO. On the first occasion, the SEC’s

order approving the transaction stated that SOCCO’s

charges for coal would be “based on” actual costs.

Ibid. In 1978 and 1980, the SEC orders provided that

the price of coal ‘“‘will not exceed the cost thereof to

[SOCCO],” Ohio Power Co., HCAR No. 20515, 14

SEC Dkt. 928 (Apr. 24, 1978); Southern Ohio Coal

Co., HCAR No. 21008, 17 SEC Dkt. 310, 312 (Apr.

17, 1979), and in 1979, the SEC’s order referred to

that phrase in its 1978 order. None of the orders

required Ohio Power to purchase any particular

amount of coal from SOCCO, though the orders cer-

tainly authorized it to purchase such coal.

In contending that FERC had to permit it to pass

through to its ratepayers all of its payments to

SOCCO for coal, regardless of the relation of those

costs to the market price of coal, Ohio Power relied on

Section 318 of the Federal Power Act, 16 U.S.C.

825q.* Section 318, entitled “Conflict of jurisdiction,”

provides in relevant part that if, with respect to a

number of types of transactions, “any person is sub-

ject both to a requirement of [PUHCA] * * * and to

a requirement of [the FPA], the requirement of

[PUHCA] shall apply to such person, and such per-

son shall not be subject to the requirement of [the

FPA] with respect to the same subject matter.” Ohio

Power contended that, if FERC were to deny it full

recovery of its coal costs in its rates, it would be sub-

—— ---

* The complete text of Section 318 is set out in the Appendix,

infra, 88a-89a.

ject both to a requirement under the FPA (7.e., that

it not recover in its rates the full amounis it had

paid SOCCO for coal) and to a requirement under

PUHCA (i.e., that it pay cost to SOCCO for the coal

it purchases) with respect to what it alleged to be

the same ‘subject matter.” Ohio Power argued that

Section 318 establishes that in such circumstances the

FPA-based requirement be given no effect; FERC

must permit Ohio Power to pass on its full costs of

coal to its customers.

2. Following an investigation, FERC concluded

that Section 318 did not require it to include Ohio

Power’s costs of captive coal in Ohio Power’s rate

base, regardless of how far those costs exceeded the

market price of coal. As FERC viewed it, while

PUHCA authorized the SEC to regulate the intra-

corporate-priee for coal transferred among American

Electric Power affiliates, that statute did not bar

FERC—operating under a statutory mandate to pro-

tect ratepayers from excessive rates—from prohibit-

ing the pass-through of any portion of a utility’s coal

costs that led to rates that were not “just and reason-

able” in light of market conditions. App., infra, 49a-

55a. FERC based that conclusion on, inter alia, the

SEC’s repeated statements that it has neither the au-

thority nor the intent to engage in rate-making when

it exercises its powers under PUHCA. App., infra,

54a. ;

Turning to the facts of this case, FERC found that

Ohio Power had paid SOCCO about 25-33%. over pre-

railing market prices for coal during the period from

1982-1986. App., infra, 73a-74a. In reaching that

conclusion, FERC rejected various arguments ad-

vanced by Ohio Power that its costs for fuel were

reasonable. App., infra, 60a-7la. For example, Ohio

Power had argued that its higher costs were justified

by “the long-term reliability of a contract with an

affiliate,” App., infra, 62a, and that the comparable

market price had been calculated on the basis of coal

contracts entered into at a different time—.e., con-

tracts of a different “vintage.” See App., infra, 62a-

63a. FERC, however, found that Ohio Power had

failed to introduce evidence indicating “any circun:-

stances in the coal market when the [SOCCO] con-

tract was made [in 1971] that would justify unus-

ually high prices.” App., infra, 64a. Although FERC

agreed “that vintages could affect the prices [for

coal], and should be looked at carefully,” FERC found

that the prices used .for comparison purposes here

“may be higher, 7.e., skewed in favor of Ohio Power,

than if only contracts of the [1971] vintage were used

for comparison.” Ibid.

FERC ordered Ohio Power to refund to ratepayers

the difference between the market price and - the

higher amount it actually paid SOCCO during the

relevant period and to calculate future rates on a

comparable. market basis... App., infra, 79a-81a.

FERC noted that “[e]stablishing the reasonable cost

of the affiliate coal supply by a comparison with the

competitive market allows Ohio Power the same

‘FERC limited its order to the period from 1982 through

1986. FERC also found that Ohio Power had paid SOCCO

“50% above market in 1980 [and] 94% [above market] in

1981,” the two years before the initiation of proceedings be-

fore FERC. App., infra, 73a. FERC did not order refunds of

the excess charges in those years, however, because it had not

established its comparable market test until late in 1981.

Until that-time, “Ohio Power would not necessarily have

anticipated that fuel charges within the cost-based limits

imposed by the SEC might not be acceptable under [FERC’s]

regulation.” App., infra, 80a.

chance to earn a return on investment in its affiliate

coal mine as_an independent supplier of coal.’’ App.,

infra, 77a. Thus, “not only must cost recovery be lim-

ited to the market prive when actual costs exceed

market price, but fuel charges must be allowed up to

the market price, even if actual costs are less.”” App.,

infra, 78a.° Ohie Power’s petition for rehearing was

denied. App., infra, 82a-87a.

3. A panel of the D.C. Circuit vacated FERC’s

order, with one judge concurring only in the judg-

ment. The panel majority ruled that “[t]he price

term of sales contracts between associated companies

[is] subject to SEC jurisdiction under PUHCA * * *

and [is] therefore a subject matter under section

318 if such price term is also subject to the require-

ments of the FPA.” App., infra, 25a. In the major-

ity’s view, the FERC orders at issue “set * * * a dif-

ferent price term for such a contract” and therefore

“t]he conclusion that the same subject matter is im-

plicated is inescapable.” App., infra, 25a-26a. The

majority believed that Section 318 operated to prevent

such dual regulation. App., ixfra, 29a-3la. The ma-

jority rejected FERC’s argument that Section 318

barred FERC from exercising its ratemaking author-

ity only where it was imposing requirements that ac-

tually conflicted with those imposed by the SEC or

* Ohio Power argued that a failure to permit it to pass

through the full costs of the SOCCO coal would “preclude it

from recouping high start-up costs as the costs of mining

drop relative to market price.” App., 7nfra, 77a-78a; see also

App., infra, 75a-76a. FERC responded that “if, as Ohio

Power argues in this case, its investment in [SOCCO] will

prove to be a good deal in the long run, it will benefit by

recouping losses [when the market price is higher than cost]

that result from the refunds of excessive fuel costs required

by this Opinion and order.” App., infra, 78a.

PUHCA, not when FERC and the SEC were merely

regulating the same “subject matter.” [bid.

Finally, the panel majority held that its decision

was “informed” by this Court’s cases “that disfavor

conflicting regulation resulting in trapped costs.”

App., infra, 31a, citing Nantahala Power & Light Co.

v. Thornburg, 476 U.S. 953, 971 (1986), and Missis-

sippi Power & Light Co. v. Mississippi, 487 U.S. 354,

372-374 (1988). According to the majority, by re-

fusing to permit Ohio Power to pass through costs

that the SEC had permitted it to incur, FERC had

“in effect” reformed the agreement between Ohio

Power and SOCCO, in violation of the SEC’s orders.

App., infra, 32a.

Concurring in the judgment, Judge Mikva tock the

position that, because Section 318 speaks in terms of

conflicting “requirements” of FERC and the SEC,

FERC is divested of jurisdiction under Section 318

only where the “requirements” the SEC and FERC

seek to impose are in actual conflict. He perceived no

such conflict here. App., infra, 35a-38a. Judge Mikva

nonetheless agreed with the majority that the FERC

orders had to be vacated, because, in his view, FERC’s

refusal to permit Ohio Power to include its full costs

of coal in its rates violated a FERC regulation pro-

viding that “[w]here the utility p» ichases fue! from

a company-owned or controlled source, the price of

which is subject to the jurisdiction of a regulatory

body, such costs shall be deemed to be reasonable and

includable in the adjustment clause.” 18 C.F.R.

35.14(a) (7). Judge Mikva rejected FERC’s inter-

pretation of that rule, under which it merely “creates

a presumption of reasonableness, not a conclusive

finding of reasonableness” with respect to pricing.

App., infra, 43a.

4. This Court reversed. Arcadia, Ohio vy. Ohio

Power Co., 111 S. Ct. 415 (1990). Before this Court,

the primary argument advanced by FERC and the

SEC was that Section 318 of the Federal Power Act

ousts FERC of jurisdiction only when the two agen-

cies’ regulations of a particular subject matter were

in conflict. This Court, however, adopted an interpre-

tation of Section 318 that differed from that of all of

the parties and under which that Section did not bar

FERC’s order. The Court held that Section 318 was

not “a general conflicts provision, policing the entire

regulatory border between the two agencies.” 111 S.

Ct. at 421. Instead, the Court held, Section 318

merely addresses the ‘‘Conflict of jurisdiction” in four

specifically enumerated areas: “[1] the issue, sale,

or guaranty of a security, or assumption of obliga-

tion or liability in respect of a security, [2] the

method of keeping accounts, [3] the filing of reports,

or [4] the acquisition or disposition of any security,

capital assets, facilities, or any other subject matter.”

16 U.S.C. 825q. See 111 S. Ct. at 419-422.

The Court then explained that Section 318 does

not decide this case because this case does not involve

requirements imposed by both FERC and the SEC

with respect to any of the four categories mentioned

above. In particular, the Court observed that the only

enumerated area “conceivably pertinent is contained

within” the fourth category above—the ‘acquisition

or disposition” of a security, capital asset, facility, or

other subject matter. 111 S. Ct. at 422. Yet, the Court

held, although the SEC might be said to have regu-

lated “Ohio Power’s acquisition of SOCCO” or “‘Ohio

Power’s acquisition of coal,” it is “impossible to find

any FERC requirement imposed ‘with respect to the

same’ acquisition.” 111 S. Ct. at 422 n.3. Similarly,

although FERC might be said to have imposed a re-

quirement “ ‘with respect to the disposition’ of electric

power,” that requirement “is still a requirement with

respect to a different subject matter from * *-* te

acquisition of SOCCO.” 111 S. Ct. at 422. “The com-

bination of SEC requirements with respect to the-

acquisition of SOCCO and FERC requirements with

respect to the disposition of electric power would not

bring § 318 into play.” bid.

The Court remanded the case to the D.C. Circuit

for resolution of two claims that Ohio Power had

raised but that had not yet been decided. First, the

D.C. Cireuit was to resolve the question whether

FERC’s decision violated its own regulation, 18

C.F.R. 35.14(a) (7), as Judge Mikva would have held.

111 S. Ct. at 422. Second, the D.C. Circuit was to ad-

dress’ “the argument that the FERC-prescribed rate

is not ‘iust and reasonable’ because it ‘traps’ costs

which the government itself has approved—disregard-

ing a governmental assurance, possibly implicit in the

SEC approvals, that Ohio Power will be permitted to

recoup the cost of acquiring and operating SOCCO.”

Thid.®

“In a concurring opinion, Justice Stevens, joined by Jus-

tice Marshall, stated that, “fe]ven if § 318 were read broadly

to give the SEC priority over FERC whenever the require-

ments of the two agencies conflict,” he would nonetheless

have reached the same conclusion because “[t]here is no

risk of conflict between the requirements of the SEC and

FERC in this case.” 111 S.Ct. at 423. He reasoned that

Congress could not have intended to create the gap opened

up by the D-C. Circuit opinion, in which utilities “owned by

holding companies would be relieved of regulation by FERC

by virtue of their corporate-structure. 111 S. Ct. at 423-424.

In Justice Stevens’s view, Congress “intended [utilities owned

by holding companies! to be subject to the regulation of both

the SEC and FERC as much as practical.” 111 S. Ct. at 424.

5. On remand, the D.C. Circuit first adopted Judge

Mikva’s views regarding FERC’s regulation, reject-

ing FERC’s argument that 18 C.F.R.-35.14(a) (7)

merely establishes a rebuttable, not conclusive, pre-

sumption that fuel prices subject to the jurisdiction

of another regulatory body are ‘reasonable’ for

FERC’s rate-making purposes. App., infra, Ta-9a.

In what it termed “‘a separate ground for remand”

to FERC, App., infra, 14a, the panel went on to

hold that “the overlapping authorities [of FERC and

the SEC] have resulted in unavoidable conflicting re-

quirements for Ohio Power.” App., infra, 10a. The

court. was “unpersuaded by the argument that no

conflict exists because FERC is simply regulating

how much Ohio Power can charge for power, not how

much Ohio Power pays for SOCCO coal.” * Ibid. The

panel reasoned that:

By declaring a portion of the SOCCO coal price

unreasonable and therefore not includable in

Ohio Power’s wholesale rate, FERC is unde-

niably affecting the economic relationship be-

tween Ohio Power and SOCCO, a relationship

approved by, and under the jurisdiction of, the

SEC.

Ibid. According to the panel, “Ohio Power will suffer

regulatory dissonance whenever the market price de-

7 In so ruling, the panel explained its divergence from this

(‘ourt’s earlier decision on the ground that while “the Su-

preme Court advised us that § 318 is not the mechanism by

which the overlapping jurisdiction issue may be resolved

*f,] [tlhe Court left for us * * * the task of deciding

how to reconcile the conflict, if any, created by FERC’s at-

tempt to allow only a market-based price for SOCCO coal

when calculating wholesale rates and the SEC’s orders re-

quiring Ohio Power to pay either cost or no more than cost

for SOCCO coal.” App., infra, 10a.

viates from cost.” Jbid.* The panel found “the reso-

lution of this conflict in the plain language of [Sec-

tion 13(b)],” and the principle that the plain lan-

guage of what it believed to be the more specific stat-

ute, Section 13(b) of PUHCA, should trump what it

regarded to be the more general language of FPA

Sections 205 and 206, which obligate FERC to deter-

mine whether all interstate wholesale electric rates

are “just and reasonable.” App., infra, lla.

The panel also concluded that this conflict between

Section 13(b) of PUHCA and Sections 205 and 206

of the FPA had resulted in impermissible cost-

trapping since FERC had employed “a recovery cal-

culation inconsistent with an SEC determination gov-

ernine an inter-affiliate transfer subject to § 13(b)

of the PUHCA.” App., infra, 14a. Finally, the court

dismissed Justice Stevens’s concern that Congress

could not have intended to shield holding company

affiliates from FERC’s jurisdiction: in.the court of

appeals’ view, FERC is not “nowerless to affect the

SEC’s price-appreval process,”’ since FERC can pro-

vide its comments to the SEC concerning any pro-

posed inter-affiliate transaction or “eould conceivably

ask the SEC to investigate whether the cost-based

price for SOCCO coal violated ‘any rule or regula-

tion’ of the PUHCA.” App., imfra, 14a.

‘The SEC filed an amicus memorandum with the D.C.

Circuit explaining that it viewed its four orders as establish-

ing “a cost-based pricing standard consistent with the pro-

visions” of Section 13(b) of PUHCA, 15 U.S.C. 79m(b).

SEC Statement at 5. The SEC also stated that its memoran-

dum “addresses only the meaning of the SEC’s orders and

does not take a position as to what effect, if any, the SEC’s

interpretation should have on the resolution of the case.”

SEC Statement at 2 n.1. The panel agreed with the SEC that

the four SEC orders—if not the statute itself—mandated a

price “equal to cost” for the coal. App., infra, 18a.

REASONS FOR GRANTING THE PETITION

The decision of the court of appeals departs sub-

stantially both from this Court’s reasoning in its

prior disposition of this case and from this Court’s

statement of the issues open for consideration by the

court of appeals on remand. Moreover, the court of

appeals’ latest decision once again ousts FERC—and

threatens to oust state regulatory agencies—from

jurisdiction over a key component of rates charged

by utilities affiliated with holding companies. In addi-

tion, it gives such utilities, merely by virtue of their

corporate affiliation, a broad exemption from regula-

tory restrictions imposed by the FPA on all other

utilities, in direct contravention of Congress’s deter-

mination to subject such firms to dual regulation un-

der both the FPA and PUHCA.

The court of appeals compounded its error by re-

jecting FERC’s construction of its own regulation.

Moreover, by virtue of the ruling below, FERC can

not close the regulatory gap created by the court of

appeals’ opinion simply by amending that regulation.

For under the D.C. Circuit’s separate ground for de-

cision, in no circumstances would FERC—or, under

the same reasoning, any state ratemaking body—

have the authority to regulate the pass-through of

captive fuel costs by holding company affiliates. Ac-

cordingly, any amendment to FERC’s regulation

would be futile, and the possibility of such amend-

ment ought not insulate the D.C. Circuit’s more im-

portant, substantive ruling from further review.

