Petition of East Georgia Cogeneration Limited Partnership
No. 91-345
Supreme Court of Vermont
May 28, 1992
158 Vt. 525 | 614 A.2d 799
Prеsent: Allen, C.J., Gibson, Dooley and Morse, JJ., and Peck, J. (Ret.), Specially Assigned
established law and practice by holding that the Vermont Constitution requires prosecution by indictment for crimes carrying a life sentence. See State v. Barr, 126 Vt. 112, 117, 223 A.2d 462, 466 (1966).
Affirmed.
Joseph Kraus, Rutland, and Ralph W. Howe III of Paterson & Walke, P.C. (Of Counsel), Montpelier, for Defendant-Appellee Central Vermont Public Service Corp.
Michael Marks of Lisman & Lisman, Burlington, for Defendant-Appellee Vermont Power Exchange, Inc.
Geoffrey Commons, Montpelier, for Defendant-Appellee Department of Public Service.
Allen, C.J. Appellant East Georgia Cogeneration Limited Partnership (EGC) appeals from an order of the Vermont Public Service Board (Board) denying a certificate of public good for EGC‘s proposed cogeneration facility. Appellees are Central Vermont Public Service Corporation (CVPS), a utility that would be required to purchase output from the proposed EGC facility; the Department of Public Service (DPS), which represents the interests of Vermont‘s ratepayers before the Board; and the Vermont Power Exchange, Inc. (VPX), the designated purchasing agent for output from cogeneration facilities. The Board‘s order is affirmed.
EGC proposed to build a 29-megawatt gas turbine cogeneration facility in the East Georgia Dairy Industrial Park in Georgia, Vermont. It designed the power plant to be a “qualifying facility” under § 210 of the Federal Public Utility Regulatory Policies Act of 1978 (PURPA).
On appeal, EGC argues that federal law entitled it to rates established by the Board under Docket No. 5177, and that the Board cannot deny those rates based on its assessment of need and economic benefit. EGC also maintains that the Board‘s order amounted to a collateral attack of Docket
REGULATORY FRAMEWORK
Congress enacted PURPA in 1978 to combat the nationwide energy crisis by encouraging the development of cogeneration and small power production facilities. See In re Vicon Recovery Systems, 153 Vt. 539, 543, 572 A.2d 1355, 1357 (1990). A “cogeneration facility” produces both electrical energy and steam or other forms of useful energy for industrial or commercial purposes.
Charged with implementation of PURPA, the Federal Energy Regulatory Commission (FERC) promulgated rules that set the rates for purchases of output from qualifying facilities by utilities, absent negotiated rates, at “avoided cost.”
The Public Service Board issued Rule No. 4.100 to meet Vermont‘s responsibilities under PURPA and the FERC regulations. The rule defines a “qualifying facility” as a cogeneration or small power production facility under federal and state law which has also “received a certificate of public good under
Rule 4.104(E) requires the Department of Public Service to “annually determine the avoided capacity and energy costs of the Vermont composite electric utility system, and . . . file proposed rate schedules with the Board for approval.” The Board, “after hearing, shall approve or modify such schedules.” Id. The rates adopted must provide three options to qualifying facilities: “short-term sales,” which have a term of one year; “long-term non-firm sales,” which have a term of five, ten, or fifteen years; and “long-term firm sales,” which have a term of ten, twenty or thirty years.
A qualifying facility which is eligible for firm rates may elect nonlevelized, fully levelized, or partially levelized rates. 4.104(E)(5). Levelized rates provide a constant revenue stream by converting a series of annual rates to an equivalent annuity, resulting in larger payments during the early years of a project‘s operation. See In re Hydro Energies Corp., 147 Vt. 570, 571 n.1, 522 A.2d 240, 240 n.1 (1987). All long-term and levelized rates “shall be available only to qualifying facilities which have been found by the Board, after due hearing, to satisfy the substantive criteria of
FACTS AND PROCEDURAL HISTORY
EGC‘s proposed facility was designed to produce both steam and electric power. The plant was to consist of (1) a gas-fired turbine and electric generator, and (2) a heat-recovery boiler, steam turbine, and electric generator. The steam produced would be sold to the Vermont Whey Company. The steam contract, executed in January of 1990, would result in an annual loss tо EGC of approximately $200,000 per year. EGC also executed a gas supply contract with a large Canadian supplier securing a firm twenty-year supply of natural gas from Alberta or Saskatchewan. To secure this long-term, secure contract, EGC paid a premium estimated at between six and nine million dollars.
