In re East Georgia Cogeneration Ltd
Annotate this Case
NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
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No. 91-345
Petition of East Georgia Cogeneration Supreme Court
Limited Partnership
On Appeal from
Public Service Board
February Term, 1992
Richard H. Cowart, Chair
Gerald R. Tarrant, Montpelier, and Stephen G. Kozey of Skadden, Arps, Slate,
Meagher & Flom (Of Counsel), Washington, D.C., for plaintiff-appellant
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
PRESENT: Allen, C.J., Gibson, Dooley and Morse, JJ., and Peck, J. (Ret.),
Specially Assigned
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 Section 210 of the
Federal Public Utility Regulatory Policies Act of 1978 (PURPA). 16 U.S.C. {
824a©3. EGC gained its status as a "qualifying cogenerator" by contracting
with the Vermont Whey Company to provide steam generated by the plant for
that enterprise. EGC entered into a power sales agreement with VPX to sell
its entire output of electrical energy at rates established by the Board.
The Board reviewed the agreement between EGC and VPX and concluded that, at
the "levelized" rates sought by EGC, there was neither present nor future
need for the project's output. The Board, in rejecting EGC's application
for a certificate of public good, also concluded that the project would not
result in economic benefit to the state and its residents.
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
5177 rates in violation of state law, federal law, and the Board's own
decisions. Finally, EGC argues that it secured a vested right to Docket
5177 rates when it tendered a power sales agreement to VPX. CVPS contends
that EGC was properly denied a certificate of public good because it failed
to satisfy the requirements for such a certificate. CVPS also argues that
the agreement between EGC and VPX is not legally enforceable. DPS contends
that power purchase agreement between VPX and EGC was not part of the
record below and that we should not, therefore, construe that document. DPS
also emphasizes that state review of the contract was warranted because EGC
sought levelized rates, which are higher than those mandated by federal law.
VPX contends that EGC was entitled to Docket 5177 rates because it executed
a legally enforceable agreement which satisfied state and federal requirements.
Before reaching the issues presented, we set forth the regulatory
framework, the relevant facts as found by the hearing officer and adopted by
the Board, and the procedural history of this case. We also state the
standards that apply to this Court's review of administrative orders.
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. 16 U.S.C. {{ 824a©3(j), 796(18)(A). PURPA encourages the
development of cogeneration by requiring utilities to purchase output from
such facilities at rates not to "exceed[] the incremental cost to the
electric utility of alternative electrical energy." Id. { 824a©3(b).
PURPA further provides that the rates for such purchases "shall be just and
reasonable to the electric consumers of the electric utility and in the
public interest. . . ." Id.
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." 18 C.F.R. {{ 292.301(b), 292.304(d). "Avoided cost
means the incremental costs to an electric utility of electric energy or
capacity or both which, but for the purchase from the qualifying
facility . . . , such utility would generate itself or purchase from another
source." Id. { 292.101(b)(6). FERC places implementation of its avoided cost
scheme in the hands of state regulatory authorities. Id. { 292.401(a).
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 30 V.S.A. { 248 . . . ." 4.103(A)(9). The rule also establishes
the authority of the Board to designate a purchasing agent, 4.102(C), and
directs that agent to purchase electricity offered by any qualifying facility
located in Vermont and to sell such power to all Vermont electric
utilities on a pro rata basis. 4.104(A). The purchasing agent, however,
"shall not be empowered to enter into any agreement for purchases from a
qualifying facility until such agreement shall have been approved by the
Board." Id. The Board adopts rates for purchases at the utilities' "full
avoided costs . . . as specified under 4.104(E)." Id.
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. 4.104(E)(1),(2),(3). Pursuant to this rule, the Board
adopted the rate schedule involved in this appeal. PSB Docket No. 5177
(March 13, 1989). To remain eligible for those rates, "[p]rojects . . .
must satisfy the requirements of Rule 4.100 and achieve commercial operation
by April 30, 1993." Id. at 4.
A qualifying facility which is eligible for firm rates may elect non-
levelized, 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 30 V.S.A. { 248(b)." 4.104(H). Section 248(b) sets forth the
criteria for obtaining a certificate of public good from the Board. Before
issuing a certificate, the Board must find, inter alia, that the proposed
facility "is required to meet the need for present and future demand for
service which could not otherwise be provided in a more cost©effective
manner . . . ," 30 V.S.A. { 248(b)(2), and "will result in an economic
benefit to the state and its residents." Id. { 248(b)(4). No entity may
begin construction of an electric generation facility without first
obtaining a certificate of public good from the Board. Id. { 248(a)(2).