1. a. The decision of the court of appeals cannot

he squared with this Court’s prior disposition of this

case. This Court’s remand order did not provide for

the court of appeals to determine whether there was

a general conflict between regulation of Ohio Power’s

rates under the FPA and the requirements of

PUHCA regarding inter-affiliate transactions; as we

explain below, that issue had essentially been decided

by this Court in its application of Section 318 to this

case. See pp. 20-22, infra. Instead, the Court left

open a much more specific question: the validity of

the argument “that the FERC-prescribed rate is not

‘just and reasonable’ because -it ‘traps’ costs which

the government itself has approved—disregarding a

governmental assurance, possibly implicit in the SEC

approvals, that Ohio Power will be permitted to re-

coup the cost of acquiring and operating SOCCO.”’

L118. Ct. at 422. Resolving that question would have

required the D.C. Circuit to inquire whether the SEC

orders implicitly gave assurances that Ohio Power

would be able to recoup its investment in SOCCO or

its costs of operating SOCCO; whether, if so, Ohio

Power had in fact recouped its investment in SOCCO

or its costs of operating SOCCO; and whether, if

there were such assurances and Ohio Power had not

recouped its investment or its operating costs, the

IE KC-prescribed rate is not “just and reasonable,”

in light of all the facts of this case.

The D.C. Circuit did not undertake any of the

above inquiries. Instead, the court of appeals under-

took the same inquiry—and reached the same result

—as it had before. This Court remanded for an in-

quiry into the scope of Ohio Power’s justifiable reli-

ance interest, if any, and the extent to which it had

been satisfied. Instead of reviewing FERC’s resolu-

tion of those issues or remanding to FERC for. its

consideration of them in the first instance, the D.C.

Circuit once again ruled that PUHCA required Ohio

Power’s costs for coal to be passed through in full to

its wholesale customers, regardless of the extent to

which those costs exceeded-market prices or the na-

ture, extent, justifiability, or continuing validity of

any reliance interest created by the SEC orders. In

reaching that conclusion, the court of appeals revisited

issues already decided by this Court and failed to

decide the issue that this Court had determined was

crucial to resolution of this case.

b. The position adopted by the D.C. Circuit on the

issue it chose to resolve is mistaken as a matter of

law. It has long been settled that, even where two en-

tirely distinct statutes are involved, so long as ‘“‘there

Is no positive repugnancy between two laws a court

must vive effect to both.” Connecticut National

Bank v. Germain, 112 S. Ct. 1146, 1147 (1992):

Ruckelshaus vy. Monsanto Co., 467 U.S. 986, 1019

(1984); Rosenberg v. United States, 346 U.S. 278,

294-295 (1953) (Clark, J., concurring). The same

principle applies with even greater force where, as

here, Congress enacted the two. statutes simultane-

ously, as part of a single piece of legislation—the

Public Utility Act of 1935. In those circumstances, it

should be presumed that Congress knew that it was

enacting two statutes that imposed regulations on

some of the same entities and that Congress intended

all provisions of both statutes to apply to those en-

ities. Cf. FPC vy, Panhandle Eastern Pipe Line Co.,

337 U.S. 498, 513-514 (1949).’

The Public Utility Act had “two primary and re-

lated purposes: to curb abusive practices of public

'The D.C. Circuit resolved the “conflict”? it saw between

the two statutes by employing the canon of statutory con-

struction that “when a conflict arises between specific and

genera! provisions of the same legislation, the courts should

give voice to Congress’s specific articulation of its policies

and preferences.” App., infra, lla. Because there was no

conflict in this case, however, the predicate for application of

that canon was absent.

utility holding companies by bringing them under ef-

fective control, and to provide effective federal regu

lation of the expanding business of transmitting and

selling electric power in interstate commerce.” Gulf

States Utilities Co. v. FPC, 411 U.S. 747, 758 (1973).

The first of those purposes:resulted in‘ PUHCA, whos

administration is entrusted to the SEC. The second

resulied in the IPA, whose administration is en-

trusted to FERC,

The first purpose arose in response to widespread

abuses by holding companies and their subsidiaries

including the ‘‘excessive charges” that operating sub-

sidiaries had to pay to service and supply affiliate

resulting from “an absence of arm’s-length bargain

ing,” 15 U.S.C. 79a(b) (2), and the allocation of costs

among holding company subsidiaries to thwart effec-

tive state regulation, see 15 U.S.C. 79a(b)(2) and

(3). To eliminate those primarily financial abuse

PUHCA is directed largely toward financial transac

tions, corporate structures, acquisitions of assets. and

potential confiicts of interest. Congress therefore en

trusted the administration of PUHCA to the SE¢

the agency with expertise in financial transaction

and corporate structure. Congress did not give the

SEC general authority over rates charged by utili

ties affiliated with holding companies, nor did Con-

gress give the SEC any of the machinery ordinaril,

associated with rate regulation, such as the power t

suspend rates and order -tefunds of overcharges to

utility’s customers where necessary."

The SEC has consistently disavowed the authority or in-

tent to engage in ratemaking under PUHCA.

p2a-53a & n.18 (quoting sources). See also City of

Lafayette v. SEC, 454 F.2d 941, 955-956 (D.C. Cir. 1

sub nom. Gulf States Utilities Co. v. FPC, 411 U.S. 7

mn hia,

17 (1973)

(The Public Utility Act did- not grant the SEC regulatory

authority over the “operations” of a utility, and the SEC

The second purpose resulted from an entirely dif-

ferent problem—the regulatory gap created by Public

Util. Comm'n vy. Attleboro Steam d Elec. Co., 273

U.S. 83 (1927), in which this Court held that inter-

state wholesale sales of electricity were beyond the

reach of state regulation. The FPA was thus directed

primarily at operational and ratemaking issues,

rather than issues of corporate structure and securi-

ties regulation. Congress therefore entrusted the ad-

ministration of the FPA to the Federal Power Com-

mission—and later to its successor, FERC—the

agency most qualified to deal with the technical and

policy issues that arise in the course of regulating

energy generation and transmission. The FPA re-

quires utilities to file their rate schedules with

FERC, see 16 U.S.C. 824d(d), and authorizes FERC

to suspend any rate increase for up to five months,

order refunds for rates it finds to exceed a “‘just and

reasonable” level, and prescribe rates to. be charged

prospectively. See FPA S§ 205(e), 206(a), 16 U.S.C.

S24d(e), S24e(a).

It is apparent from the history of the Public Util-

ity Act that Congress intended to subject all utilities

to rate regulation by FERC and to subject all utility

holding companies to regulation by the SEC. A util-

ity that falls.into both categories is consequently sub-

ject to regulation under both statutes. Nothing in the

Public Utility Act or elsewhere suggests that Congress

believed that, by subjecting utility holding companies

to regulation by the SEC, it was remedying the problem

—the existence of the “Attleboro gap’—that caused

it to subject all utilities rate regulation by FERC."

therefore “stands in a different posture from the FPC, which

has regulatory jurisdiction over operations in view of

its authority [over utility rates].’’).

"Ct. PUHCA § 21, 15 U.S.C. 79u (“Nothing in this chap-

ter shall affect * * * the jurisdiction of any other commission,

Accordingly, full effect should be given to Congress’s

determination to subject public utility holding compa-

nies to the admittedly stringent requirements imposed

by the dual system of regulation. The D.C. Circuit’s

result, which would entirely relieve Ohio Power of

certain regulatory requirements applicable to every

other utility, merely because Ohio Power is organized

as a part of a public utility holding company, is

unwarranted.”

To be sure, this Court’s remand order in this case

recognized the fact that there may be casés in which

FERC’s regulation of a utility’s rates under the FPA

would be affected by prior regulation by the SEC

under PUHCA. The “just and reasonable” standard

under which FERC reviews rates pursuant to the

KPA is broad and flexible, and “does not compel

[FERC] to use any single pricing formula.” Mobil

Oil Exploration d& Producing Southeast Inc. vy. United

Distribution Cos., 111 S. Ct. 615, 624 (1991) (inter-

preting same language in Natural Gas Act). The

standard is plainly flexible enough to permit FERC,

in its rate regulation, to accommodate a_ utility’s

justifiable reliance on SEC orders under PUHCA.

board, agency, or officer of the United States or of any State

or political subdivision of any State, over any person, secu-

rity, or contract, insofar as such jurisdiction does not conflict

with any provision of this chapter or any rule, regulation, or

order thereunder.”’).

As Justice Stevens noted, “Ohio Power would be allowed

to buy coal at prices that would be higher than those paid by

any utility not owned by a holding company, and then pass

those higher costs along to its customers.” 111 S. Ct. at 424.

Congress did not “intend[] to relieve utilities owned by hold-

ing companies of substantial technical regulation because of

their corporate structure. It intended those utilities to be

subject to the regulation of both the SEC and FERC as much

as practical.” Jbid.

P?()

For example, if a utility makes a substantial in-

vestment in an affiliate in justifiable reliance on SEC

orders under PUHCA permitting inter-affiliate trans-

actions at cost, FERC would have to take into ac-

count whether its rate regulation of the utility

would undermine the utility’s justifiable reliance in-

terest or the purpose underlying the SEC orders.

But that does not mean abdication of rate regu-

lation. It is improbable that any justifiable reliance

interest would extend indefinitely into the future or

be sustainable regardless of surrounding circum-

stances. Thus, to address the issue the Court left

open on remand, it would be necessary to consider

such factors as the nature and extent of the utility’s

justifiable reliance interest, whether the utility has

recovered its investment, and whether surrounding

circumstances have changed in such a manner that

reliance on the SEC’s orders is no longer justifiable.

Instead of addressing those factors, the D.C. Circuit

simply resurrected its holding that PUHCA ousted

FERC of regulatory jurisdiction altogether. The fact

that FERC must take into account the effects of the

SEC’s orders in its ratemaking proceedings, however,

lends no support to the court of appeals’ conclusion

that FERC must suspend its ordinary processes and

simply permit a utility to pass through to its custom-

ers the entire costs of all inter-affiliate transactions.’

ce. In its previous decision in this case, this Court

recognized the dual regulatory requirements imposed

Although Ohio Power argued on remand that FERC

must simply allow it to pass through the full costs of SOCCO

coat to its ratepayers, Ohio Power did not argue that the

rates set by the FERC order under review were not “just

and reasonable” because they did not permit it to recover its

investment in SOCCO or because of their impact on its over-

all rate of return on prudent investment.

by the Public Utility Act. In applying its interpreta-

tion of Section 318 to the facts of this case, this Court

had to determine whether FERC and the SEC had

each imposed some requirement “with respect to * *

the acquisition or disposition of any security, capital

assets, facilities, or any other subject matter.” See

111 8. Ct. at 422. The Court decided that they had

not, since it was “impossible,” in this Court’s words,

“to find any FERC requirement imposed” with re-

spect either to “[t]he acquisition of SOCCO by Ohio

Power’. or Ohio Power’s “acquisition of coal.” Jd. at

422 & n.3. This Court stated clearly that FERC’s re-

quirements were imposed “with respect to the dis-

position of electric power,” ibid., not the acquisition

of any asset or material.

In contrast, the central premise of the court of ‘ap-

peals’ decision is that FERC and the SEC are both

imposing requirements—indeed, conflicting require-

ments—on Ohio Power’s acquisition of coal. The

court of appeals defended its determination that “the

overlapping authorities have resulted in unavoidable

conflicting requirements for Ohio Power,” by stating

that it was “unpersuaded by the argument that no

conflict exists because FERC is simply regulating how

much Ohio Power can charge for power, not how

much Ohio Power pays for SOCCO coal.” App., infra,

10a. The D.C. Circuit thus rested its opinion on its

belief that FERC’s FPA-based regulation of the dis-

position of electric power—“how much Ohio Power

can charge for power’—conflicts with PUHCA’s

mandate of an at-cost standard for Ohio Power’s ac-

quisition of coal—“how much Ohio Power pays: for

SOCCO coal.” Yet this Court specifically found it

“impossible to find any FERC requirement” imposed

with respect to that acquisition. 111 S. Ct. at 422 n.3.

In short, the court of appeals’ holding on remand that

FERC’s regulation of the disposition of electric power

automatically conflicted with PUHCA’s mandates con-

cerning Ohio Power’s acquisition of coal cannot be

reconciled with this Court’s prior ruling that FERC

had not imposed a requirement with respect to Ohio

Power’s acquisition of coal. This Court, instead, in-

tended that any consequences of the SEC orders in a

case such as this would be accommodated under the

broad “just and reasonable” standard of the FPA.

2. This case also involves a second ruling by the

D.C. Circuit, which we likewise believe is erroneous:

the conclusion that the language of the FERC regu-

lation at 18 C.F.R. 35.14(a) (7)—which specifies that

where “the cost of fuel * * * is subject to the juris-

diction of [another] regulatory body, such cost shall

be deemed reasonable and includable in the [fuel]

adjustment clause” “* (emphasis added)—creates a

conclusive presumption of “justness and reasonable-

ness” under the FPA. According to the court of ap-

peals, the regulation requires FERC to permit Ohio

Power to pass through the costs of SOCCO coal in

Ohio Power’s rates, regardless of whether FERC ulti-

mately concludes the cost is not “just and reasonable”

when reexamined in a full-blown Section 205 or 206

proceeding.

FERC could in theory attempt to remedy the prob-

lem created by the court of appeals’ decision on this

point prospectively by repromulgating the regulation

with language clarifying its meaning. But, even if 18

“A “fuel adjustment clause” allows a utility to pass

through the cost of fuel on a provisional basis without a full-

fledged rate proceeding. Such pass-throughs are generally

reviewable in the utility’s next rate proceedings under Sec-

tion 205 or 206 of the FPA.

C.F.R. 35.14(a) (7) were repromulgated in that man-

ner, the court of appeals would still, under its prin-

cipal ruling in this case, find FERC precluded from

examining whether a utility affiliated with a holding

company could pass through the costs of its inter-

affiliate transactions.” Accordingly, the existence of

this regulatory issue ought not shield from review the

D.C. Circuit’s statutory holding.

In any event, the D.C. Circuit’s construction of

the regulation is unsound. The court. of appeals

implicitly acknowledged that other courts have not

uniformly interpreted use of the word “deemed” as

creating a rebuttable presumption, determining that

they “have generally found that it establishes a con-

clusive presumption.” App., infra, 8a (emphasis

added )."* In light of that uncertainty as to the mean-

ing of “deemed,” the court of appeals should have de-

ferred to FERC’s construction of its own regulation.

Udall v. Tallman, 380 U.S. 1, 16 (1965); Ford Motor

Credit Co. v. Milhollin, 444 U.S. 555, 566 (1980). So

long as the agency’s construction is not plainiy er-

roneous or inconsistent with the regulation, it “is de-

serving of substantial deference.” Mullins Coal Co. v.

'§ The D.C. Circuit has jurisdiction to review all FERC

orders. 16 U.S.C. 825/1(b).

6 As one court has put it, “[t]he words ‘deem’ and ‘deemed’

when used in statutes have been construed to establish a

conclusive presumption in some instances, but only a rebut-

table presumption in other cases, depending largely upon

the context in which they are used.” Brimm v. Cache Valley

Banking Co., 269 P.2d 859, 863-864 (Utah 1954) (citing

examples and concluding that statutory provisions at issue

created rebuttable presumption) ; see also Bowers v. United

States, 226 F.2d 424, 431-433 (5th Cir. 1955) (Cameron, J.,

dissenting (citing authorities) ).

Director, OWCP, 484 U.S. 135, 159 (1987); Ar-

kansas vy. Oklahoma, 112 S. Ct. 1046, 1059 (1992).

Moreover, there is a solid basis for FERC’s inter-

pretation here, for the court of appeals, in giving the

word ‘‘deemed” conclusive effect, made it irreconcil-

able with the balance of 18 C.F.R. 35.14. First, the

presumption of reasonableness is triggered only by

affiliate fuel prices ‘subject to the jurisdiction of a

regulatory body.’ It would have been irresponsible

for FERC to abdicate its consumer protection man-

date by imposing a conclusive presumption of reason-

ableness if a fuel price were merely subject to the jur-

isdiction of another agency, regardless of whether

that agency had ratemaking authority or ever exer-

cised its jurisdiction over the price in any way. Cf.

FTC v. Ticor Ins. Co., 112 S. Ct. 2169 (1992).

Second, the regulation merely states that such

prices ‘‘shall be deemed to be reasonable and includ-

able in the [fuel] adjustment clause.” But charges

includable in a fuel adjustment clause are plainly

subject to review by FERC, both retroactively and

prospectively, in full-blown rate proceedings under

Sections 205 and 206 of the FPA.” See Board of

Water, Light & Sinking Fund Comm’rs v. FERC, 931

F.2d 94, 95 (D.C. Cir. 1991) (citing Associated Gas

Distribs. v. FERC, 706 F.2d 344, 348 (D.C. Cir.

