City of Boulder v. COLORADO PUC

Decision Date27 March 2000
Docket NumberNo. 98SA216.,98SA216.
PartiesCITY OF BOULDER and Colorado Independent Energy Association, Petitioners-Appellants, v. The COLORADO PUBLIC UTILITIES COMMISSION; Commissioner Robert J. Hix; Commissioner Vincent Majkowski; Commissioner R. Brent Alderfer; Public Service Company of Colorado; and the Office of Consumer Counsel, Respondents-Appellees.
CourtColorado Supreme Court

Kelly/Haglund/Garnsey & Kahn LLC, Jeffrey G. Pearson for Jeffrey G. Pearson, LLC, of Counsel David R. Fine, Denver, Colorado, Attorneys for Colorado Independent Energy Association.

Dietze & Davis, P.C., Karl F. Kumli, III, Boulder, Colorado, Attorneys for City of Boulder.

Ken Salazar, Attorney General, Barbara McDonnell, Chief Deputy Attorney General, Alan J. Gilbert, Solicitor General, Linda L. Siderius, Deputy Attorney General, Raymond L. Gifford, First Assistant Attorney General, Mana L. Jennings-Fader, Assistant Attorney General, Regulatory Law Section, Denver, Colorado, Attorneys for Colorado Public Utilities Commission; Commissioner Robert J. Hix; Commissioner Vincent Majkowski; and Commissioner R. Brent Alderfer.

LeBoeuf, Lamb, Green & Macrae, L.L.P., Mark A. Davidson, Denver, Colorado, Attorney for Public Service Company of Colorado.

No appearance by or on behalf of Respondent-Appellee Office of Consumer Counsel

Justice HOBBS delivered the Opinion of the Court.

This case is before us on direct appeal from the district court pursuant to section 40-6-115, 11 C.R.S. (1999). The district court affirmed a decision by the Colorado Public Utilities Commission (PUC) awarding a certificate of public convenience and necessity (CPCN) to the Public Service Company of Colorado (PSCO) for an upgrade of the turbines at the Pawnee power plant near Brush, Colorado (upgrade project). We affirm.

I.

On February 1, 1996, PSCO entered into a contract with General Electric Corporation (GE) for the manufacture of replacement turbine blades and related equipment for the Pawnee power plant. Under the contract, GE guaranteed that the new turbine equipment would produce a 2.12% improvement in the Pawnee plant's heat rate and an increase in capacity of 14 megawatts. The contract allowed PSCO to withhold 10% of the purchase price pending fulfillment of the performance guarantees.

PSCO notified the PUC on February 20, 1996 that it intended to initiate the turbine upgrade project during the planned overhaul of the Pawnee plant scheduled for 1997. PSCO informed the PUC that the project would improve the operating efficiency of the plant, improve the plant's heat rate, improve sustained performance, increase time between turbine overhauls, and lower operation and maintenance costs at the plant. PSCO also represented that the project would add 16 megawatts to the plant's generating capacity, and provide approximately $850,000 annually in benefits to ratepayers. The total estimated cost of the turbine upgrade project, including installation, was $11,761,000. PSCO had paid $2,050,000 of this sum to GE as of June 1996.

On July 29, 1996, pursuant to a PUC order, PSCO filed an application with the PUC requesting either a CPCN for the upgrade project, or, in the alternative, a finding that the upgrade did not require a CPCN. PSCO took the position that a CPCN was not required. The Colorado Office of Consumer Counsel (OCC), the Colorado Office of Energy Conservation (OEC), the staff of the PUC, the Colorado Independent Energy Association (CIEA), and the City of Boulder (Boulder) all intervened.1 The OCC stipulated that it did not oppose the project, but that it reserved the right to challenge the prudence of the investment in a later proceeding. The PUC staff likewise did not oppose the project, but argued that risks related to the project should rest with PSCO, not ratepayers.

Boulder argued that a CPCN was required and that the PUC's revised 1996 Integrated Resource Planning Rules (IRP rules), 4 C.C.R. § 723-21, required competitive bidding for the turbine upgrade project. Boulder later added the argument that allowing the upgrade project to go forward would violate the federal Public Utility Regulatory Policy Act, 16 U.S.C. § 824a-3 (1994) ("PURPA").

A PUC administrative law judge (ALJ) held a hearing on November 21, 1996, and issued a recommended decision dated January 31, 1997. The ALJ concluded that the upgrade project did not require issuance of a CPCN, because the turbine would have to be replaced no later than the 2004 scheduled overhaul at Pawnee and upgrading the turbine sooner would provide a more immediate benefit to ratepayers. The ALJ found that the 16 megawatt increase in capacity was not the objective of the upgrade project, but a result of the increased efficiency the upgrade would occasion. The ALJ rejected Boulder's contention that the revised IRP rules applied, finding that PSCO initiated the upgrade project prior to the date those rules went into effect. Finally, the ALJ adopted the PUC staff's recommendation that PSCO should bear the risk of the upgrade project.