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 to 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 long-standing 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 availability 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 caused delay of the project,
including: Express Foods' sale of its whey plant to Wyeth Nutritionals,
Inc., the Board's reconsideration of avoided-cost rates, which ultimately
resulted in Docket 5177 rates, and Green Mountain Power Corporation's
decision to appeal those rates. In June 1989, after executing a power
purchase agreement with VPX, EGC sought approval of twenty-year, firm,
partially levelized rates. The Board consolidated that request with the
earlier request for a certificate of public good.
The Board held a hearing in January 1991. The hearing officer, who
reviewed the project in accordance with 30 V.S.A. { 248, made extensive
findings and concluded that, at the requested levelized rates, there was no
present or future need for output from the proposed project. The hearing
officer also concluded that, given the availability of significantly less
expensive alternate power sources, the project did not provide an economic
benefit to the state. The Board adopted the findings of the hearing officer
and issued an order denying the project a certificate of public good and the
requested rates, but noted that EGC should be given an opportunity to seek
approval of rates which reflect "today's marketplace realities." EGC
appeals from that order.
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); Petition of 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. 570, 574, 522 A.2d 240, 242 (1987). We accept findings of fact adopted by the Board unless
they are clearly erroneous. 30 V.S.A. { 11(b). In reviewing such findings,
we give great deference to the particular expertise and informed judgment of
the Board. Telesystems, 143 Vt. at 509, 469 A.2d at 1172; Petition of Green
Mountain Power Corp., 131 Vt. 284, 303, 305 A.2d 571, 589 (1973). The
burden of proving that findings and conclusions of the Board are clearly
erroneous falls to the appealing party. Village of Lyndonville, 149 Vt. at
660, 543 A.2d at 1320. Moreover, this Court will not interfere with the
performance of an administrative duty absent abuse of discretion. Hall v.
Department of Social Welfare, 153 Vt. 479, 484, 572 A.2d 1342, 1345 (1990).
It is against these standards of review that we consider EGC's claims on
appeal.
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 Petition of Department of Public Service for
Relief in Regard to Small Power Production under PSB Rule 4.100, ___ Vt.
___, ___, 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." 18 C.F.R. { 292.304(d)(2). That rate may be calculated either
at the time of delivery or at the time the obligation is incurred. Id. This
law, EGC argues, precludes the Board from depriving EGC of the rates in Docket
5177.
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 commit-
ments 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 flawed 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." 18 C.F.R. { 292.304(a)(2). In this case, EGC applied
for levelized, long-term rates that would result in payments well above
avoided cost during the early years of operation. As the Board stated,
"[t]hese preferential rates are offered only on a discretionary basis to
encourage development of projects that meet Vermont's rigorous economic,
environmental and reliability criteria, as established by the Vermont
legislature. Project developers seeking [long-term levelized rates]
therefore must demonstrate compliance with the substantive criteria of [30
V.S.A. {] 248(b)."
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 changes. 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 purchases 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 and in the
public interest." 16 U.S.C. { 824a©3(b)(1); 18 C.F.R. { 292.304(a)(1)(i);
see also In re Vicon Recovery Systems, 153 Vt. 539, 545, 572 A.2d 1355, 1358
(1990) (PURPA fosters a favorable economic climate for small power
producers, but also recognizes countervailing considerations of public
interest). Congress left implementation of PURPA to the states, 18 C.F.R. {
292.401, and we see no better means of fulfilling the federal objective than
by subjecting requests for long-term levelized rates to stringent review in
accordance with 30 V.S.A. { 248. The assessment of "economic benefit" under
{ 248(b)(4) ensures that the rates will be "just and reasonable" to Vermont
ratepayers.
The Board's rules, the order issued with Docket 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 30 V.S.A. { 248(b)." In the order
issued with Docket 5177, the Board noted that contracts based on its rates
"must satisfy the requirements of Rule 4.100." Furthermore, the power
purchase agreement executed by VPX and EGC, a standard form used by VPX in
all contracts for the purchase of power from qualifying facilities, clearly
states that the agreement shall become effective only "after approval by the
Board." Finally, the escrow agreement utilized in this case indicates that
Board approval of the contract is required. It states: "producer agrees
that if its project is disapproved by the Board, the purchase agreement . . .
will become null and void."