'1983)); see also App., infra, 79a n.101 (citing Public

Serv. Co. of N.H., 6 F.E.R.C. { 61,299 (1979); Elec-

tric Cooperatives of Kansas, 14 F.E.R.C. © 61,176

'T As the final sentence of the regulation makes clear,

“Tfluel 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 [FERC] on its own motion under [Slection 206 of

the Federal Power Act.” 18 C.F.R. 35.14(a) (7) (emphasis

added).

(1981): Carolina Power & Light Co., 17 F.E.R.C.

24 F.E.R.C. % 61,199, at 61,461 (1983) ).”

3. The D.C. Circuit’s ruling essentially reinstated

the rule of law that was established in its prior ruling

in this ease: that Ohio Power may use PUHCA and

the SEC orders as a shield to preclude FERC from

making any inquiry into whether Ohio Power’s costs

of coal may be fully recovered in “just and reason-

able” rates. As was the court of appeals’ prior hold-

ing, that holding appears to be applicable to all of the

inter-affiliate sales and service contracts that the SEC

has approved under PUHCA; under the court of ap-

peals’ holding, FERC is precluded from doing any-

thing but rubber-stamping a utility’s efforts to pass

through the costs of those contracts in its wholesale

rates.

In addition, the court of appeals’ decision threatens

to have an equally great effect on state utility regula-

tory bodies. The rationale of the court of appeals’ de-

cision is that the “at cost” standard of PUHCA Sec-

tion 13(b) governs not merely the transfer price of

goods and services sold among holding company affil-

‘Ss When FERC considered amending Section 35.14(a) (7)

in 1979, it stated that, because under Section 35.14(a) (7)

fuel costs may be passed through without prior approval by

FERC, the Commission “has established several mechanisms

by which it may monitor * * * costs recovered through fuel

adjustment clauses.” 44 Fed. Reg. 28,684. It went on to ex-

plain that those mechanisms included “audits,” “review and

investigation of fuel costs in conjunction with * * * wholesale

rate changes,” and “investigation of fuel costs under section

206 * * * either upon complaint or upon the Commission’s

own motion.” Jbid.; see also McDowell County Consumers

Council, Inc. v. American Electric Power Co., 54 F.P.C. 361

(1975).

iates, but also the rate that the operating utility can

charge its customers for electric power generated in

part through use of those goods or services. If

“ Congress so intended in Section 13(b), then, under

standard Supremacy Clause principles, that deter-

mination would be fully binding upon the States. Cf.

note 11, supra. Thus, it appears that state regula-

tory agencies would be bound, just as is FERC, to

permit utility affiliates of holding companies to pass

through in their rates the costs of goods and services

purchased from affiliated firms. The court of appeals’

decision accordingly threatens to intrude not only

upon FERC’s jurisdiction over interstate wholesale

rates, but also upon the jurisdiction of the States to

regulate intrastate and retail rates. ;

As we discussed in supporting the petition for a

writ of certiorari the last time this case was before the

Court, utilities affiliated with holding companies di-

rectly or indirectly serve 49 million households in 30

States and the District of Columbia. The legal conse-

quences of the court of appeals’ decision on remand

appear to be at least as broad as were the conse-

quences of its prior decision, affecting not merely the

jurisdiction of FERC, but that of state regulatory agen-

cies as well. Further review is therefore warranted.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

JOHN G. ROBERTS, JR.

Acting Solicitor General *

EDWIN S. KNEEDLER

Assistant to the Solicitor General

JAMES A. FELDMAN

Ass stant to the Solicitor Ge TLE ral

WILLIAM S. SCHERMAN

(+6 re ral ( "OUNSE ]

JEROME M. FEIT

Solicitor

JOSEPH S. DAVIES

De DUTY Solic itor

TIMM L. ABENDROTH

A ttorne y

. » + , ' Sw.

Federai Energqu Regulatory Commission

AUGUST 1992

* The Solicitor Generai is disqualified in this case.

APPENDIX A

UNITED STATES COURT OF APPEALS

DISTRICT OF COLUMBIA CIRCUIT

No. Ss- l 293

OHIO POWER COMPANY, PETITIONER

FEDERAL ENERGY REGULATOR COMMISSION, RESPONDENT

LCP CHEMICALS & PLASTICS, INC., ET AL..

MUNICIPAL WHOLESALE ELECTRIC CUSTOMERS OF

OHIO POWER COMPANY, INTERVENORS

nand from the United States Supreme Court

Argued Sept. 27. 199]

Decided Feb. 4. 1992

Edward Berlin, with whom Kenneth G. Jaffe and

Mdward J. Brady, Washington, D.C.. were on the brief,

for petitioner. Andrew L. Lipps, Washington, D.C.. also

entered an appearance for petitioner.

Joseph S. Davies, Deputy Sol., with whom William §.

Scherman, Gen. Counsel, Jerome M. Feit. Sol.. and Timm

Abendroth, Atty., Washington, D.C., were on the brief,

(la)

for respondent. John Estes, Joanne Leveque, and Cath-

erine C. Cook, Attys., F.E.R.C., Washington, D.C., also

l appearances for respondent.

Gregg D. Ottinger, with whom John P. Williams, Wash-

ington, D.C., and Lee F. Feinberg, Charleston, W.V., were

on the brief, for intervenors.

James B..Liberman, Washington, D.C., was on the brief

for amici curiae Registered Holding Co. Group, urging

that the decision of the. F.E.R.C. be reversed and the

enteret

matter remanded to the Com’n.

James R. Doty, Gen. Counsel, Jacob H. Stillman, Asso-

clate Gen. Counsel, Katherine Gresham, Asst. Gen. Coun-

sel, and Paul Gonson, Sol., S.E.C., Washington, D.C.,

were on the brief for amicus curiae.

Before MIKVA, Chief Judge, and SILBERMAN and

SENTELLE, Cireuit Judges.

Opinion for the Court filed by Cireuit Judge SEN-

TELLE.

SENTELLE, Circuit Judge:

Ohio Power Company, a producer of electricity, was

subjected to the regulatory jurisdiction of two agencies,

the Federal Energy Regulation Commission (“FERC”)

and the Securities and Exchange Commission (“SEC’’).

Specifically, FIERC determined in a wholesale rate proceed-

ing chat the SEC-approved price paid by Ohio Power for

coal from its associate Southern Ohio Coal Company

(“SOCCO”) could not be included in Ohio Power’s whole-

sale rate to the extent that it was greater than the market

price for comparable coal. Ohio Power Co., 39 F.E.R.C.

1 61,098 (1987).

We initially granted Ohio Power’s petition to vacate the

FERC order on the ground that § 318 of the Federal Power

Act insulated SEC-approved prices from FERC alteration.

Ohio Power Co. v. FERC, 880 F.2d 1400, 1410 (D.C.Cir.

1989). Ruling that § 318 did not address-the conflict faced

by Ohio Power, the Supreme Court remanded the case to

us. Arcadia, Ohio v. Ohio Power Co., —— U.S. , 111

Sct. 415. 422. 112 L.Ed.2d 374 (1990). We now grant

Ohio Power’ pe ition to vacate the FERC order for the

reasons discussed below.

BACKGROUND

[. The Statutory Scheme

SEC and FERC’s predecessor, the Federal Power Commis-

sion, under an umbrella statute entitled the Public Utility

Act. ch. 687, 49 S at. 803 (1935). Title I, known as the

Public Utility Holding Company Act (“PUHCA”), em-

powers the SEC to curb abuses affecting investors and

consumers created by transactions between. subsidiary

associates of public utility holding companies. 49 Stat.

8023 (19235) (codified as amended at 15 U.S.C. 88 79a to

797-6). The SEC discharges its responsibilities in large

part under $ 13 of the PUHCA. which makes transactions

between associate companies unlawful unless they are

approved by the SEC at terms found to be “in the public

‘nterest or for the protection of investors or consumers.”

15 U.S.C. § 79m (b).'

Title I]. known as the Federal Power Act (“FPA”),

established the Federal Power Commission to oversee the

1 Section 13(b) of PUHCA states in pertinent part that

it shall be unlawful for any subsidiary company of ristered

holding company to enter into or take any step in the per

formance of any service, sales, or construction contract by

which such company undertakes to perform services or con

struction work for, or sell goods, t n ociate compa!

thereof except in accordance with such term ind conditi

and subject to such limitations and prohibitio1 is the Com-

mission by rules and regulations or order shall prescribe a

necessary or appropriate in the public interest or for tne

tection of investors or consumers and to insure that suck yn

tracts are performed economically and efficiently for the ber

fit of such associate companies at cost, fairl, and

atlocated among such companies

15 U.S.C. § 79m(b

wholesale transmission and sale of interstate electric

power. 49 Stat. 838 (1935) (codified as amended at 16

U.S.C. §§$ 79la-825r). FERC, which succeeded the now-

departed Federal Power Commission, fulfills a critical

part of its mandate by setting “just and reasonable”

wholesale electric rates under §§ 205 and 206 of the

FPA. 16 U.S.C. $$ 824d & 824e. Thus, under the FPA

and the PUHCA,

FERC-regulated electric power companies [such as

Ohio Power| that are subsidiaries or affiliates of

registered public utility holding companies are there-

for subject to SEC regulation as well.

Arcadia, 111 $.Ct. at 417: see also Ohio Power Co., 880

F.2d at 1402-04 (summarizing statutory backdrop of this

action).

Il. Factual Background

Ohio Power Company produces electricity with coal-

burning generation plants and is a subsidiary of one of

the nation’s largest public utility holding companies,

American Electric Power Company. In 1971, Ohio Power

entered into a lease with the owners of the Martinka

Mine for development of coal by Ohio Power’s subsidiary

and associate, SOCCO. Before Ohio Power could capital-

ize SOCCO’s mining operations by purchasing its stock,

§$ 10 of PUHCA required the SEC to approve the proposed

transaction. 15 U.S.C. § 79}. In its order of December

2, 1971, the SEC determined that Ohio Power could ob-

tain coal from SOCCO at a price “based on an amount

equal to the actual cost” of coal production including a

reasonable rate of return on Ohio Power’s capital invest-

ment. Ohio Power Co., Holding Company Act Release

(“HCAR”) No. 17,383 (1971); see Arcadia, 111 S.Ct. at

417-18 (discussing history of Ohio Power's capitalization

of SOCCO)

2 As observed by the Supreme Court, Ohio Power obtained three

additional SEC approvals for various capital transactions with

This action came initially before us as a result of a

May 28, 1982, wholesale rate increase application that

Ohio Power filed with FERC pursuant to §§ 205 and

206 of the FPA. FERC eventually accepted the applica-

tion except for Ohio Power’s request to pass ‘ through

the cost-based price that it paid for SOCCO coal. Assert-

ing that comparable coal could be obtained at a cheaper

market price, FERC found the SOCCO coal price unrea-

sonable and therefore not includable in Ohio .Power’s

wholesale rate. Ohio Power Co., 39 F.E.R.C. {] 61,098, at

61.275 (1987). Ohio Power insisted the SEC alone had

jurisdiction over the price that associates may charge

each other for goods," and sought judicial vindication.

Before this Court, Ohio Power and FERC argued that

the controversy centered on the application of the juris-

dictional conflicts provision of the Public Utility Act,

§ 318 of the FPA. Ohio Power Co., 880 F.2d at. 1405-09.

The parties agreed § 318 provided that the requirements

of the PUHCA govern when a company is subject to con-

flicting PUHCA and FPA regulation “with respect to the

same subject matter.” 16 U.S.C. § 825q. FERC defended

its order on two grounds: first, by claiming there was

no conflict between the agencies because the FERC order

required Ohio Power to pay a market price that was less

than cost and the SEC orders simply required Ohio

Power tou pay no more than cost; and second, by assert-

ing that, regardless of conflict, since FERC was regulat-

ing wholesale rates and the SEC was regulating inter-

associates prices, the agencies were not regulating the

“same subject matter.” Ohio Power Co., 880 F.2d at

1405.

SOCCO. See Ohio Power Co., HCAR No. 20.515, 14 SEC Docket

928 (1978); Southern Ohio ¢ eal Co.. HCAR No. 21,008, 17 SEC

Docket 310 (1979); and Southern Ohio Coal Co., HCAR No. 21,537,

19 SEC Docket 1309 (1980).

8SEC regulation 17 C_F.R. § 250.80(b) defines “goods” to in-

clude coal

—

This Court agreed with Ohio Power that even if the

SEC orders were read to enshrine cost only as a ceiling,

Ohio Power was nevertheless subject to conflicting reg-

ulatory authorities in that FERC had “set by order a

different price term” for a contract approved by the

SEC. 7d. at 1406. Similarly, we found that the two

agencies were regulating the ‘same subject matter,’ and

that therefore § 318 required FERC to defer to the

SEC's approval of a ecost-based price for SOCCO coal.

Id. at 1408-09. In a separate opinion, Judge, now Chief

Judge, Mikva concurred in the result, but on the alterna-

tive ground that FERC had violated one of its own reg-

ulations requiring it to ‘deem’ reasonable and includable

prices set by other regulatory bodies (here, the SEC).

Id. at 1412-14 (construing FERC regulation 18 C.F.R.

§ 35.-14(a) (7)).

In its review, the Supreme Court adopted a reading of

§ 318 not advanced by “the parties, the interested agencies,

lor| the Court of Appeals,” Arcadia, 111 S.Ct. at 422

(Stevens, J., concurring), and found that the conflict

affecting Ohio Power was not covered by § 318. ZJd. at

21-22. The Arcadia Court read § 318 as applying only

to four specifically enumerated types of conflicts, and held

that, although Ohio Power was subject to “overlapping

regulatory jurisdiction of both the SEC and of FERC,”

id. at 417, § 318 was silent regarding the type of overlap

asserted by Ohio Power in this case. Z/d. at 422.

Advising us that its interpretation of § 318 did not

“end review of the FERC order,” the Court remanded

with instructions to resolve whether: (1) as Judge Mikva

observed, FERC violated its own regulation; and (2) “the

FiEeRC-prescribed rate” is unjust and unreasonable because

it ‘ ‘traps’ costs which the government [the SEC] itself

has approved”. Jd.

Justice Stevens wrote a concurring opinion, joined by

Justice Marshall, in which he found that even if the over-

lap in authorities fell within the enumerated subjects of

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meaning of d “deemed,” y O

that it establishes a conclusive presumption for including

such costs, and FERC urging that it sets only a rebuttable

presumption, which in Ohio Power’s case was disproved.

Judge Mikva began by remarking that “no deference is

owed an interpretation at odds with the plain meaning of

the text.”” Ohio Power Co., 880 F.2d at 1413 (Mikva, J.,

concurring) (citing Union of Concerned Scientists v. NRC,

711 F.2d 370, 381 (D.C.Cir.1983) (“When an agency’s

interpretation flies in the face of the language of the rules

themselves it is owed no deference.”)). He then found

that “courts construing the word ‘deemed’ have generally

found that it establishes a conclusive presumption.” Jd.

(citing, eg., H.P. Coffee Co. v. Reconstruction Finance

Corp., 215 F.2d 818, 822 (Emer.Ct.App.1954) (finding

near “unanimous judicial determination that the word

[deemed], when employed in statutory law, creates a con-

clusive presumption.”)). In addition to H.P. Coffee and

the other cases cited in the concurrence, we note also that

two decisions from this Circuit have construed the term

deemed and found that it created a conclusive presump-

tion. See Gaither v. Myers, 404 F.2d 216, 218 (D.C.Cir.

1968) (finding that use of term deemed in a liability

statute changed the common law rule of agency by making

agency status turn solely on the consent of an owner to

use a car, while the common law rule considered consent

one of many factors); and Forrester v. Jerman, 90 F.2d

412, 413 (D.C.Cir.1937) (interpreting same statute as in

Gaither and reaching same conclusion after finding that

deemed “is unambiguous and leaves nothing for interpre-

tation”). Given the unambiguous character of deemed,

then, we find case law amply supports our finding that the

plain language of § 35.14(a) (7) requires FERC to in-

clude in Ohio Power’s wholesale rate the SEC-approved

cost-based price for SOCCO coal.

FERC attempts to cloud the clear meaning of deemed

by pointing to the complicated rulemaking history of

§ 35.14(a) (7). Brief of Respondent at 31-32. We agree

with Judge Mikva’s past disposition of this argument and

find that, if anything. the regulatory history cuts against

| rebuttable presumption interpretation of deemed, par-

ticularly when considering the evolution of the regulation

its proposed form in 1973 to its final promulgation

In 1974. See Ohio Power Co., 880 F.2d at 1413-14. The

original version stated that “lo}nly the reasonable cost of

fuel [purchased from an associate] may be included” in

the wholesale rate. 38 Fed.Reg. 17,253 (1973), language

consistent with the rebuttable presumption urged by

FERC. But the regulation_as ultimately issued abandoned

this formulation and instead contained the “such cost shal]

be deemed reasonable and includable” language that we

read as creating a conclusive presumption. 39 Fed.Reg.