EGC eventually sought from the Board approval of twenty-year, 58 percent levelized rates. EGC and VPX had a longstanding relationship leading to the power purchase agreement that contained these rates. VPX originally solicited 150 megawatts of power, divided into 25-megawatt decrements, from small power producers and cogenerators under Rule 4.100. Rates set by the Board established that each subsequent decrement receive a lower price based on the decreasing need for additional sources of energy. EGC signed a letter of intent with VPX in 1985, placing the project in the sixth decrement position for Docket No. 4933 rates. After the adoption of Docket 5177 rates by the Board in March 1989, VPX and EGC entered into a power sales agreement incorporating those rates and filed for approval with the Board in June 1989.
The Board compared Vermont‘s “presently committed generation mix” to projected annual peak load and capacity requirements, taking into account the likely avаilability of power from Hydro Quebec, and found a capacity excess through 1998. The EGC facility would contribute to the energy excess and would produce energy costing, on a weighted average basis, $.0765/kwh, which would displace energy costing $.0285/kwh. The Board found that this would result in a net cost to CVPS of approximately $5,000,000 in 1993. It estimated that Vermont ratepayers would, over the twenty years of the agreement, pay $40,000,000 more for power produced by the proposed project than it would for the same quantity of power from Hydro Quebec. The Board also found that the proposed project was relatively low risk, and that the requested 58 percent levelization was not required for economic viability.
EGC initially filed a petition for a certificate of public good in May 1986 to build its facility, seeking approval of thirty-year, firm, nonlevelized rates. Several factors
The Board held a hearing in January 1991. The hearing officer, who reviewed the project in accordance with
STANDARD OF REVIEW
We begin with a strong presumption that orders issued by the Public Service Board are valid. See In re Village of Lyndonville Electric Dep‘t, 149 Vt. 660, 660, 543 A.2d 1319, 1320 (1988); In re Telesystems, Corp., 143 Vt. 504, 511, 469 A.2d 1169, 1172 (1983). In reviewing those orders, we give great weight to the Board‘s interpretations of its own regulations. See In re Hydro Energies Corp., 147 Vt. at 574, 522 A.2d at 242. We accept findings of fact adopted by the Board unless they are clearly erroneous.
I.
EGC first argues that it was entitled to the rates in Docket 5177 when it tendered the contract between it and VPX obligating it to produce power. It relies on our holding in In re Department of Public Service, 157 Vt. 120, 125, 596 A.2d 1303, 1306 (1991) (the Ryegate decision), where we held that avoided-cost rates adopted pursuant to Rule 4.100 are available as a matter of federal law to qualifying facilities that incur a “legally enforceable obligation” for the delivery of power. Federal regulations establish a qualifying facility‘s right to avoided-cost rates once it is committed to “provide energy or capacity pursuant to a legally enforceable obligation.”
EGC‘s argument finds support in FERC‘s comments, issued with the promulgation of regulations under PURPA, which state in part:
[These regulations] are intended to reconcile the requirement that the rates for purchases equal the utilities’ avoided cost with the need for qualifying facilities to be able to enter into contractual commitments based, by necessity, on estimates of future avoided costs. . . . The Commission does not believe that the reference in the statute to incremental cost of alternative energy was intended to require a minute-by-minute evaluation of costs which would be checked against
rates established in long term contracts between qualifying facilities and electric utilities. . . . The import of this section is to ensure that a qualifying facility which has obtained the certainty of an arrangement is not deprived of the benefits of its commitments as a result of changed circumstances.
