Ohio Power Co. v. F.E.R.C.

• Decision Date: 04 February 1992
• Docket Number: No. 88-1293,88-1293
• Parties: , 60 USLW 2524, Fed. Sec. L. Rep. P 96,496, 129 P.U.R.4th 447 OHIO POWER COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, LCP Chemicals & Plastics, Inc., et al., Municipal Wholesale Electric Customers of Ohio Power Company, Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 779

954 F.2d 779

293 U.S.App.D.C. 348, 60 USLW 2524, Fed.

Sec. L. Rep. P 96,496,

129 P.U.R.4th 447

OHIO POWER COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent,

LCP Chemicals & Plastics, Inc., et al., Municipal Wholesale

Electric Customers of Ohio Power Company, Intervenors.

No. 88-1293.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 27, 1991.

Decided Feb. 4, 1992.

[293 U.S.App.D.C. 349] On Remand from the United States Supreme Court.

Edward Berlin, with whom Kenneth G. Jaffe and Edward 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 S. Scherman, Gen. Counsel, Jerome M. Feit, Sol., and Timm Abendroth, Atty., Washington, D.C., were on the brief, for respondent. John Estes, Joanne Leveque, and Catherine C. Cook, Attys., F.E.R.C., Washington, D.C., also entered appearances for respondent.

Gregg D. Ottinger, with whom John P. Williams, Washington, D.C., and Lee F. Feinberg, Charleston, W.Va., 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 matter remanded to the Com'n.

James R. Doty, Gen. Counsel, Jacob H. Stillman, Associate Gen. Counsel, Katharine Gresham, Asst. Gen. Counsel, 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, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge:

Ohio Power Company, a producer of electricity, was subjected to the regulatory jurisdiction of two agencies, the Federal Energy Regulatory Commission ("FERC") and the Securities and Exchange Commission ("SEC"). Specifically, FERC determined in a wholesale rate proceeding that 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 wholesale rate to the extent that it was greater than the market price for comparable coal. Ohio Power Co., 39 F.E.R.C. p 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 S.Ct. 415, 422, 112 L.Ed.2d 374 (1990). We now grant Ohio Power's petition to vacate the FERC order for the reasons discussed below.

BACKGROUND

I. The Statutory Scheme

In 1935, Congress enacted grants of authority to the SEC and FERC's predecessor, the Federal Power Commission, under Title II, known as the Federal Power Act ("FPA"), established the Federal Power Commission to oversee the wholesale transmission and sale of interstate electric power. 49 Stat. 838 (1935) (codified as amended at 16 U.S.C. §§ 791a-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,

                [293 U.S.App.D.C. 350] an umbrella statute entitled the Public Utility Act, ch. 687, 49 Stat. 803 (1935).   Title I, known as the Public Utility Holding Company Act ("PUHCA"), empowers the SEC to curb abuses affecting investors and consumers created by transactions between subsidiary associates of public utility holding companies.  49 Stat. 803 (1935) (codified as amended at 15 U.S.C. §§ 79a to 79z-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 interest or for the protection of investors or consumers."  15 U.S.C. § 79m(b). 1
                

FERC-regulated electric power companies [such as Ohio Power] that are subsidiaries or affiliates of registered public utility holding companies are therefore subject to SEC regulation as well.

Arcadia, 111 S.Ct. at 417; see also Ohio Power Co., 880 F.2d at 1402-04 (summarizing statutory backdrop of this action).

II. 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 capitalize SOCCO's mining operations by purchasing its stock, § 10 of PUHCA required the SEC to approve the proposed transaction. 15 U.S.C. § 79j. In its order of December 2, 1971, the SEC determined that Ohio Power could obtain 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 investment. 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

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 application except for Ohio Power's request to pass through the cost-based price that it paid for SOCCO coal. Asserting that comparable coal could be obtained at a cheaper market price, FERC found the SOCCO coal price unreasonable and therefore not includable in Ohio Power's wholesale rate. Ohio Power Co., 39 F.E.R.C. p 61,098, at 61,275 (1987). Ohio Power insisted the SEC alone had jurisdiction over the price that associates may charge each other for Before this Court, Ohio Power and FERC argued that the controversy centered on the application of the jurisdictional 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 conflicting 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 to pay no more than cost; and second, by asserting that, regardless of conflict, since FERC was regulating wholesale rates and the SEC was regulating inter-associate prices, the agencies were not regulating the "same subject matter." Ohio Power Co., 880 F.2d at 1405.

[293 U.S.App.D.C. 351] goods, ³ and sought judicial vindication.

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 regulatory authorities in that FERC had "set by order a different price term" for a contract approved by the SEC. Id. 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 cost-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 alternative ground that FERC had violated one of its own regulations 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, [or] 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. Id. at 421-22. 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. Id. 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 FERC-prescribed rate" is unjust and unreasonable because it " 'traps' costs which the government [the SEC] itself has approved". Id.

Justice Stevens wrote a concurring opinion, joined by Justice Marshall, in which he found that even if the overlap in authorities fell within the enumerated subjects of § 318, there was "no risk of conflict between the requirements of the SEC and FERC in this case." Id. at 423 (Stevens, J., concurring). Justices Stevens and Marshall, therefore, agreed with FERC that the two agencies were regulating different subject matters, with FERC overseeing "what portion of its fuel costs Ohio Power may pass along to its customers" and the SEC placing a ceiling on "the price which Ohio Power pays its [coal] supplier--SOCCO." Id. The concurrence ended by commenting that Congress's intent would be frustrated by a holding that would allow the SEC to hamper FERC's regulation of wholesale rates. Id. at 423-24.

ANALYSIS

I. FERC Regulation 18 C.F.R. § 35.14(a)(7)

As instructed by the Court, we have reviewed Part II of Judge Mikva's concurring opinion, which contended that a remand was required on the ground that 18 C.F.R. § 35.14(a)(7) of FERC's own rules precluded FERC from "imposing its market-price test" in the face of a cost-based coal price...