28,911 (1974),

Finally, we find prior administrative pronouncements

regarding the meaning of § 35.14(a) (7) of little moment

to the extent they are not consistent with the unambigu-

Ous terms of the regulation. See Union of Concerned

Scientists, 711 F.2d at 381. If FERC wishes to have

S 35.14(a) (7) create only a rebuttable presumption, then

it may do so explicitly through the required process, As

currently written, however, we agree with Judge Mikva

that “section 35.14 (a) (7) establishes, as a policy matter,

that if another regulatory body has already passed on the

fuel price, ther) FERC Will abide by that determination.”

Ohio Power Co., 880 F.2d at 1414. We therefore hold that

under §$ 35.14(a) (7). FERC was obliged to find “‘reason-

able and includable” Ohio Power’s fuel costs as approved

by the SEC, and we remand to FERC for further findings

not inconsistent with this opinion.

II. Re concilation of the Ove rlapping Re gulatory

d | uthorit l¢ Ss

By precluding FERC from declaring an SEC-approved

price unreasonable, our interpretation of $ 35.14 (a) (7)

provides Ohio Power with s me succor from the “over-

lapping regulatory jurisdiction of both the SEC and of

10a

FERC” found by the Arcadia Court. 111 S.Ct. at 417.

However, we believe that more than the regulation re-

quires this result.

In Areadia, the Supreme Court advised us that § 318

is not the mechanism by which the overlapping regulatory

jurisdiction issue may be resolved. The Court left for us

though, the task of deciding how to reconcile the conflict,

if any, created by FERC’s attempt to allow only a market-

based price for SOCCO coal when calculating wholesale

rates and the SEC’s orders requiring Ohio Power to pay

either cost or no more than cost for SOCCO coal.

To begin, we do find that the overlapping authorities

have resulted in unavoidable conflicting requirements for

Ohio Power. Justice Stevens in his Arcadia concurrence

noted that the ‘‘market price for coal during the time

relevant to this proceeding has been less than SOCCO’s

costs.”” Arcadia, 111 §.Ct. at 423. From this, he reasoned

that no conflict existed since the SEC orders did no more

than “establish a ceiling requiring that the price SOCCO

charges its affiliates for coal remain at or below its costs.”

Id.

However, Ohio Power represents that the ‘‘market price,

calculated according to FERC’s methodology, has exceeded

~ the cost of mining Martinka coal in some months.” Brief

of Petitioner Ohio Power at 24 & n. 15. FERC does not

contest this representation. Moreover, if one interprets

the SEC orders as establishing cost as both a floor and a

ceiling, then Ohio Power will suffer regulatory dissonance

whenever the market price deviates from cost.

We are also unpersuaded by the argument that no con-

flict exists because FERC is simply regulating how much

Ohio Power can charge for power, not how much Ohio

Power pays for SOCCO coal. By declaring a portion of

the SOCCO coal price unreasonable and therefore not in-

= cludable in Ohio Power’s wholesale rate, FERC is un-

deniably affecting the economic relationship between Ohio

Power and SOCCO, a relationship approved by, and under

the jurisdiction of, the SEC. Cf. Nantahala Power &

o_O

lla

Light v. Thornburg, 476 U.S. 953. 971, 106 S.Ct. 2349,

2359, 90 L.Ed.2d 943 (1986) (overturning action of a

state regulatory body that, by its orders establishing retail

rates, required the regulated entity to “pretend that it is

paying less for the power it receives... , under agree-

ments not subject to [the state’s] jurisdiction, than is in

fact the case.’’),

We find the resolution of this conflict in the plain lan-

guage of the statute authorizing the SEC to regulate sales

contracts of associate companies. Section 13(b) of the

PUHCA empowers the SEC to approve the price of inter-

associate sales of goods, such as coal, and directs the SEC

to price these goods “at cost, fairly and equitably allocated

among [associate] companies.” 15 U.S.C. § 79m(b).

Here, the SEC did just that with its four orders approv-

ing Ohio Power's relationship with SOCCO, which re-

flected § 13(b)’s mandate to price SOCCO’s coal “at cost.” 4

In contrast to the SEC’s specific statutory mandate to

establish a cost-based price for sales of goods between

associates, FERC can point to no equivalent authority

besides its general charge to establish “just and reason-

able” wholesale electric rates. 16 U.S.C. §§ 824d & 824e.

Of course, it is black letter law that when a conflict arises

between specific and general provisions of the same legis-

lation, the courts should give voice to Congress’s specific

articulation of its policies and preferences. 2A NORMAN

J. SINGER, SUTHERLAND STATUTORY CONSTRUCTION § 46.05,

at 105 n. 19 (5th ed. 1992). Accordingly, we hold that

Congress in § 13(b) of the PUHCA authorized the SEC

to set the price of SOCCO coal “at cost,” and in so

doing constrained FERC from altering that price under

its “just and reasonable” rate-setting authority.

In support of its order, FERC advances the argument

that the SEC orders “do not appear to mandate the cost-

based price where a market price could be lower, rather

they permit a price up to a cost-based price.” Ohio Power

* See supra note 1 and accompanying text.

12a

Co., 39 F.E.R.C. § 61,098, at 61,276 (1987), quoted in

Brief of Respondent at 26. Citing SEC Rule 92, 17

C.F.R. § 250.92, the Commission found that’ “not only

does the SEC not require a cost-based price for the sub-

sidiary coal, the SEC may require a market-based price

for subsidiary coal if the market price is lower than

cost.”” Jd. (emphasis added).

Without addressing whether the SEC does in fact have

the authority to establish a lower-than-cost market price,’

even FERC concedes that Rule 92 empowers the SEC

alone to set such a price. FERC does not cite, and we

ean not find, any indication in the orders that the SEC

was exercising its authority to establish a below-cost

market price for SOCCO coal. The orders do not men-

tion market price as a limit to price, nor do they require

Ohio Power to show that comparable coal was unavail-

able before paying cost for SOCCO coal.®

Instead, the orders appear to embrace the cost-based

price principles required by SEC Rules 90 and 91. 17

C.F.R. §§ 250.90 & 250.91. Consistent with § 13(b) of

PUHCA, SEC Rule 90(a) prohibits associates from sell-

ing goods to each other at “more than cost,” 17 C.F.R.

§ 250.90(a), and Rule 91(a) defines “more than cost”

as “not exceed[ing| a fair and equitable allocation of

expenses.” 17 C.F.R. § 250.91(a).7.The SEC orders har-

5 The SEC does have express statutory authority under § 13(b)

to deviate from the “at cost” standard when a transaction “in-

volve[s] special or unusual circumstances.” 15 U.S.C. § 79m(b).

However, no one has suggested that the SEC invoked this source

of authority in the orders concérning Ohio Power.

6 According to its brief, the SEC “has long recognized” that a

lower-of-cost-or-market interpretation would effectively eliminate

affiliate transactions by preventing investors from keeping profits

when cost is below market (to offset losses when cost is above

market). Brief of Amicus SEC at 4. See also Ohio Power Co.,

880 F.2d at 1410 (observing that FERC interpretation of SEC

orders places Ohio Power in a “‘tails-we-lose” situation).

77SEC Rule 90(d) does provide that the price of goods “need

not be limited to cost,” and then references the market-price cap

13a

moniously track this language. For example, the 1971

order states that the “charges for coal by [SOCCO] will

be based on an amount equal to the actual cost,” Ohio

Power Co., HCAR No. 17,383 (1971), and the 1978 order

states that the “price at which [SOCCO] coal is sold to

|Ohio Power] will not exceed the cost thereof to the seller.”

Ohio Power Co., HCAR No. 20,515, 14 S.E.C. Docket

928 (1978); see also Southern Ohio Coal Co.. HCAR

No. 21,537, 19 S.E.C. Docket 1309 (1980) (stating that

the price of SOCCO coal “will not exceed the cost thereof

to the seller.’’).

That the 1978 and the 1980 orders, as well as SEC

Rules 90 and 91, place more emphasis on cost as a ceil-

ing rather than a floor is not surprising given the eco-

nomic incentive of associate companies to pass through

inflated costs for goods and services, See 15 U.S.C. 8 79a

(b) (2) (describing the following as one of the evils that

make SEC regulation of associates necessary: “‘subsid-

iary public-utility companies are subjected to excessive

charges for services, construction work, equipment, and

materials”). But this concern with excessive charges does

not diminish the exclusive role cost plays in establishing

associate prices—Congress’s use of the term “at cost”

indicates that cost serves as a ceiling and a floor. To

the extent there is downward flexibility in a cost-based

price, we find that Congress did not make room for any-

one other than the SEC to exercise this flexibility. We

therefore find that the orders are better read as requir-

ing Ohio Power to pay a price “equal to cost” for SOCCO

coal, as prescribed by § 13(b) and the 1971 SEC order,

and we reject FERC’s attempt to clothe itself with the

SEC’s purported authority under Rule 92 to establish

a market-based cap.*

discussed in Rule 92; but, as stated above. this provision was not

relied upon by the SEC in this case.

8 Although we grant the SEC’s views no deference, we note that

our interpretation of the SEC’s orders is consistent with their

submission in this case. See Brief of Amicus SEC at 5.

lda

In response to the congressional intent concerns ex-

pressed in Justice Stevens’s concurrence, we do not mean

to say that FERC is powerless to affect the SEC’s price-

approval process. When the SEC receives for approval

an associate transaction and the suggested prices at

which goods will be sold, SEC Rule 28 requires notice in

the Federal Register and an opportunity for comment on

the proposal. 17 C.F.R. § 250.23. Such notice was pro-

vided as part of Ohio Power’s applications to the SEC.

Additionally, FERC could conceivably ask the SEC to

investigate whether the cost-based price for SOCCO coal

violated “any rule or regulation” of the PUHCA. See 15

U.S.C. § 79r(a). Thus, FERC may attempt to affect

the price-approval process, but Congress has granted the

SEC alone the authority to establish prices charged by

associates for goods.

Therefore, regardless of whether FERC may under

other circumstances set prices that trap costs created by

orders of other governmental entities, we hold 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 inter-associate trans-

fer subject to § 13(b) of the PUHCA.

CONCLUSION

In conclusion, we hold that 18 C.F.R. § 35.14(a) (7)

prevents FERC from finding the coal price approved by

the SEC not includable in determining Ohio Power’s

wholesale rate. As a separate ground for remand, we

hold that the SEC properly discharged its authority

under §13(b) of the PUHCA by setting the price of

coal sold by SOCCO to its associate Ohio Power “at cost,”

and that FERC must respect this specific grant of au-

thority to the SEC. For the reasons given above, there-

fore, we allow the petition for review, and vacate and

remand the order of FERC for further proceedings not

inconsistent with this opinion.

15a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 88-1293

OHIO POWER COMPANY, PETITIONER

’ . mar T T> . ry x agarrte . — _ < —

FEDERA ENERGY REGUI ORY COMMISSION, RESPONDENT

Before: Mikva, Chief Judge: Silberman and Sentelle,

Circuit Judges

ORDER

[Filed Apr. 14, 1992]

Upon consideration of the Petitions for Rehearing of

respondent and intervenor it is

ORDERED, by the Court, that the petitions are denied.

Per Curiam

FOR THE COURT:

CONSTANCE L. DUPRE

Clerk

By: /s/ Robert A. Bonner

ROBERT A. BONNER

Deputy Clerk

16a

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 88-1293

OHIO POWER COMPANY, PETITIONER

FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT

Before: Mikva, Chief Judge; Wald, Edwards, Ruth B.

Ginsburg, Silberman, Buckley, Williams, D. H.

Ginsburg, Sentelle, Henderson, and Randolph,

Cireuit Judges

ORDER

[Filed Apr. 14, 1992]

The Suggestions For Rehearing En Banc of respondent

and intervenor have been circulated to the full Court.. No

member of the Court requested the taking of a vote

thereon. Upon consideration of the foregoing it is

ORDERED, by the Court en banc, that the suggestions

are denied.

Per Curiam

FOR THE COURT

CONSTANCE L. DUPRE

Clerk

By: /s/ Robert A. Bonner

ROBERT A. BONNER

Deputy Clerk

17a

APPENDIX C

UNITED STATES COURT OF APPEALS

DISTRICT OF COLUMBIA CIRCUI

XT ‘ ©)

INO, 88-1293

OHIO POWER COMPANY, PETITIONER

FEDERAL ENERGY REGULATORY COMMISSION. RESPONDENT

LCP CHEMICALS & PLASTICS, INC.. ET AL..

MUNICIPAL WHOLESALE ELECTRIC CUSTOMERS OF

OHIO POWER COMPANY, INTERVENORS

Argued Feb. 24, 1989

Decided July 28, 1989

Petition for Review of an Order of the

Federal Energy Regulatory Commission

Edward Berlin, with whom Andrew L. Lipps, Kenneth

G. Jaffe, Washington, D.C., and Edward J. Brady, were

on the brief, for petitioner.

18a

Joanne Leveque, Attorney, F.E.R.C., with whom Ca-

therihe C. Cook, Gen. Counsel, and Joseph S. Davies,

Deputy Sol.. F.E.R.C., Washington, D.C., were on the

brief, for respondent.

John Estes also entered an appearance for respondent.

Gregg D. Ottinger, Washington, D.C., and T.D. Kauf-

felt, Charleston, W. Va., were on the brief, for inter-

venors, Municipal Wholesale Electric Customers of Ohio

Power Company and Industriai intervenors.

Before MIKVA, SILBERMAN, and SENTELLE, Cir-

cuit Judges.

Opinion for the Court filed by Circuit Judge SEN-

TELLE.

Concurring opinion filed by Circuit Judge MIKVA.

SENTELLE, Circuit Judge:

The Federal Energy Regulatory Commission (FERC)

determined in a rate proceeding that Ohio Power Com-

pany’s cost of coal purchased from an associated company

was unreasonably high. The company has petitioned us

to vaeate the order on the grounds that it is for the Se-

curities and Exchange Commission (SEC) to determine

the reasonableness of contracts between associated com-

panies. We grant the petition for the reasons set out

below,

I. BACKGROUND

A. The Statute

The central issue raised by petitioner concerns the ap-

plied meaning of the phrase “subject matter” in section

318 of the Federal Power Act (FPA), 16 U.S.C. § 825q,

an issue to which section 138(b) of the Public Utility

Holding Company Act of 19385 (PUHCA), 15 U.S.C.

$< 79mib), is relevant. FPA § 318 and PUHCA § 13 were

enacted in different titles of the Public Utility Act of

1935, ch. 687, 49 Stat. 803 (1935) (codified as amended

principally at 15 U.S.C. S$ 79 to 792-6 and 16 U.S.C.

S$ 824-825r (1982 & Supp. V. 1987) ), which initiated fed-

19a

eral regulation of public utility holding companies there-

tofore insulated from effective state-level regulation by

their multi-state operations. The broadly remedial pur-

poses of the Public Utility Act included protection of

investors, consumer's, and the public from various abusive

holding company practices, including non-arm’s-length

contracts within an. associated group. See 15 U.S.C.

$ 79a(b) (2). (The definitions of public utility holding

company, associate company, and similar terms are set

out in section 2 of PUHCA, 15 U.S.C. § 79b. Those defi-

nitions are applicable to the present case but not in

dispute. )

More particularly for our purposes, PUHCA § 13(b)

makes unlawful contracts between associates of a public

utility holding company,

except in accordance with such terms and conditions

and subject to such limitations and prohibitions as

the |SEC]| .. . shall prescribe as necessary or ap-

propriate in the public interest or for the protection

of investors or consumers and to insure that such

contracts are performed economically and efficiently

for the benefit of such associate companies at cost,

fairly and equitably allocated among such companies.

15 U.S.C. § 79mib).' The SEC’s Rule 90 prohibits as-

sociated companies from making or performing contracts

' The full text of section 13(b) is as follows:

After April 1, 1936, it shall be unlawful for any subsidiary

company of any registered holdin: ipany or for any mutual

service company, by use of the mails or any means or instru-

mentality of interstate commerce, or otherwise, to enter into or

take any step in the performance of any service, sales, or con-

struction contract by which such company undertakes to per-

form services or construction work for, or sell goods to, any

associate company thereof except in accordance with such terms

and conditions and subject to such limitations and prohibitions

as the [SEC] by rules and regulations or order shall prescribe

as necessary or appropriate in the public interest or for the

protection of investors or consumers and to insure that such

20a

for sale of goods or performance of services “at more

than cost.” 17 C.F.R. § 250.90(a) (2) (1988). Under

the SEC’s Rule 91, a transaction is deemed to meet that

standard when the price “does not exceed a fair and

equitable allocation of expenses .. . plus reasonable

compensation for necessary capital procured through the

issuance of capital stock... .” 17 C.F.R. § 250.91(a).

The sale between associates of seller-produced goods is

not “limited to cost,” 17 C.F.R. § 250.90(d) (2), but such

a seller still may not charge its associate more than a

fair market price. 17 C.F.R. $ 250.92 (b).