45 Fed. Reg. 12,224 (1980). The Board, EGC argues, violated federal law by depriving EGC of the benefits of its agreement with VPX based on “changed circumstances.”
EGC‘s argument is flаwed because, as the Board concluded, neither the federal statute nor the regulations require utilities to purchase power at a price above actual avoided cost. The federal regulations, in fact, make clear that no electric utility is required “to pay more than the avoided cost for purchases.”
The Board was not insensitive to EGC‘s understandable desire to be able to rely on the guaranteed availability of adopted avoided-cost rates. The Board noted, however, that its paramount obligation is to ensure that Vermont‘s ratepayers are not burdened with uneconomical power purchases. The Board also expressed its realization that avoided-cost rates become outdated with time and market chаnges. As the Board stated, current market conditions “must remain the ultimate test of whether a proposed power sale (particularly one that is mandatory for the utilities under federal and state law) is in the general good of the state.” Small power producers and cogenerators, the Board observed, are entrepreneurs seeking to benefit from changing market conditions and must also be prepared to face the risks associated with such changes. We find no error in the Board favoring concern for ratepayers over concern for return on the investment of entrepreneurs where, as here, the proposed project seeks rates higher than those mandated by federal law.
The court in Snow Mountain Pine Co. v. Maudlin, 84 Or. App. 590, 600, 734 P.2d 1366, 1371 (1987), a case relied upon by EGC for its contention that it is entitled to Docket 5177 rates, also recognized that federal law did not entitle qualifying facilities to rates above actual avoided cost: “We conclude that the rate for purchase is to be based on [the utility‘s] actual ‘avoided costs’ and that the schedules of ‘avoided costs’ on file do not necessarily reflect actual costs and are not binding.” (Emphasis in original.)
We find no error in the Board‘s conclusion that EGC‘s request required prior Board approval. It does not contravene either federal statute or regulation, and is not inconsistent with our holding in Ryegate. The agreement between EGC and VPX, assuming it was a “legally enforceable agreement,” entitled EGC to receive avoided-cost rates as mandated by federal law, not preferential long-term levelized rates. We need not, therefore, reach the arguments advanced by CVPS and DPS that the agreement was without legal effect. Even if it were enforceable, the agreement could not, by itself, entitle EGC to the rates it sought.
II.
The second issue, closely related to the first, is whether federal law preempts state review of the “economic benefits” of contracts between qualifying facilities and VPX based on levelized, long-term rates. EGC argues that it does. We conclude that it does not.
Both PURPA and its implementing regulations emphasize that the rates paid by utilities for output from qualifying facilities “shall be just and reasonable to the electric consumers of the electric utility
The Board‘s rules, the order issued with Dоcket 5177, and the VPX contract all provided clear and ample notice to EGC that both long-term and levelized rate requests are subject to § 248 review. Rule 4.104(H) states that “long-term rates and levelized rates shall be available only to qualifying facilities which have been found by the Board, after due hearing, to satisfy the substantive criteria of
We find no error in the Board‘s § 248 review of the agreement between VPX and EGC. That review furthered the federal objective of ensuring that the rates be just and reasonable to electric consumers. EGC had extensive notice that its proposed project would need a certificate of public good, which requires clearing § 248 review. Although the Board concedеs that federal law precludes review of the economic benefits of projects seeking short-term, nonlevelized avoided cost rates, it properly followed both federal and state law, as well as its own rules, in this case.
III.
EGC also challenges the authority of the Board to review its proposed rates in accordance with § 248 on the grounds that such review amounted to a collateral attack of matters previously decided when the Board adopted rates in Docket 5177. That review, EGC argues, violated principles of res judicata, collateral estoppel, and waiver, and contravened the Board‘s own orders and precedent. We agree with the Board‘s conclusion that § 248 review, although inextricably tied to the contract price, did not readjudicate issues addressed in the rate-setting process.