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 concedes 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 receive 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 [qualify-
ing 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 deter-
minations on how [qualifying facility] power should be
priced are reevaluated 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 the 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 respon-
sibility 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 Petition of Dep't 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 quoted 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 30 V.S.A. { 248(b)." Id. at 21. In subjecting the EGC proposal to {
248 review, the Board did not stray from this earlier statement concerning
alternative energy development.
EGC relies on statements by the hearing officer in Petition of 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 treat-
ment" 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 30 V.S.A. { 248(b), EGC had its
own burden of meeting the requirements of the statute. This it failed to
do.
EGC also argues that the Board, in its analysis of need and economic
benefit under { 248(b), erred when it considered the cost of power from
Hydro Quebec, an uncommitted resource at the time of the hearing. We
cannot conclude that this was error. The Board is often called upon to make
projections based on uncertain data, and we defer to its expertise and
informed judgement. See Telesystems, 143 Vt. at 509©10, 469 A.2d at 1172.
Furthermore, consideration of possible power from Hydro Quebec was but one
of many factors relied upon by the Board in this case. In concluding that
the power from EGC was not needed, the Board relied on findings by the
hearing officer that committed sources served to preclude the need for power
from EGC's proposed facility at least through 1998. The officer noted that
committed resources included a mix of nuclear facilities, coal facilities,
existing Hydro Quebec contracts, small power projects, in addition to
various oil, gas, and wood©fueled sources.
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." ___ Vt.
at ___, 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 estab-
lished by the marketplace 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.
FOR THE COURT:
Chief Justice
--------------------------------------------------------------------------------
Concurring
NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.
No. 91-345
Petition of East Georgia Cogeneration Supreme Court
Limited Partnership
On Appeal from
Public Service Board
February Term, 1992
Richard H. Cowart, Chair
Gerald R. Tarrant, Montpelier, and Stephen G. Kozey of Skadden, Arps, Slate,
Meagher & Flom (Of Counsel), Washington, D.C., for plaintiff-appellant
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
PRESENT: Allen, C.J., Gibson, Dooley and Morse, JJ., and Peck, J. (Ret.),
Specially Assigned
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 Petition of Department of Public
Service for Relief in Regard to Small Power Production under PSB Rule 4.100
(Ryegate), ___ Vt. ___, ___, 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 18 C.F.R. {
292.101(b)(6) (1991) (avoided cost are "the incremental costs to an electric
utility of electric energy or capacity or both which, but for the purchase
from the qualifying facility . . ., such utility would generate itself or
purchase from another source"). Although FERC regulations place
implementation of PURPA in the state's hands, see 18 C.F.R. { 292.401(a),
the state is not free directly or indirectly to redefine avoided cost.
Instead, the state's role is to calculate (DPS) and approve (PSB) the rates
utilities pay for power that qualified producers generate based on avoided
cost. Ryegate, ___ Vt. at ___, 596 A.2d at 1304.
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 cal-
culated over time, in docket 5177 as long as thirty years, and the producer
is entitled to the rates "over a specific term." 18 C.F.R. { 292.304(d)(2).
If EGC's agreement with VPX is a legally enforceable obligation and if
docket 5177 was the most recent DPS/PSB rate order at the time of that
agreement, EGC should be entitled to choose from those rates.
I find no federal authority for ignoring the docket 5177 rates, which
were the result of a prolonged administrative and quasi-judicial process, or
for recalculating new rates for this appellant. I also find unsatisfactory
the Court's after-the-fact attempt to justify this procedure by
distinguishing short-term and long-term avoided costs and levelized and
nonlevelized rates based on avoided costs. These distinctions do not appear
in PURPA, FERC, or the Board's own regulations. Although I did not agree
with the result in Ryegate, at least that decision held out some expectation
to power producers that they could rely on offered rates if they were
willing to legally obligate themselves.
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, ___
Vt. at ___, 596 A.2d at 1306, "At best, Ryegate has obligated itself to go
through a number of development and regulatory steps that may lead to 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.'" ___ Vt. at ___, 596 A.2d at 1306 (quoting
18 C.F.R. { 292.304(d)(2)) (emphasis added).
Levelization, which seems to be the linchpin of the Court's decision,
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.
Associate Justice
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