Under the concurrently enacted provisions of the FPA,

FERC regulates the justness and reasonableness of

wholesale rates for electric power in interstate commerce.

16 U.S.C. $$ 824, 824d, 824e.* FERC’s authority in-

cludes the power to determine that a “contract affect-

‘ing|”’ such a rate is “unjust, unreasonable, unduly dis-

criminatory or preferential” and to prescribe a just and

reasonable contract. 16 U.S.C. $ 824e(a). Section 318

of the FPA prevides that, in the absence of an SEC-

granted exemption, the requirements of PUHCA govern

when a company is subject both to a requirement of the

contracts are performed economically and efficiently for the

benefit of such associate companies at cost, fairly and equitably

allocated among such companies. This provision shall not apply

to such transactions as the |SEC] by rules and regulations or

order may conditionally or unconditionally exempt as being

necessary or appropriate in the public interest or for the pro-

tection of investors or consumers, if such transactions (1) are

: with any associate company which does not derive, directly or

indirectly, any material part of its income from sources within

the United States and which is not a public utility company

operating within the United States, or (2) involve special or

unusual circumstances or are not in the ordinary course of

business

15 U.S.C. § 79m(b).

- This power originally resided in the Federal Power Commission,

of which FERC is the successor agency. 42 U.S.C. $§ 7172(a)(1)(B)

& 7293 (1982).

21a

SEC-administered PUHCA (including rules, regulations,

and orders thereunder) ‘with respect to [an itemized

list not at issue here] or any other subject matter” and of

the FERC-administered FPA (including rules, regula-

tions, and orders thereunder) ‘“‘with respect to the sam

subject matter.” 16 U.S.C. § 825q (emphasis added).

B. OPCO, SOCCO, and the SEC

Petitioner Ohio Power Company (OPCQ) is an oper-

ating public utility subsidiary of American Electric

Power Peicaio. Inc. (AEP), a public utility holding

company subject to PUHCA. OPCO purchases coal from

its wholly-owned subsidiary Southern Ohio Coal Com-

pany (SOCCO) on essentially a cost-pass-through basis.

Because both are associates of a public utility holding

company, it is unquestioned that the coal-sale transac-

tions between OPCO and SOCCO are subject to SEC

jurisdiction under section 13(b).

The SEC. has issued four orders that touch on the

price of the OPCO-SOCCO coal transactions. Ohio Power

Company, Holding Co. Act Release No. 17,883 (Dec. 2,

1971), permitted OPCO to inject capital into the corpor-

ate shell of SOCCO so SOCCO ae develop OPCO-

owned coal reserves “to assure a reliable supply of coal.”

Id. The SEC noted that, under the proposal before it

SOCCO’s charges to OPCO would be “based on” its ac-

tual costs plus a rate of return on capital no greater

than that approved for OPCO by the Federal Power

Commission, FERC’s statutory predecessor. Jd. at 2.

There were no hearings and no findings, other than the

ultimate finding that the proposed transaction was in

the interest of the public, investors, and consumers. The

order concluded with a. “proviso that nothing in this

order shall be construed as in any manner affecting the

jurisdiction of any other regulatory authority with re-

spect to the accounting or similar matter in connection

with the proposed transactions.” Jd. Ohio Power Com-

pany, Holding Co. Act Release No. 20,515, 14 S.E.C.

Oo,

aia

Docket 928 (Apr. 24, 1978), approved OPCOQ’s sale of its

coal mines and leases to SOCCO and its further capital

contribution to SOCCQO. Again, the SEC stated that

“!t}he price at which SOhio |SOCCQO] coal is sold to

AEP system companies will not exceed the cost thereof

to the seller.” Jd. at 929.

The SEC required both OPCO and SOCCO to file quar-

terly financial statements and statements setting out

“the quantities of coal sold to each buyer, the price of

such coal and the method used to compute the cost of coal

sold.” /d. at 90. Southern Ohio Coal Co., Holding Co.

Act Release No. 21,008, 17 S.E.C. Docket 310 (Apr. 17,

1979), approved borrowings by SOCCO intended to re-

duce the cost of coal by providing cheaper capital.

Southern Ohio Coal CO. Holding Co. Act Release No.

21,537, 19 S.E.C. Docket 1309 (Apr. 25, 1980), approved

additional OPCO investment in SOCCO to finance capital

improvements expected to reduce the cost of coal to

SOCCO’s buyers. As in the previous decisions, the last

order adverted briefly to the contractual relation be-

tween the associates: “The price at which [SOCCO’s|

coal will be sold to AEP system companies will not ex-

ceed the cost thereof to the seller. For this purpose,

cost will include reasonable compensation for necessary

capital.” Jd. The SEC cited sections 6, 7, 9, 10, and 12

of PUHCA, 15 U.S.C. $$ 79f, 79g, 79i, 79j, 791, as au-

thority for its various cvders. None of the orders cite

section 13(b) as authority.

C. The Decision Below

The present dispute arose in a rate proceeding initi-

ated in 1982. All issues settled except the extent to

which OPCO couid include its costs for “captive coal’

purchased from SOCCO in its recoverable cost of service.

Ohio Power Co., 39 F.E.R.C. © 61,098, at 61,274 (1987).

The Administrative Law Judge (ALJ) determined that

section 318 and FERC’s own regulations did not bar

FERC’s examination of the reasonableness of OPCO’s

23a

captive coal purchases and that OPCO’s coal costs had

not been shown to be unreasonable. /d. at 61,275. The

full Commission affirmed the ALJ’s determination that

the reasonableness of OPCO’s captive coal costs were

subject to review but determined that the price of the

captive coal unreasonably exceeded a comparable market

price. Jd,

On the threshold section 318 issue, the ALJ had rea-

soned that the SEC’s regulation of the “intra-corporate

price of |captive| coal’ was not the “same subject mat-

ter,” in the section 318 sense, as FERC’s regulation of

utility’ rates. /d. at 61,276. FERC agreed for two rea-

sons. First, FERC questioned whether the SEC had set

the price of captive coal at cost, since it was “not clear”

that the SEC statements regarding whether the price

would be “‘based on” and “not exceed” cost had mandated

a cost floor as well as ceiling. /d. FERC also cited the

SEC’s Rule 92, 17 C.F.R. § 250.92, prohibition of inter-

associate sales of goods “at a price which exceeds the

price at which the purchasers might reasonably be ex-

pected to obtain comparable goods elsewhere,’ which

FERC interpreted as indicating that the SEC might re-

quire a below-cost market price, id., and SEC authority

for above-cost market prices, id. at 61,290 n.17. FERC

indicated that OPCO might apply this authority to the

SEC for a market-based section 13 price.

Second, FERC reasoned that setting the inter-associate

price, assuming the SEC had in fact done that, simply

was not “the same subject matter,” in the section 318

sense, as setting wholesale utility rates and determining

what costs may be recovered therein. /d. at 61,276-77.

FERC cited in support SEC staff disclaimers that SEC

section 13(b) orders set rates and an SEC section 13(b)

exemption decision that purportedly recognized FERC’s

rate-making power to allow utilities within its jurisdic-

tion to recover either SEC-authorized costs “or some other

amount.’

[d. at 61,277 (quoting New England Electric

24a

System, Holding Co. Act Release No. 22,309, 24 S.E.C.

Docket 298, 307-08 (Dee. 9, 1981)).

The SEC has not appeared in this cause.

Il. ANALYSIS

A. Statutory Interpretation

Before undertaking our analysis of FERC’s interpre-

tation of section 318, we note that FERC does not claim

for its interpretation the deference to administrative

agencies mandated by Chevron U.S.A. Ine. v. Natural

Resources De fe nse Council, 467 U.S. 837, 104 S.Ct. 2778

81 L.Ed.2d 694 (1984), nor is such deference warranted.

While Chevron requires us to defer to “an agency’s con-

struction of the statute which it administers,” id. at 842,

104 S.Ct. at 2781, “when an agency interprets a statute

other than that which it has been entrusted to admin-

ister, its interpretation is entitled to no deference,” De-

partment of Treasury v. FLRA, 887 F.2d 1163, 1167

(D.C. Cir. 1988). Section 318 cannot be said to be en-

trusted to FERC’s administration: Certainly it involves

FERC, but only to the extent of FERC’s interface with

regulation of the regulated entities by the SEC under

PUHCA. Therefore, FERC has rightly claimed no def-

erence for its interpretation, and we afford none.

FERC’s statutory interpretation rested on two ration-

ales: (1! that there is no conflict between the approaches

of the SEC and FERC and (2) that the same subject

matter is not involved. We discuss these in the order of

their acknowledged importance.

1. The Subject Matter Involved

FERC primarily felied on its determination that its

decision and the SEC’s decisions do not deal with “the

Same subject matter” because FERC is regulating rates

whereas the SEC is regulating inter-associate transac-

tions. Section 318 governs conflicts regarding “the issue,

sale, or guaranty of a security, or assumption of obliga-

25a

tion or liability -in x spect of a security, the method of

keeping accounts, the filing of reports, or the acquisition

or disposition of any security, capital assets, facilities

or any other subject matter.” 16 U.S.C. § 825q. FERC

Suggests in this Court that the present subject is some-

how not a subject within the contemplation of section 318

because Congress enumerated certain matters in section

818 with respect to which the SEC has jurisdiction under

PUHCA, see 15 U.S.C. gg (9f-79g, 79i-79j, 79n-790, but

did not mention the non-enumerated subject under dis-

cussion,

We cannot accept this suggestion. Congress concluded

its enumeration in section 318 with the phrase “or any

other subject matter,” and the inclusiveness of these

words cannot be avoided, as FERC would have us do, by

speculating that “Congress simply wanted to include 3

provision that would cover some unanticipated ‘conflict’

that might arise.” Brief for Respondent at 21 n.21. The

price term of sales contracts between associated com-

panies are subject to SEC jurisdiction under PUHCA.

just as are the enumerated subjects, and are therefore a

“subject matter” under section 318 if such price term

is also subject to the requirements of the FPA or of

FERC’s rules, regulations or orders thereunder, 16

U.S.C. § 825g. FERC has in effect set by order a differ-

ent price term for such a contract by determining that

it will not allow the contract price as a cost in OPCOQ’s

rate case. See Nantahala Power & Light Co. v. Thorn-

burg, 476 U.S. 953. 971, 106 S.Ct. 2349, 2359. 90 L.Ed.2d

943 (1986). The conclusion that the same subject matter

is implicated is inescapable. Nor can we subscribe to

FERC’s analysis that the same subject matter is not in-

volved because it sets rates and the SEC does not. Sim-

ply put, FERC’s reasoning proves too much because

under such an analysis there could never be a conflict

between the SEC and FERC with respect to a matter not

Specifically enumerated in section 318. The absence of

conflict would not be malum. in se, of course, but we

presume Congress contemplated that in fact it had con-

25a

ferred on the SEC jurisdiction over some non-enumerated

matters that otherwise would fall within the jurisdiction

of FERC, and it therefore included the residuary phrase

in section 318 to govern those conflicts. FERC’s reading

renders the residuary language of section 318 meaning-

less to that extent, and such constructions are disfavored.

See, €.9., National Ass’n of Re cycling Indus. v. ICC, 660

B.2d 795, 799 (D.C. Cir. 1981). In addition, we note

that the Supreme Court has held in an analogous situa-

tion that a state’s “undoubted jurisdiction over retail

rates” does not empower it to:redetermine issues under-

lying FERC-set wholesale rates. Nantahala Power &

Light, 476 U.S. at 970, 106 S.Ct. at 2358.

Moreover, the purposes for which the SEC is to exer-

cise jurisdiction are not as limited as FERC describes

them. The ALJ, whose reasoning was affirmed by FERC,

39 F.E.R.C. at 61,275, described the SEC’s purposes as

ensuring “that no one of the associated companies takes

advantage of any other,” Ohio Power Co., 25 F.E.R.C.

| 68,060, at 65,183 (1983), and “keeping a reasonable

arm’s length relationship between the two associated com-

panies.” Jd,

These are true statements as far as they go, but they

disregard the SEC’s statutory charge to exercise its

power in the interest of consumers, as well as of investors

and the public, and “to insure that such contracts are

performed economically and efficiently,” as well as “at

cost.” 15 U.S.C. § 79m(b) (emphasis added). Whether

and how well the SEC has discharged the full scope of

its statutory duties was not before FERC and is not be-

fore us. It is sufficient for present purposes that the

SEC is charged by the statute with regulating the terms

of affiliate contracts in the interest of consumers, as well

as investors and the public, and has not exempted the

instant contract. Moreover, we observe, such purposes

as the ALJ imputed to the SEC are barely distinguish-

able, if at all, from considerations cited by FERC itself

in favor of a market test: “protection from the prospect

of self dealing,” and ‘a substitute for ... arms-length

27a

negotiations.” 39 F.E.R.C. at 61.279. The “economic

efficiency” FERC seeks to promote by the market test,

id., echoes the “economically and efficiently” language of

section 13(b) itself. The market and at-cost tests thus

seem simply different means to the same end. When

Congress enacted PUHCA. however, it specified a par-

ticular means to that end for companies subject to

PUHCA, and neither we nor FERC are empowered to

overrule. that express legislative choice for companies

Within the jurisdiction of the SEC.

We are not persuaded otherwise by the ambiguous dis-

claimers of rate-setting authority by the SEC and its

staff quoted by FERC in its opinion. See 39 F.E.R.C at

61,277-78. The SEC clarifies nothing we need to under-

stand by disclaiming “ratemaking” authority: plainly,

that is not its statutory mandate nor the issue here. The

issue is the effect to be given in a ratemaking proceeding

to the SEC’s price-term regulation. The statement of the

SEC staff has little Weight, but we note it asserts that

the SEC does fix a pricing formula and refers to the

intermediate steps between its decision and ratemaking

in a manner that suggests that the SEC’s staff believes

that FERC is free to set rates based on other considera-

tions. 39 F.E.R.C. at. 61,277. Cf. Nantahala Power &

Light, 476 U.S. at 967-68, 106 S.Ct. at 2857-58. The

SEC staff also stated that FERC “ ‘has jurisdiction to

try issues, both of fact and of interpretation, in applying

such orders, insofar as material. to a particular rate

case,” 39 F.E.R.C. at 61,277,* but that too is not dis-

positive of the present question because it does not speak

—by its own terms, could not speak—to what considera-

tions govern the effect FERC is to give the SEC’s deter-

mination.

The purported disclaimer by the SEC itself similarly

fails to speak clearly, if at all, to the question before

* Quoting “Comment of the Division of Corporate Regulation of

the Securities and Exchange Commission on the Federal] Energy

Regulatory Commission Staff Preliminary Report of Investigation

in FERC Docket No. E-9206, dated July 31, 1978.”

FERC and before us. In New England Electric System,

Holding Co. Act Release No. 22,309, 24 S.E.C. Docket

298 (Dee. 9, 1981), the SEC had before it New England

Power Company’s (NEPCO) application for a_ section

13(b) exemption for the proposed future charter of a

collier then under construction. In the paragraphs quoted

by FERC, 39 F.E.R.C. at. 61,277-78, the SEC determined

that it could not then assess whether the complex pricing

provisions of the future, twenty-five year charter would

conform with section 13(b)’s at-cost requirements On

the other hand, the SEC decided that it would not retain

jurisdiction because “other regulatory effects ... allay

our concern.” 24 $.E.C. Docket at 307. Specifically, the

SEC referred to FERC’s FPA jurisdiction: “The rates

allowed to NEPCO include, as a cost of service, its cost

of fuel, which as allowed to NEPCO may include either

the entire cost of transportation under the joint venture’s

charter to NEPCO, if FERC should determine that it

just and reasonable, or some other amount.” /d. at 308.

Because the case clearly is an exemption case, however,

it is unclear whether the SEC was stating (1) its under-

standing that SEC at-cost determinations are irrelevant

to FERC rate-seting determinations or (2) the effects

that would follow upon its granting of the exemption and

the consequent lifting of whatever bar section. 318 might

otherwise impose. Because an exemption by the SEC

lifts the bar of section 318 to action by FERC, 16 U.S.C.

$ 825q, we are not persuaded that the decision supports

the proposition that FERC may use “some other amount”

when the SEC does not grant exemption from the cost

standard.

The clearest statement by anyone associated with the

SEC on the effect, in the absence of an exemption, of

SEC section 13(b) determinations on FERC rate deter-

minations that has been brought to our attention is the

prepared statement of the SEC submitted to a congres-

sional committee contemplating amendment of PUHCA.