Under Rule 4.100, the Board has responsibility for approving or modifying avoided-cost rates submitted by the DPS. 4.104(E). The Board also, however, has responsibility for reviewing requests for long-term, levelized rates under § 248. 4.104(H). These separate provisions make clear that, in the Board‘s view, § 248 review does not involve issues identical to those confronted in estimating and setting avoided costs. The Board, in this case, expressly recognized that a developer was entitled to apply for Docket 5177 rates, but could not reсeive long-term levelized rates without prior approval by the Board.
The hearing officer discussed the relationship between Docket 5177 rates and § 248 review:
The purpose of [rate-setting analysis] was to determine what utility power costs would be avoided when [qualifying facility] power is purchased within the time frame for which the rates were set. They do not and cannot supplant the inquiry required under Section 248(b)(2).
. . . .
I rejected attempts to permit relitigation of Docket 5177 issues in this case. . . . However, in my view the dictates of Section 248(b)(4) ultimately should serve as a safeguard to ensure
that the Board‘s determinations on how [qualifying facility] power should be priced are reevаluated in light of market conditions at the time the proposed plant‘s Section 248 petition and VPX contract are submitted for Board approval.
We find no error in this interpretation of the Board‘s responsibilities under Rule 4.100. The Board had to decide whether EGC‘s proposed project, at the requested rates, would provide needed power and economic benefit to the State of Vermont. Those particular issues were not, and could not have been, adjudicated at a rate-setting hearing, and the Board was not precluded by collateral estoppel, res judicata, or waiver from fulfilling its responsibilities under state law.
EGC mischaracterizes thе Board‘s denial of its application for a certificate of public good as a collateral attack on Docket 5177 rates. The Board did not seek to supersede, overturn, or otherwise invalidate its adopted rate structure in the EGC proceeding. Rather, it concluded that EGC‘s request for levelized long-term rates, based on that structure, did not meet the criteria of § 248(b). The Board could not fulfill its responsibility under that statute without considering the price of output from EGC‘s proposed project. Analysis of need and economic benefit under § 248(b)(2) and (4), as the Board recognized, requires the Board to weigh the cost of a proposed project against its likely benefits.
We find no merit in EGC‘s argument that the Board‘s decision in this case violated its orders in other cases and was therefore arbitrary and capricious. EGC relies principally on two dockets of the Board, neither of which directly contradict its order here. In In re Department of Public Service, Docket No. 5191, at 20 (August 26, 1987), the Board wrote that it had “purposely sought to establish a stable basis on which qualifying facility developers could rely. In particular, we have deemed it critical that the risks—at least the regulatory risks—faced by developers be defined as precisely as possible.” EGC argues that the Board‘s order in the instant case violates that order. We agree with DPS, however, that the language quotеd addresses the definition of risk, not its elimination. In that case, the Board went on to state that certain risks remain for developers after the adoption of avoided-cost rates, among them the fact that “approval of a purchase and sale agreement is dependent upon the developer‘s showing that its project satisfies the substantive criteria of
EGC relies on statements by the hearing officer in In re Ball Mountain Dam Hydro-Electric, Docket No. 5172, at 2–3 (March 5, 1987), for the proposition that developers may rely on adopted rate schedules and that those rates may not be collaterally attacked in § 248 proceedings. In that case, the officer wrote that “[p]arties must be able to rely on the final order of the Board, and not forever wonder if each change in circumstance may permit a collateral attack.” However, the officer in that case also recognized that “[t]he criteria of Section 248 were incorporated into Rule 4.100 so that undesirable projects could be denied favorable rate treatment” and that the Board continued to have review authority over requests for levelized and long-term rates. Id. In the EGC case, the Board did no more than fulfill its responsibility under Rule 4.100 to review the requested levelized, long-term rates in accordance with § 248. We find no inconsistency.
EGC argues that the Board was “arbitrary and capricious” in denying its request because a hearing officer in another case recommended that the Board approve a different project seeking Docket 5177 rates. This argument deserves little attention. Each application for a certificate of public good and contract approval must stand on its own merits. Regardless of how many other projects satisfy the criteria of
IV.