PSCO had already completed the project by the time the PUC rendered its final decision on July 9, 1997. The PUC adopted the ALJ's decision in part, but determined that a CPCN was in fact necessary for the upgrade project because of its high costs and the newness of the technology. It then decided to issue the CPCN, because the upgrade project would yield improvements in heat rate and generation efficiencies benefiting ratepayers, and thus served the public interest. The PUC concluded, in fact, that PSCO should be encouraged to implement such improvements system-wide.

Boulder filed a petition for reconsideration with the PUC, contending that: (1) section 40-5-101(1), 11 C.R.S. (1999), forbade the PUC from awarding a CPCN to PSCO retroactively; and (2) the PUC's approval of the upgrade project violated PURPA. The PUC denied the petition. In regard to section 40-5-101(1), the PUC held that while this statute constrained the actions of utilities, it did not restrain the PUC in determining whether to issue a CPCN. As for PURPA, the PUC found that its prior rulings and Boulder's own contracts with PSCO rendered payments to PURPA qualifying facilities (QF's) susceptible to change.

Boulder petitioned the District Court for the City and County of Denver for review. The court affirmed the PUC's decision. Boulder then brought its appeal to us.

II.

We uphold the PUC's decision to grant a certificate of public convenience and necessity for the Pawnee power plant turbine upgrade project.

A. Standard of Review

We begin our analysis by summarizing the applicable standard of review. The General Assembly has empowered the PUC to "generally supervise and regulate every public utility in this state; and to do all things, whether specifically designated [in the utilities code] or in addition thereto, which are necessary and convenient in the exercise of such power." § 40-3-102, 11 C.R.S. (1999). Our review focuses on three concerns: (1) whether the PUC has regularly pursued its authority; (2) whether its decision is supported by substantial evidence in the record viewed as a whole; and (3) whether the decision is just and reasonable. See CF & I Steel v. Public Utils. Comm'n, 949 P.2d 577, 585 (Colo.1997)

.

While the PUC's interpretations of law do not control our review, when statutes and regulations for which the agency possesses enforcement authority are ambiguous, we give deference to the agency's interpretations. See PSCO v. Trigen-Nations Energy Co., 982 P.2d 316, 322 (Colo.1999)

; see also CF & I Steel, 949 P.2d at 585. We set aside interpretations of ambiguous law within the PUC's administrative purview only when clearly erroneous, arbitrary, or in excess of the PUC's authority. See CF & I Steel, 949 P.2d at 585. PUC factual findings are "presumptively valid and must be viewed in the light most favorable to its decisions." Boulder Airporter Inc. v. Rocky Mountain Shuttlines, Inc., 918 P.2d 1118, 1120 (Colo.1996).

With these principles in mind, we identify Boulder's contentions and summarize our holding on each of these points before turning to our analysis. Boulder advances three arguments as to why we should reverse the PUC's decision to award the CPCN for PSCO's upgrade project. First, Boulder argues that the PUC was not entitled to issue a CPCN to PSCO for a project that the utility had already undertaken. We hold that the PUC has sufficient statutory authority to award the CPCN granted in this case, that substantial evidence supported its decision, and that its decision was just and reasonable. Second, Boulder argues that PURPA forbade the PUC from issuing the CPCN, because doing so would lower payments to Boulder in contravention of the statute's requirements. We hold that PURPA and its implementing regulations allow for the contractual arrangements that result in the reduced payments Boulder seeks to avoid. Finally, Boulder argues that the PUC's utility planning regulations forbade issuance of the CPCN. We hold that the version of the regulations applicable to this case allows for issuance of a CPCN under the circumstances here and that the PUC complied with its regulations. We now proceed with our analysis.

B. Boulder's Relationship with PSCO

Understanding Boulder's position in this appeal requires a brief background discussion of the electric utility industry. For our purposes, this discussion begins with the energy crisis of the 1970's, which prompted intense interest in policies that would ensure the United States' energy independence. At that time, electric utilities consumed approximately 25% of the nation's energy resources for power generation and were heavily reliant on oil and gas. See FERC v. Mississippi, 456 U.S. 742, 745-46, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982)

. Passed in 1978 as Part V of the National Energy Act, PURPA was designed to help limit our country's dependence on foreign oil and to encourage renewable and other...

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