The statement, which advocated repeal of PUHCA, re-

ferred to FERC’s adoption of a market test for affiliate

29a

contracts, the SEC’s understanding that section 13 re-

quires a cost standard for such transactions. and the

SEC’s conclusion that therefore a different federal stand-

ard applied to those companies associated with public

utility holding companies than applied to those not so

associated. The Public Utility Holding Company Act of

1935: Hearings on H.R. 5220, H.R. 9465 and H.R. 6134

before the Subcommittee on Energy Conservation and

Power of the Committee on Energy and Commerce, House

of Representatives, 97th Cong., 2d Sess. at 582-83

(1982). (The SEC’s recommendation to repeal PUHCA,

of course, was not enacted. )

Finally in this respect, we note that FERC properly

has abandoned in this Court its citation below, 39

F.E.R.C. $61,098, at 61,290 n.18 & accompanying text

at 61,277, of Mississippi Indus. v. F.E.R.C., 808 F.2d

1525, 1550-51. (D.C. Cir. 1987) (per curiam), as au-

thority for its jurisdiction in the present case. The con-

tracts at issue there were characterized as contracts for

the sale of electricity between associated companies and

therefore outside the scope of the SEC’s jurisdiction. See

id.; compare 15 U.S.C. §79m(b) with 15 U.S.C. § 79b

fa) (20).

2. The existence of Conflict

FERC’s first-stated, but less important, rationale was

that no jurisdictional conflict arises because the SEC

may require market pricing and “it is not clear,” 39

F'.E.R.C. at 61,276, that the SEC’s orders in the present

‘ase impose a cost floor as well as a cost ceiling. As to

the first contention, FERC cites the SEC’s Rule 92,

which provides that the price for seller-produced goods

between associated companies may not exceed “the price

at which the purchase might reasonably be expected to

obtain comparable goods elsewhere.” 17 C.F.R. § 250.92.

As to the second, FERC’s opinion notes that the SEC

orders never state that SOCCO’s price must equal cost,

only that it will be “based on” and “not exceed” cost. In

30a

this Court, FERC points additionally to the boiler-plate

character of the language in the SEC orders regarding

the interest of the public, investors, and consumers; to

the absence of any findings by the SEC on the reason-

ableness of the SOCCO-OPCO charges; to the absence of

any findings that the coal price should be passed through

to rate- payers; and to the absence of evidence that the

SEC was “closely monitoring” all costs to ensure ef-

ficiency.

We cannot accept this rationale either because it pro-

ceeds from a false premise that the bar of section 318

applies only when there is a present conflict between

SEC and FERC prescriptions. The language of section

318 in fact bars FERC jurisdiction whenever a person

is “subject . . . to a requirement,” 16 U.S.C. § 825q, of

PUHCA. OPCO plainly is so subject to section 13(b)

with respect to its contractual relations with SOCCO.

The fact that FERC’s market approach produces a cur-

rent result that does. “not exceed” cost, in the words of

the SEC’s 1978 and 1980 orders, does not make OPCO

any less subject to section 13(b) or to the SEC’s orders.

In the absence of exemption, it is for the SEC rather

than FERC to determine the inter-associate price.

FERC suggests that OPCO may apply to the SEC for

approval of a market-based rate. 39 F.E-R.C. at 61,290

n.17. The suggestion is not well-taken because it reverses

Congress’s section 318 decision that the SEC has -the

right of first refusal, as it were, in making such deter-

minations. The statutory scheme simply does not con-

template that FERC will make the determination and

then send the subject company to the SEC for a conform-

ing order.

Although it does not affect our decision, we must agree

with FERC that it is “not clear’ from the orders in

question that the SEC was particularly mindful of its

statutory powers and obligations under section 13(b).

The SEC orders devoted some attention to the cost of

capital to SOCCO and to the cost of coal to that extent.

sla

But it is only to that extent that any concern with the

cost of coal is evident. None of the four orders cites

section 13, nor mentions expressly whatever purchase

agreement exists between SOCCO and OPCO, nor describes

any element of costs other than the cost of capital. We

note that section 13(b) and the SEC’s regulations there-

under do not appear to require submission of and ap-

proval of inter-associate agreements but only conformity

of the same with the SEC-promulgated rules. Accord-

ingly, OPCO’s assertion that the SEC “approved” the

sales agreement between OPCO and SOCCO is problema-

tic, and the references in the orders are consistent with,

and may be no more than, references in passing to

SOCCO’s apparent election of, and unexamined repre-

sentations of conformity with, the Rule 91 at-cost method.

We also note, however, that Rules 90 and 91 are regu-

lations under section 13(b) and as binding thereunder

as an individualized order. We note as well that the

SEC’s 1978 Order did require OPCO to submit quarterly

reports on the price of coal and how the price was com-

puted. All these matters taken into account, our deci-

sion nevertheless rests on the threshold matter of the

language of the statute, which commits the determination

of the inter-associate- price to the SEC. Whether the

SEC acquaints itself well or ill is not our present concern.

B. Trapped Costs

Although based upon the language of the statute, our

decision is also informed by consideration of the conse-

quences of FERC’s action in effectively prescribing an

inter-associate price. Accordingly, our decision is but-

tressed by the consistency of its consequences with Su-

preme Court precedents that disfavor conflicting regula-

tion resulting in trapped costs. In Nantahala Power &

Light, the Supreme Court held that it was impermissible

for a retail-rate-setting state utility commission to “trap”

costs by making a different allocation between related

companies of a fixed quantity of low-cost power than had

32a

FERC at the wholesale level. 476 U.S. at 970-71, 106

S.Ct. at 2358-59. (The PUHCA was not involved.) In

a passage that is particulariy instructive, the Court

indicated that

FERC’s failure actually to reform the AA [the

agreement between the related companies] does not

materially alter [the] analysis. FERC ordered

Nantahala to adjust its wholesale rates so that its

average cost per unit of power reflected an alloca-

tion of |low-cost| entitlements power different from

the allocation set forth in the AA. The effect of that

order is, for purposes of this case, essentially the

ime as reformation of the agreement itself.

By adopting a different allocation, NCUC |the state

agency] imputes to Nantahala a different average

cost of power, notwithstanding the fact that, under

the AA, Nantahala unquestionably is not entitled

to demand that /allocation!. Consequently, Nanta-

hala is exposed to “trapped” costs. It must, under

NCUC’s order, pretend that it is paying less for

the power it receives from TVA, under agreements

not subject to NCUC’s jurisdiction, than is in fact

}

the case,

Id. at 971, 106 S.Ct. at 2859. Although the parallels to

the present case are not precise, there are two quite clear

lessons in the passage: First, it is sufficient that FERC’s

action in the present case reforms the agreement be-

tween OPCO and SOCCO in effect rather than in fact.

Second, the cost-trapping ‘“‘pretense’ occasioned thereby

is prohibited. In the case of Mississippi Power & Light

Co. v. Mississippi ex rel. Moore, —— U.S ——, 108 8.Ct.

, 101 L.Ed.2d 322 (1988), FERC had allocated

responsibility for purchasing the expensive power gener-

ated by the Middle South Utilities system’s Grand Gulf 1

nuclear power plant among the system’s multiple operat-

ing companies on a certain basis. The State of Mississippi,

however, claimed the power to disregard FERC’s deter-

2428

33a

mination with respect to the operating company within

its jurisdiction because FERC had not actually considered

the prudence of building Grand Gulf and therefore had

not preempted Mississippi’s power to do so. The Supreme

Court held that Nantahala Power & Light controlled and

preemption did not turn on whether the particular matte

of prudence was actually decided by FERC. 108 S.Ct.

at 2438-42.

Given the clear and express statutory allocation of

jurisdiction between federal agencies in section 318, Nan-

tahala Power & Light and Mississipi Power & Light are

not distinguishable from the present circumstances simply

because they involved state-federal relations or because

FERC must be re-cast in the role of the respective states

with the SEC taking the role formerly played by FERC

As FERC points out, however, the Court did not rule

in either Nantahala Power & Light yy r Mississippi Power

& Light on. the authority of a state (and by analogy,

FERC in the present circumstances) to second-guess the

utility om the quantity of price-regulated power it should

have purchased when cheaper power was available. 476

U.S. at 972, 106 S.Ct. at 2859: 108 S.Ct. at 2440. That

question has been answered favorably to a state (and,

by analogy, favorably to FERC in the present circum-

stances) in Ke ntucky We st Virginia (ras Co. a). Penn-

sylvania Pub, Util. Comm’n, 837 F.2d 600, 606-11 (3d

Cir.1988). We have no occasion to consider this ration-

ale, however. It plainly was not part of FERC’s analysis

below, and an agency’s order must be affirmed on the

basis stated in its opinion or not at all. Federal Power

Comm'n v. Texaco Ine.. 117 U.S. 380, 397, 94 s.Ct. 2315,

2326, 41 L oe d 141 (1974).

FERC also argues that there is no “trapping” because

FERC as stated that it will allow OPCO to recover in

its rates, when the facts warrant, a fair market value

for its captive coal in excess of its costs therefor. See

Public Serv. Co. of N.M., 17 F.E.R.C. 161.128 (1981)

(Opinion No. 133), aff’d i pertinent part sub nom.

34a

Pub. Serv. Co. of N.M. v. FERC, 832 F.2d 1201 (10th

Cir. 1987) (non-SEC ease). The difficulty with this ele-

ment of FERC’s argument—and indeed with its present

attempt to impose 2 market-based approach on petitioner’s

transactions—is that FERC does not, and apparently

cannot, explain how OPCO can recover in its rates such

a fair market value in excess of cost without running

afoul of the SEC’s bar in 17 C.F.R. § 250.90(a) (2).

See supra p. 4. In other words, if we adopt FERC’s ap-

proach, OPCO faces a tails-we-lose situation when FERC

finds that fair market value dictates a captive coal level

cost but is prevented by SEC regulation from winning

when the other side of the coin comes up. Therefore, at-

tractive as FERC’s market approach may be in general,

its application to the PUHCA-regulated petitioner adds

nothing to FERC’s argument in the present case.

III. CONCLUSION

For the reasons given above, we vacate and remand

the decision of FERC. We would like to clarify that

there are two issues which we do not address. First, we

do not hold that OPCO and SOCCO or any other SEC-

regulated companies are’ entitled to pay and receive a

price in excess of market. See 17 C.F.R. § 250.92. Second,

we do not hold that FERC may not apply a market test

to contracts between related companies that are subject

to its jurisdiction but not that of the SEC. See Public

Serv. Co. of N.M., 832 F.2d at 1201. We hold only that

the statute commits to the SEC such determinations re-

garding companies associated with a public utility holding

company. Basing our decision as we do on this threshold

issue, we have no occasion to reach the further issues

raised by the petition.

Granted.

eee

—— ea

MIKVA, Cireuit Judge, coneurring:

wm \s ~*

I fully agree with my colleagues that the Federal En-

ergy Regulatory Commission (“FERC”) may not escape

the strictures of section 318 of the Federal Power Act

(“FPA”), 16 U.S.C. § 825q, simply by claiming that it

and the Securities and Exchange Commission’ (“SEC”’)

are not regulating “the same subject matter,” for it is

clear that both agencies have ruled on the price of coal

between Ohio Power Company (“Ohio Power”) and its

subsidiary, Southern Ohio Coal Company (“Southern

Ohio”). See -Majority Opinion (“Maj. Op.) at 1405-

1408.

In my view, however, for section 318 to divest FERC

of jurisdiction, a person must also be subject to con flict-

ing requirements of the Public Utility Holding Company

Act (“PUHCA”), 15 U.S.C. $$ 79, et seg., and the FPA.

I base this conclusion not only on the text of the statute,

but also because section 13 would otherwise serve no

purpose. Applying this interpretation to the case sub

judice, I am not convinced that the SEC’s orders (under

the PUHCA) and FERC’s decision .( under the FPA) ‘are

in conflict. Accordingly, I would uphold FERC’s deter-

mination that section 318 does not bar its ‘jurisdiction in

this case.

[ concur in the judgment of my colleagues, however,

and would grant the petition for review, on the alternate

ground that FERC’s decision is contrary to section 35.14

(a) (7) of its own regulations, 18 C.F.R. § 35.14(a) (7).

Section 318 of the FPA provides in relevant part:

If, with respect to the issue, sale, or guaranty of

a security,

or the acquisition or disposition of

any security, capital assets, facilities, or any other

subject matter, any person is subject both to a re-

quirement of the Public Utility Holding Company

Act of 1935 * * * and to a requirement of this chap-

30a

ter * * *, the requirement of the Public Utility

Holding Company Act of 1935 shall apply to such

person, and such person shail not be subject to the

requirement of this chapter * * * with respect to the

same subject matter, unless the Securities and Ex-

change Commission has exempted such person from

such requirement of the Public Utility Hoiding Com-

pany Act of 1935, in which case the requirements of

this chapter shall apply to such person.

16 U.S.C. § 825q (‘emphasis added). As I parse this

provision, there is a jurisdictional conflict (and FERC

must yield jurisdiction to the SEC) if, and only if, a

person is subject to a conflicting ‘‘requirement” of both

PUHCA and the FPA, and the requirements are “with

respect to the same subject matter.”’ The first condition

° is a logical necessity, for even if there is dual jurisdiction

over “the same subject matter” ‘the second condition),

if there is no eonflict, then there is no need for FERC

to yield to the SEC.

As noted above, I agree with my colleagues that the

second condition has been met in this case: FERC and

the SEC are clearly regulating the same subject matter,

namely, the price of coal between Ohio Power and South-

ern Ohio. I am not so sure, however, that there is a

conflict between the relevant SEC orders and FERC’s

decision below.

In 1971, the SEC (pursuant to the PUHCA) author-

ized the formation of Southern Ohio on the condition,

inter alia, that “{t|he charges for coal by Southern Ohio

will be based on an amount equal to the actual cost of

Southern Ohio in developing the reserve and mining such

coal, * * *.” QOhio Power Co., Release No. 17,383, at 2

(Dee. 2, 1971) (SEC) (‘emphasis added). In its 1978

order approving the transfer of certain mine and other

coal properties from Ohio Power to Southern Ohio, the

SEC further stated that “|t]he price at which SOhio coal

is sold to AEP System companies wii/l not exceed the cc i

thereof to the seller.” Ohio Power Co., Release No. 20,515,

l4 SEC Docket 928, 929 (Apr. 24, 19

added).

In the decision below, FERC (pursuant to the FPA)

S) (emphasis

ruled that, based on the market price for comparable

coal, the price Ohio Power paid for Southern Ohio coal

was unreasonably high; FERC therefore disallowed Ohi

Power’s request for a rate increase based on those costs.

39 FERC 61,098, at 61,285-86 (1987). reh’g denied,

13 FERC { 61,046 (1988).

In this petition, Ohio Power maintains that there is a

jurisdictional conflict by arguing ‘and. incidentally, im

plicitly conceding that section 318 requires a conflict)

that section 13(b) of the PUHCA;15 U.S.C. § 79m tb).

mandates a cost standard and that, in any event, the SEC

in this case required Southern Ohio to set its price at

cost. I disagree.

Although section 13/b) includes the phrase “at cost,”

Congress intended section 13(b) to avoid “excessive

charges” resulting from the lack of arm’s-lengeth bargain-

ing and open competition between public utility holding

companies and their subsidiaries. PUHCA § 1(b) (2)

(emphasis added}, 15 U.S.C. § 79a(b) (2): see also North

American Co. v. SEC, 327 U.S. 686, 701 & n.11. 66 ».Ct.

85, 794 & n.11, 90 L.Ed. 945 (1946 citing congressional

findings underlying section 1(b)). The SEC has inter-

preted section 13(b) to mean that “|nJo subsidiary com-

pany of a registered holding company * * * shall perform

any service or construction for, or sell any goods to

any associate company therefore, or enter into any con-

tract to do so, at more than cost * * *.’ 17 CFR.

§ 250.90(a) (2) (emphasis added). Indeed, the SEC even

permits a market-price test for the sale of goods between

such affiliates. See 17 C.F.R. § 250.92(b). I eannot con-

clude that section 13(b) necessarily mandates strict at-

cost pricing between public utility holding companies and

their associates.

Ohio Power also argues that, in any event, the SEC

did not authorize a market approach in this case. But

38a

this argument is misplaced, for the issue is whether there

is a conflict in requirements under the two statutes. Be-

cause the SEC in 1978 limited the price of coal only to

cost as a ceiling, see Ohio Power Co., Release No. 20515,

14-SEC Docket 928, 929 (Apr. 24, 1978), I find no eon-

flict between that requirement and FERC’s requirement

that Ohio Power pay market price, where, as in this case,

the market price is less than cost. The SEC’s 1971.order

is not to the contrary, for it requires only that the price

be “based on” cost; the later order imposing cost as a

ceiling is certainly “based,on”’ cost.

Moreover, as my colleagues note, see Maj. Op. at

1408-09, the SEC’s approva! of the various transactions

was grounded on the financial aspects of the corporate

arrangements, not on the reasonableness of the price paid

for the coal. Ohio Power therefore reads too much into

the SEC orders when it claims that the SEC expressly

conditioned its approval of the affiliate arrangement on a

strict cost-based standard—Ohio Power relies too heavily

on what seems to be merely boilerplate language. Accord-

ingly, because I read the SEC’s orders to permit Ohio

Power to pay less than cost for the coal, FERC’s imposi-

tion of a market price less than cost does not in this

case create a jurisdictional conflict. As FERC stated

below: “it is not clear that the SEC requires Ohio Power

to purchase coal from its subsidiary at cost, rather than

at market price. The SEC orders which Ohio Power cites

for this proposition * * * do not appear to mandate the

cost-based price where a market price would be lower,

rather they permit a price up to a cost-based price.” 39

FERC at 61,276.