EGC‘s final argument is that it had “vested rights” in Docket 5177 rates. We addressed the issue of whether a qualifying facility enjoyed vested rights in avoided-cost rates in our Ryegate decision. We held that “[w]e will not apply vested rights doctrine to change the [PURPA] equation to expand private rights at the expense of an added public burden.” 157 Vt. at 127, 596 A.2d at 1307. As in that case, the overriding issue here “is whether we can require electricity consumers to pay rates above those established by the markеtplace to protect the producer‘s investment in facilities and development costs.” Id. We see no reason to depart from our holding in Ryegate in this case.
In conclusion, the Board properly followed federal law, state law, and its own rules in reaching the conclusion that output from the proposed EGC project was not needed at the requested rates and that the project would not provide an economic benefit to Vermont. That conclusion is well supported by numerous findings, which are in turn supported by the record.
Affirmed.
Morse, J., concurring. I agree with the Court‘s result but believe it rests on an incorrect ground. The parties raised the issue of whether EGC‘s agreement with VPX was a legally enforceable obligation to produce power, entitling it to Docket 5177 rates. The Court needlessly sidesteps this familiar issue, recently addressed in In re Department of Public Service (Ryegate), 157 Vt. 120, 125, 596 A.2d 1303, 1306 (1991), and instead embarks on a remarkable interpretation of avoided cost.
Avoided cost is the central concept in the PURPA scheme, and FERC regulations—not state law—define the term. See
Under FERC regulations, again as a matter of federal law, the power producer has the option of choosing avoided costs either at the time of delivery or at the time the obligation is incurred. The rates are calculated over time, in Docket 5177 as long as thirty years, and the producer is entitled to the rates “over a specific term.”
I find no federal authority for ignoring the Docket 5177 rates, which were the result
Comparing the facts in this case against the requirement for a certificate of public good would convince even a novice in this regulatory field that the certificate for EGC was not in the public good. The benefit of EGC‘s bargain would undoubtedly be at the public‘s expense. The Court‘s analysis is a curious, and I believe disingenuous, way to reach an affirmance in this case.
Ryegate is ample authority to affirm the Board because the “obligation” here is no more “enforceable” than the one there. As stated in Ryegate, 157 Vt. at 125, 596 A.2d at 1306: “At best, Ryegate has obligated itself to go through a number of development and regulatory steps that may lead tо an obligation to deliver energy, if all goes well.” This case is no different. I question why the Court does not apply this precedent, affirm, and be done with it. Instead, the Court necessarily violates Ryegate by analyzing this case as one not involving “avoided costs.” The rates in this case are avoided costs by definition, and Ryegate teaches that avoided costs, as approved by the Board (as these were in Docket 5177), are “available as a matter of federal law” when and if the qualifying facility [here EGC] “incurs ‘a legally enforceable obligation for the delivery of energy or capacity over a specified term.‘” 157 Vt. at 125, 596 A.2d at 1306 (quoting
Levelization, which seems to be the linchpin of the Court‘s decisiоn, does not undermine the existence of avoided costs any more than short-term or long-term rates do. Avoided costs are calculated over the short and long term, and rates based on avoided costs may be levelized or nonlevelized. Levelization merely flattens the payments—more now, less later. Once rates are calculated on avoided costs, how does levelization cause those rates no longer to be based on avoided costs? The Court‘s opinion begs that question, because the answer must be, “Because we say so.”
The Court simply cannot make the Board‘s magic (turning avoided costs into something else by levelization) real by incanting that “[the Board‘s] paramount obligation [is] to ensure that Vermont‘s ratepayers are not burdened with uneconomic power purchases.” The Court today nullifies federal law by reading out “specified term” in the federal regulation as applying to avoided costs. While the end may be worthy, a “sleight of word” does not dignify the means.
Although the Court recognizes that the PURPA scheme leaves power producers open to financial risks resulting from unforeseen changes in economic circumstances, it refuses to acknowledge that the state and the consumers it represents are vulnerable to the same risks. PURPA was designed to encourage small power producers. If that policy goal is no longer desirable, the change should come through federal legislation.