In short, although Ohio Power has met the second

condition of section 318 (both agencies are regulating

the “‘same subject matter,” namely, the reasonableness of

the price paid), it has not met the first. Under the facts

of this case, the SEC has not precluded a price less thar.

cost; FERC’s setting of the allowable price at a market

- price less than cost therefore does not create a conflict

that would bring section 318 into play.

39a

I note in passing that, under my view, if FERC had

sought to impose a price higher than cost (i.e., if the

market price determined by FERC were higher than

cost}, then FERC’s requirement would clearly conflict

with the SEC’s requirement and, ‘under section 318,

FERC would have to abide by the SEC’s determination.

This implies that, in a case where the SEC has set cost

as a ceiling, FERC has jurisdiction to impose a market

price only if that price is less than cost. FERC in dic-

tum below, however, would have permitted Ohio Power

to recover the market price even if that price exceeded

cost. See 39 FERC at 61,287-88. Although this is a

problematic aspect of the decision below, we need not

pass on its validity under section 318, for that case is

simply not before us today.

IT.

Ohio Power argues in the alternative that, even if

section 318 does not apply, section 35.14(a) (7) of

MERC’s own rules bars it from imposing its market-

price test. I would agree and grant the petition on this

ground.

Section 35.14(a) (7), which governs fuel price adjust-

ment clauses in filed schedules, provides in pertinent

part:

Where a utility purchases fuel from a company-

owned or controlled source, the price of which is sub-

ject to the jurisdiction of a regulatory body, such

cost shall be deemed to be reasonable and includable

in the adjustment clause.

18 C.F.R. § 35.14(a) (7) (emphasis added). There is no

dispute that this rule applies to the transaction in this

case; the only issue on appeal is the meaning of the word

“deemed.” FERC, affirming the administrative law judge

on this point, found that the regulation creates only a

rebuttable presumption of reasonableness. See 39 FERC

at 61,287-88. Ohio Power challenges this conclusion, ar-

40a

guing that the word “deemed” establishes instead a con-

clusive presumption.

The applicable standard of review is clear. Although

a reviewing court must defer to an agency’s interpreta-

tion of its own rules, see Western Union Telegraph Co.

v. FCC, 815 F.2d 1495, 1503 (D.C. Cir. 1987), no defer-

ence’ is owed an interpretation at odds with the plain

meaning of the text, see Union of Concerned Scientists

v. NRC, 711 F.2d 370, 381 (D.C. Cir. 1983) (“When

an agency’s interpretation flies in the face of the lan-

guage of the rules themselves, it is owed no deference.’’).

Although the provision at issue has apparently not been

interpreted in any published opinion, courts construing

the word “deemed” have generally found that it estab-

lishes a conclusive presumption. See H.P. Coffee Co. v.

Reconstruction Finance Corp., 215 F.2d 818, 822 (Emer.

Ct. App. 1954) (finding “almost unanimous judicial de-

termination that the word |‘deemed’], when employed in

statutory law, creates a conclusive presumption”) (citing

cases); see also Dameron v. Brodhead, 345 U.S. 322,

326-27, 73 S.Ct. 721, 723-24, 97 L.Ed. 1041 (1953) (re-

jecting, in a case involving state taxation of a service-

man’s personal property, the argument that “deemed”’

implies a rebuttable presumption, because such a con-

struction would nullify the statute); AKyzar v. Califano,

597 F.2d 68, 71 (5th Cir. 1979) (where statute provided

that an insured child is “deemed dependent’? upon a

stepparent if the child was living with the stepparent at

the time of death of the natural parent. Congress in-

tended that dependency would be conclusively established

upon proof of the objective criteria); Kohn v. Myers,

: 266 F.2d 358, 357 (2d Cir. 1959) (“The word ‘deemed’

gives rise to a conclusive presumption or substantive rule

of law that the acquisition of assets from a bankrupt

after a petition of bankruptcy is filed is not in good faith

if the transferee knew the petition was pending and did

not have reasonable cause to believe that it was not well

founded.”). Numerous state court decisions, too many to

list here, are in accord.

4la

Moreover, if the intent of the regulation were to cre-

ate a rebuttable presumption, as FERC now contends,

then the rule would be superfluous, for it has long been

settled that a utility’s costs are presumed (subject to

‘ebuttal) to be prudently incurred. See Missouri ex rel.

Southwestern Bell Telephone Co. v. Missouri Pub. Serv.

Comm., 262 U.S. 276, 289 n.1, 43 S.Ct. 544, 547 n.1, 67

L.Ed. 981 (1923); Anaheim v. FERC, 669 F.2d 799, 809

(D.C. Cir. 1981).

The history of section 35.14(a) (7) also supports Ohio

Power’s reading of the provision, for FERC has twice

proposed and rejected a different rule to accomplish the

result that it now claims flows from the. existing rule.

First, as originally proposed by the Federal Power Com-

mission (“FPC”) in 1973, the regulation did not contain

the “deemed” language:

Where the cost of fuel includes fuel from company

owned or controlled sources, that fact shall be noted

and described as part of any filing. Only the reason-

able cost of such fuel May be included. Amounts

collected from customers in EXCESS of such reasonable

cost shall he SUb]E ct to refund,

38 Fed, Reg. 17,253 (1973) (emphasis added). Only

the unitalicized sentence has been retained in the current

regulation. After public comment, the second and third

sentences were modified to its current version:

Where the cost of fuel includes fuel from company-

owned or controlled sources, that fact shall be noted

and described as part of any filing. Where the util-

ity purchases fuel from a company-owned or CONn-

trolled SsOUrCE, the price of which. is subject to the

jurisdiction of a regulatory body, such cost shall be

deemed reasonable and includable in the adjustment

lause. * * * Fuel charges which do not appear to

; be reasonable may result in the suspension of the

fuel adjustment clause or cause an _ investigation

42a

thereof to be made by the Commission on its own

motion under section 206 of the Federal Power Act.

39 Fed. Reg. 28,911 (1974) (emphasis added). When

the rule was eventually promulgated, the FPC explained

that “[t]he modification provide[s] that when a utility

purchases fuel from an owned or controlled source and

the price is subject to the jurisdiction of a regulatory

body, the cost of the fuel may be included in the fuel

adjustment clause.” 389 Fed. Reg. 40,588 (1974) (em-

phasis added). The addition of the “deemed” language

suggests, albeit weakly, that the prior version, which was

rejected and which provided no special treatment for af-

filiate fuel purchases subject to the jurisdiction of an-

other regulatory body, would have accomplished the result

FERC now seeks to impose.

Second, in 1979 FERC proposed to amend section

35.14(a) (7) to require utilities to file, as rate schedules,

all contracts for fuel purchases from company-owned or

company-controlled sources, regardless of whether the

price Was subject to the jurisdiction of a regulatory body.

See 44 Fed. Reg. 28,683 (1979). The stated purpose of

this proposal was “to further aid the Commission in ful-

filling its responsibility to ensure that utilities are pur-

chasing fuel at reasonable prices and that only allowable

costs are being passed through in the fuel cost adjustment

clause.” Jd. at 28,684; see also 45 Fed. Reg. 82,272

(1980). Although FERC later determined that its adop-

tion of a market-price test for determining the reason-

ableness of affiliate fuel costs made the proposed revision

unnecessary, see 50 Fed. Reg. 24,779 (1985), it is signifi-

cant that FERC’s proposal would have been superfluous

had the provision already established merely a rebuttable

presumption of reasonableness, because there would have

been no question that FERC would have had independent

jurisdiction to review the contracts.

FERC relies heavily on an interpretation of the sec-

tion in a 1975 FPC chairman’s letter to a Senate Sub-

committee, but that letter is not persuasive. The letter

43a

merely states that section 35.14(a)(7) creates “a pre-

sumption of reasonableness” without specifying whether

the presumption is rebuttable or conclusive. The Utility

Act of 1975: Hearings on S. 594 Before the Subcomm.

on Intergovernmental Relations, Senate Comm. on Gov-

ernment Operations, 94th Cong., 1st Sess. 500, 514

(1975).

Finally, FERC argues that its statutory mandate to

ensure that rates are just and reasonable implies that

section 85.14(a) (7) eannot be read to foreclose FERC

from independently determining the reasonableness of

Wholesale utility charges. But this argument is valid

only if one ignores section 35.14(a)(7). 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 en-

tirely consistent with the purpose of section 35.14(a) (7),

which is to avoid unreasonable fuel costs between af-

filiated 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.

” ” * u %

f concur with my colleagues that the petition for

review should be granted, but not on the basis of section

318 of the EPA. I do not find, in this case, a collision

between the two agencies operating in this field. Rather,

I would find that FERC erroneously constructed section

35.14(a) (7) of its regulations to establish merely a re-

buttable presumption of reasonableness.. Under the regu-

lation, because the prices of Ohio Power’s fuel from its

affiliate are subject to the jurisdiction of the SEC, such

costs must be conclusively presumed reasonable.

44a

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No, 88-1293

OHIO POWER COMPANY, PETITIONER

FEDERAL ISENERGY REGULATORY COMMISSION, RESPONDENT

OHIO MUNICIPALS, INTERVENORS

Before: MIKVA, SILBERMAN and SENTELLE, Circuit Judges

ORDER

[Filed Oct. 12, 1989 |

Upon consideration of the Petitions For Rehearing of

Respondent Federal Energy Regulatory Commission and

Intervenor Ohio Municipals, it is

ORDERED, by the Court, that the petitions are

denied.

Per curvam

FOR THE COURT:

CONSTANCE L. DUPRE

Clerk

By: ‘s Robert A. Bonner

ROBERT A. BONNER

Deputy Clerk

Circuit Judge Mikva would grant the petitions for

rehearing. His statement is attached.

45a

Statement of MIKVA, Circuit Judge

[ would grant the petition for rehearing by the panel.

I continue to be concerned that the panel opinion creates

a regulatory gap that can be mischievous in future cases.

As I state in my concurring opinion when the case was

originally heard, there is no conflicting requirement im-

posed by the agencies involved with respect to the same

subject matter. Accordingly, the Federal Energy Regu-

latory Commission (FERC) was not ousted of its juris-

diction over the price of coal charged to Ohio Power

Company. The flaw in FERC’s decision stems from a

fatal conflict with its own regulations, and warrants

granting the petition for review, as the panel decision

ordained. The statutory interpretation engaged in by

the majority, however, generates a’no-man’s land where

neither the Securities and Exchange Commission (SEC)

nor FERC will patrol holding company practices whic!

can oppress consumers, investors and-the public. Con-

gress did not intend and our court should not construct

such a result.

3ecause the result in the instant petition would not

be affected by my interpretation of the relevant statutes,

I do not call for a rehearing by our full court. I do con-

tinue to express a concern about what I perceive to be a

flawed parsing of the statutes involved in this important

and delicate area of interagency administration of the

law.

46a

APPENDIX E

FEDERAL ENERGY REGULATORY COMMISSION

Docket Nos. ER&2-553-000 and ER82-554-000

OHIO POWER COMPANY

oro.

Opinion No, 272; Opinion and Order on Recovery of the

Cost of Coal Purchased From an Affiliate

(Issued April 30, 1987)

Before Commissioners: Martha O. Hesse, Chairman:

Anthony G. Sousa, Charles G. Stalon, Charles A. Tra-

bandt and C. M. Naeve.

|'Note: Initial Decision of the presiding administra-

tive law judge, issued December 14, 1988, appears at 25

FERC § 63,060. ]

Appearances

Edward J. Brady, Marvin I. Resnick, Alan Kessler,

and William EF. Olson for Ohio Power Company

William H. Roberts and Richard Hitt for Public Serv-

ice Commission of West Virginia

Paul Nordstrom, Glen L. Ortman, Kenneth E. Natale,

Donald R. Allen, David P. Yaffe, and Gregg D. Ottinger

for the Municipal Wholesale Electric Customers of Ohio

Power Company

Philip Nelson and O.C. Hall for Wheeling Electric

Company

James D. Kauffelt for Linden Chemicals and Plastie,

Ine., Mobay Chemical Corporation, and PPG Industrials,

Ine,

47a

Melvin Berger, Arthur Hays Butler, Lawrence R.

Greenfield, Michael Small, James E. Rogers, Jr., Marilyn

". Doria, Harvey L. Reiter and Daniel Watkiss for the

staff of the Federal Energy Regulatory Commission

| Opinion No. 272 Text |

I. INTRODUCTION AND SUMMARY

On May 28, 1982, the Ohio Power Company (Ohio

Power) filed rate increases for its wholesale service to

fifteen municipalities in the State of Ohio (Docket No.

KM R&2-553-000) and to its affiliate in West Virginia, the

Wheeling Electric Company (Docket No. ER82-554-000).

The Commission accepted settlements dealing with all as-

pects of the proposed rates except what was called the

captive coal issue which involves a challenge to the rea-

sonableness of the fuel costs recovered from Ohio Power’s

wholesale customers for the coal it purchased from the

Martinka mine.’

The Martinka mine -is owned and operated by the

Southern Ohio Coal Company, a wholly owned subsidiary

of Ohio Power. Ohio Power is owned by the American

Klectric Power Company (AEP). AEP owns seven other

electric utilities that operate as a coordinated system in

a seven-state area. AEP is subject to regulation by the

Securities and Exchange Commission (SEC) under the

Public Utility Holding Company Act of 1935 (PUHCA).°

An initial decision on the reasonableness of Ohio

Power’s coal costs was issued on December 14, 1983.°

In the initial decision the presiding judge found that:

(1) section 318 of the Federal, Power Act does

not preclude the Commission from determining

1See Ohio Power Company, 23 FERC {§ 61.236 (1983) and 24

FERC {61,017 (1983).

215 U.S.C. § 79a (1982).

$25 FERC 7 68;060 (19838).

48a

whether it is just and reasonable for Ohio Power to

recover the full cost of its purchases from the Mar-

tinka mine from its wholesale ratepayers;

(2) the Commission’s fuel adjustment clause reg-

ulation * creates only a presumption which does. not

preclude the Commission from considering the rea-

sonableness of Ohio Power’s fuei costs;

(3) Ohio Power’s coal costs are subject to a com-

parable market price test as adopted in Opinion No.

133° to determine the reasonableness of those costs;

and

(4) the comparable market price evidence pre-

sented to show that Ohio Power’s costs were not rea-

sonable was not credible.

The judge concluded that the prices paid by Ohio Power

for Martinka coal were reasonable.

Briefs on exceptions to the initial decision and briefs

opposing exceptions were filed by Ohio Power, Commis-

sion trial staff (staff), and the Municipal Wholesale

Electric Consumers of Ohio Power (the municipals).®

Ohio Power excepts to the: judge’s ruling on the pre-

emptive effect of section 318 of the ‘Federal Power Act

and section 35.14(a) (7) of the Commission’s regulations

on the Commission’s review of Ohio Power’s coal costs.

Ohio Power argues that the Commission can change its

regulations only prospectively. Ohio Power also objects

#18 C.F.R. § 35.14(a)(7) (1986).

5 Public Service Company of New Mexico (New Mevxico), 17

FERC {61,123 (1981), appeal pending sub nom. Public: Service

Company of New Mewxico v. F.E.R.C., Nos. 82-1148, 84-1624 and

84-1677 (10th Cir., filed Feb. 3, 1982).

§ On “May 15, 1986, New England Power Company:(NEP) filed

a motion with the Commission for permission to file an amicus

curiae brief in this proceeding; our staff, the municipals, the Town

of Norwood, Massachusetts, the Attorney General of Rhode Island,

and the Rhode Island Division of Public Utilities and Carriers op-

pose NEP’s motion. Because of the lateness of the filing without

good cause the Commission shall deny the motion.

49a

to the imposition of a comparable market price test on a

utihty subject to PUHCA asserting that the result would

be a lower of cost or market price test, a result which

Ohio Power asserts would be confiseatory. Ohio Power

further urges that as a factual matter Ohio Power’s

ownership of affiliate mines serves the purpose of deliver-

ing the lowest priced electricity possible. Staff and the

municipals except to the judge’s rejection of staff’s evi-

dence as a reliable determinant of comparable market

prices.

We affirm the judge’s rulings and reasoning regarding

the Commission’s authority, pursuant «to the Federal

Power Act and our regulations, to determine the reason-

ableness of coal costs Ohio Power recovers from its

wholesale customers. . We: disagree, however, with the

judge’s finding that those costs were reasonable. We find

the costs Ohio Power has recovered for its purchases of

Martinka coal are unreasonable when compared with

market: prices and that Ohio Power therefore must re-

fund amounts collected since the effective date of the

rates in this proceeding that exceed the comparable

market price.

Ii. DISCUSSION

A. Commission Jurisdiction to Review Ohio Power’s Coal

Costs

1. Section 318 of the Federal Power Act

Ohio Power urges that under PUHCA and section 318

of the Federal Power Act, the SEC has exclusive juris-

diction over the pricing of the affiliate Martinka coal.’

The presiding judge concluded that section 318 of the

Federal Power Act*® does not preclude this Commission

from determining whether it is just and reasonable for

Ohio Power to recover from its wholesale customers, in

7 Ohio Power brief on exceptions at 17-36.

816 U.S.C. § 825q (1982).

50a

its rates, the full cost of its purchases from the Martinka

mine.*

The source of the SEC’s authority te regulate the price

at which Ohio Power purchases coal from its subsidiary

is section 13 of PUHCA."® Ohio Power contends that sec-

tion 13‘b) of PUHCA mandates that it purchase coal

from its subsidiary at cost.'' Ohio Power contends that

if the Commission orders that Ohio Power may recover

in rates only a market-based amount for the Martinka

coal, that Ohio Power will face conflicting a by

the SEC and the Commission which is prohibited by sec-

tion 318 of the Federal Power Act. Section 318 provides:

If, with respect to the issue, sale, or guaranty of a

security... , or any other subject matter, any per-

son is subject both to a requirement of the Public

Utility Holding Company Act of 1935... and toa

requirement of this Act... the requirement of the

Public Utility Holding Company Act of 1935 shall

apply to such person, and such person shall not be

subject to the requirement of this Act . .. with re-

spect to the same subject matter, unless the Securi-

925 FERC at p. 65,183.

115 U.S.C. § 79m (1982).

11 The relevant portions of section 13(b) of PUHCA, 15 U.S.C

§ 79m(b) (1982), provide:

[I]t shall be unlawful for any subsidiary company of any

registered holding company or for any mutual service company

. to enter into or take any step in the performance of any

service, sales, or construction contract by which such company

undertakes to perform services or construction work for, or

sell goods to, any associate company. thereof except in accord-

ance with such terms and conditions and subject to such limita-

tions and prohibitions as the [Securities and Exchange] Com-

mission by rules and regulations or order shall prescribe as

necessary or appropriate in the public interest or for the pro-

tection of investors or consumers and to insure that such con-

tracts are performed economically and efficiently for the benefit

of such associate companies at cost, fairly and equitably allo-

cated among such companies.

5la

ties and Exchange Commission has exempted such

person from such requirement of the Public Utility

Holding Company Act of 1935, in which case the re-

quirements of this Act shall apply to such person.

(Emphasis supplied. )

The judge concluded that, assuming the SEC set the

price at which Ohio Power may purchase its subsidiary’s

coal. there was no conflict of jurisdiction because the

SEC regulates the intra-corporate price of coal between

Ohio Power and its subsidiary, while this Commission

sets rates.’ The judge concluded that the same subject

matter is not subject to the requirements of both PUHCA

and the Federal Power Act." We agree with the judge.

First, it is not clear that the SEC requires Ohio Power

to purchase coal from its subsidiary at cost, rather than

at market price. The SEC orders which Ohio Power cites

for this preposition state that the charges for the coal

“will be based on actual cost,” ' and “will not exceed the

eost thereof to seller.” '® These orders authorized financ-

ing for the coal mining subsidiary. They do not appear

to mandate the cost-based price where a market price

would be lower, rather they permit a price up to a cost-

based price.

The SEC’s Rule 92 implements in part section 13 of

PUHCA. The rule prohibits a subsidiary of a registered

holding company from selling

any goods produced by it to any associate company

thereof, or enter into any contract to do so, at a

price which exceeds the price at which the purchas-

ers might reasonably be expected to obtain compar-

able goods elsewhere, or to finish them itself, giving

due regard to quality, quantity, regularity of supply,

12295 FERC at p. 65,183.

13 Jd

14SEC 1935 Act Release No. 17383, Dec. 2, 1971.

15 SEC 1935 Act Release No. 21537, April 25, 1980.

and other factors entering into the calculation of a

fair price."*

Thus it appears that not only does the SEC not require

a cost-based price for the subsidiary coal, the SIC may

require a market-based price for subsidiary coal if the

market price is lower than cost."

More importantly, assuming that the SEC has actually

aflirmatively set the price which Ohio Power must pay

its subsidiary for the Martinka coal, setting the intra-

corporate price and setting rates are not the same sub-

ject matter which would bring section 318 into play. We

have taken full account of the fact that the SEC has

jurisdiction, under PUHCA, to regulate the price of coal

purchased by Ohio Power from the Martinka mine. The

SEC's jurisdiction, however, does not extend to setting

rates and determining what fuel costs Ohio Power may

colleet from its wholesale customers. There is thus no

conflict in the regulation by the SEC and the regulation

by this Commission."®

1617 C.F.R. § 250.92 (1986).

7 The SEC can, pursuant to section 13(b), authorize a market-

based price for a transaction between a subsidiary and parent even

when that market-based price exceeds cost. See, New England Elec-

tric System, 1935 Act Release No. 22309, 24 SEC Docket (1981),

where the SEC, pursuant to the provisions of section 13(b), ex-

empted a contract from the cost limitation of 13(b) so that a market-

based approach could be used. Thus Ohio Power could apply to the

SEC for approval of a market-based pricing mechanism for its

affillate coal if it so desired. See also, “Comment of the Division

of Corporate Regulation of the Securities and Exchange Commission

on the Federal Energy Regulatory Commission Staff Preliminary

Report of Investigation in FERC Docket No. E-9206 dated July 31,

1978” filed in Docket No. E-9206, on October 27, 1978, at 3. There-

fore as a factual matter, it does not appear that Ohio Power is

accurate in stating that a company subject to SEC jurisdiction pur-

suant to PUHCA is requiled always to sell its products to an

affiliate at cost-based prices.

18 Sec Mississippi Industries v. F.E.R.C., 808 F.2d 1525, 1550-51

(D.C. Cir. 1987). Appalachian Power Company, another AEP owned

53a

The SEC’s Division of Corporate Regulation submitted

comments in another Commission case involving AEP

affiliate coal purchases in which staff of the SIXC explained

its view of the effect of SEC orders approving the financ-

ing of coal mining subsidiaries under PUHCA." These

comments demonstrate that the SEC recognizes that it

does not set rates:

The orders of the SEC under the 1935 Act do not set

rates for operating utility companies. There is no

conflict with FERC jurisdiction. In setting rates,

FERC is legally bound to give due consideration to

cost of service, which certainly includes cost of fue!

burned, but there are a number of intermediary

steps between our order authorizing an affiliate to

acquire and mine coal reserves and

mination....

The SEC pricing orders are final orders directed, in

conjunction with the 1935 Act and the pertinent

rules, to fixing a pricing formula until further order

of the Commission. It is the rate making authority,

not the SEC, that has jurisdiction to try issues, both

of fact and of interpretation, in applying such

orders, insofar as material, to a particular rate case.

utility, raised the same contention regarding SEC regulation in

McDowell County Consumers Council, Inc. v. American Electric

Power (McDowell County), Docket No. E-9206. The Commission,

in setting AEP’s coal purchasing practices for investigation, re-

sponded that its investigation was “instituted for the purpose of

fulfilling this Commission’s statutory obligation as expressed in

Sections 202, 205, 206, 301, 306, 307 and 309 of the Federal Power

Act which are in no way repugnant to the exercise of any authority

which the SEC may choose to assert under its statute.” See 54

FPC 361, 363 (1975).

19 “Comment of the Division of Corporate Regulation of the Se

rities and Exchange Commission on the Federal Energy | .

Commission Staff Preliminary Report of Investigation in FERC

Docket No. E-9206, dated July 31, 1978.”

54a

Moreover, the SEC itself, as opposed to its staff, has

recognized that its regulation of fuel-related costs, pur-

Suant to section 13(b), is not in conflict with and does

not -preclude this Commission setting rates. In New Eng-

land Electric System the SEC authorized a joint venture

in which a registered holding company and two-of its

subsidiaries would participate in building a_ coal-fired

eollier. The SEC, pursuant to section 13(b), exempted

the transaction from the cost limitations of 13(b), so

that the transportation approved by the SEC was at a

market-based price which was expected to exceed cost.

The SEC commented on the relationship of its regulation

under section 13(b) of PUHCA and this Commission’s

rate regulation:

We cannot assess now, when the vessel is under con-

struction, the extent to which the price to be deter-

mined under the charter will exceed cost under Sec-

tion 13(b). Nor are we inclined to reserve jurisdic-

tion over the adjustments and redefinitions under

the charter as they develop over the next quarter

century. The charter with NEPCO has other regu-

latory effects, not under the Act we administer, that

in this case better serve the purposes and allay our

concern.

NEPCO is engaged in the production, transmission

and sale, at wholesale, of electric energy, essentially

to the utility associate companies in the NEES sys-

tem. It is a public-utility as defined in section 201(e)

of the Federal Power Act and its rates are subject

to FERC jurisdiction under section 206 thereof. The

rates allowed to NEPCO include, as a cost of service,

its cost of fuel, which as allowed to NEPCO may in-

clude either the entire cost of transportation under

the joint venture’s charter to NEPCO, if FERC

should determine that it is just and reasonable, or

some other amount.

55a

Our grant of the exemption does not affect FERC’s

authority over rates; and the bilateral arrangement

under the charter following upon the exemption does

not prescribe what should be allowed to NEPCO in

revenues from its - wholesale power customers for

transportation costs, either in allowed rates or under

the fuel adjustment clause. These adjusting effects

provide us sufficient assurance to determine that the

exemption from cost remains consistent with the

policy of section 13(b). In relying on this ratemak-

ing process we do not cede any of our statutory

responsibilities to another agency.”

We believe that the SEC’s analysis that its determina-

tion pursuant to section 13(b) of PUHCA does not af-

fect our authority to make rate determinations is in

accord with the presiding judge’s conclusion that the

SEC’s regulation pursuant to section 13(b) of PUHCA

does not preclude this Commission from determining the

reasonableness of Ohio Power’s coal costs during the

ratemaking process. We shall affirm the judge’s determi-

nation on this issue.

2. Section 35.14(a) (7) of the Commission’s Regula-

tions »

Ohio Power contends that section 35.14(a) (7) of our

regulations *' precludes this Commission from looking at

the price of the Martinka coal] because that coal is sub-

ject to SEC and Ohio PUC regulation. Section 35.14

(a) (7) provides in part that “where a utility purchases

fuel from a company-owned or controlled source, the

price of which is subject to the jurisdiction of a regula-

tory body, such cost shall be deemed to be reasonable and

ineludable in the adjustment clause.” Ohio Power argues

20 24 SEC Docket at 307-08.

7118 C.F.R. § 35.14(a)(7) (1986).

Hoa

that we cannot change the regulation without notice to

those affeeted.**

The judge concluded that section 35.14(a) (7) creates

a rebuttable presumption of reasonableness.** We agree.

As the judge noted, in 1975, six months after promulga-

tion of section 35.14(a) (7), the Chairman of the Federal

Power Commission submitted a letter to the Senate Sub-

committee on Reports, Accounting and Management, stat-

ing that section 35.14(a) (7) creates a presumption of

reasonableness, not a conclusive finding of reasonable-

ness. There is thus no retroactive change of a regulation

involved in this case.**

B. Determining the Reasonableness of Ohio Power's

Affiliate Fuel Purchases

Prior to Opinion No. 183 the reasonableness of affiliate

coal purchases were determined on a cost-of-service basis.

Under the Commission’s regulation at section 35.14(a) (7),

22 Ohio Power brief on exceptions at 57.

2325 FERC at p. 65,184.

-* ABP, and its affiliates, had actual notice of the Commission's

belief that section 35.14(a)(7) of its regulations does not preclude

a comparable market-price investigation into its affiliate coal pur-

chases. The same issue was involved in McDowell County. Eight

months after promulgation of section 35.14(a) (7), the Commission

instituted an investigation of AEP’s coal purchasing practices, in-

cluding its purchases from affiliate coal companies which were sub-

ject to SEC regulation. 54 FPC 361 (1975). The Commission

ordered that the investigation “include all coal contracts whether

or not required to be submitted pursuant to Commission Order No.

517, 52 FPC 1304,” the order promulgating section 35.14(a)(7).

The Commission later ordered hearings on the coal cost issue pur-

suant to sections 205 and 206 of the Federal Power Act. 15 FERC

€ 61,257, at p. 61,592-938 (1981).

Moreover, the SEC had made its determination before this pro-

ceeding was set for hearing at this Commission. Had the Com-

mission considered the SEC determination to be conclusive, as Ohio

Power contends, the issue of Ohio Power’s coal costs would not

have been set for hearing.

57a

affiliate coal purchases which were subject to the regula-

tion of another agency were deemed to be reasonable.

If the affiliate transactions were not subject to the regu-

lation of another agency, the utility was required to jus-

tify the reasonableness of the cost of the affiliate coal.

In Opinion No. 133, the Commission tested the reason-

ablenes of prices of affiliate coal purchases by comparing

them to prices available from non-affiliated suppliers in

a competitive market. The Commission found that “the

interests of consumers will best be protected by permit-

ting utilities that purchase coal from affiliates to recover

no more from their ratepayers than the price that would

have been incurred if a comparable coal supply contract

had been made with a non-affiliated supplier.” *°

Although the Federal Power Act does not mandate a

market-price test to determine the reasonableness of af-

filiate transactions, there is no legal impediment to the

f such a test,°* and there are a number of reasons

arguing for its use. The Commission noted in Opinion

No. 133 that companies that are subject to the competi-

tive market are more efficient and innovative than those

assured of a recovery of costs and a reasonable return, and

that a maiket-price limitation on fuel expense recovery

from affiliated suppliers provides the best incentive for

use O

uti]

addition to the economic efficiency prompted by a market-

ice test, it provides protection from the prospect of

self-dealing that arises in transactions between affiliates.

What the Commission noted in stating the purpose of

the comparable market-price test required by the Natural

ities to develop the least costly sources of fuel.27. In

*5 17 FERC at p. 61,246.

“6 It is noteworthy that the Naturat Gas Policy Act, 15 U.S.C.

$§ 3311-3432 (1982) establishes thé. comparable market price as

the ceiling fora just and reasonable amount a pipeline may pay an

affiliated producer for gas. See section 601(b)(1)(E), 15 U.S.C.

§ 3431(b)(1)(E) (1982)

2717 FERC at p. 61,246.

58a

Gas Policy Act, for transactions between pipeline affili-

ates, is equally applicable to purchases from affiliates by

electric utilities: “At the heart of section 601(b) (1) (KE)

is the simple notion that a pipeline may not grant a price

preference to its affiliate.” °** In a New Mexico proceed-

ing subsequent to Opinion No. 138, the Commission char-

acterized the comparable market-price test as “an objec-

tive test” that prevents rate manipulation.” It provides

a substitute for the arms-length. negotiations that provide

objectivity and fair dealing in non-affiliate transactions.

The Commission has’ not deviated from its continued

support for a market-price test. As recently as 1985 the

Commission reaffirmed its departure from a_ cost-based

test of reasonableness for affiliate transactions. The

enunciation of the market-price test in Opinion No. 133

was given by the Commission as its reason for terminat-

ing a 1979 rulemaking that had proposed to amend section

35.14(a) (7) to delete the provision deeming reasonable

coal costs that were subject to the jurisdiction of another

regulatory agency and to require that utilities file affiliate

coal contracts regardless of jurisdiction by another

agency.*° The Commission, noting that the amendment

to its regulations was proposed to effect the cost-based

policy in effect when the proposal was issued, found that

the filing of contracts was no longer necessary because

of the departure from that policy and the adoption of a

market-price test.”

*8 Fl Paso Natural Gas Company, 23 FERC { 61,216, at p. 61,449

(1983).

“9 Opinion No. 164, 23 FERC § 61,218, at p. 61,457 (1983).

39 Termination Jf Rulemaking Dockets, 50 Fed. Reg. 24,779 (June

13, 1985), FERC Statutes and Regulations, Proposed Reguiations

1977-1981 § 32,409, at p. 33,169; Revision of Fuel Cost Adjustment

Clause Regulations Relating to Fuel Purchases from Company-

Owned or Company-Controlled Sources, 44 Fed. Reg. 28,683 (May

16, 1979), FERC Statutes and Regulations, Proposed Regulations

1977-81 T 32.022.

31 FERC Statutes and Reaulations, Proposed Regulations 1977-

1981 {| 32,409, at p. 33,169.

59a

Under a market-price test, the question in this pro-

ceeding is whether the price at which Ohio Power pur-

chased Martinka coal from its affiliate is reasonable when

compared with prices in the market for alternative sup-

plies.

1. Establishing Comparable Market Pric

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