Connecticut Valley Electric Co v. Fed. Energy Comm'n

• Decision Date: 14 April 2000
• Docket Number: No. 98-1294,98-1294
• Parties: (D.C. Cir. 2000) Connecticut Valley Electric Company, Inc., Petitioner v. Federal Energy Regulatory Commission, Respondent Granite State Hydropower Association, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1037

208 F.3d 1037 (D.C. Cir. 2000)

Connecticut Valley Electric Company, Inc., Petitioner v. Federal Energy Regulatory Commission, Respondent

Granite State Hydropower Association, et al., Intervenors

No. 98-1294

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 7, 1999

Decided April 14, 2000

[Copyrighted Material Omitted]

On Petition for Review of Orders of the Federal Energy Regulatory Commission

James H. McGrew argued the cause and filed the briefs for petitioner.

Beth G. Pacella, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were Jay L. Witkin, Solicitor, and John H. Conway, Deputy Solicitor.

Earle H. O'Donnell, Donna M. Attanasio, Laurel W. Glassman, Margaret A. Moore, and Howard E. Shapiro were on the brief for intervenors Westmoreland-LG & E Partners and Wheelabrator Claremont Company, L.P. Allan W. Anderson, Jr., and David B. Ward entered appearances for intervenor Granite State Hydropower Association.

Before: Ginsburg, Rogers, and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge:

Connecticut Valley Electric Company, a local distribution company serving some 10,000 customers in New Hampshire and Vermont, petitions for review of two orders of the Federal Energy Regulatory Commission denying Connecticut Valley any relief against a power producing facility that violated S 3(17)(C)(ii) of the Federal Power Act (FPA). Connecticut Valley claims the Commission's orders violate § 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA), and that the Commission is required by S 3(17)(C)(ii) of the FPA to revoke the facility's status as a "Qualifying Facility" (QF), or alternatively that the Commission's refusal to revoke the facility's QF status or to provide any other relief is an abuse of the agency's remedial discretion.

We hold that we are without jurisdiction to address Connecticut Valley's claim arising under S 210 of the PURPA. We reject Connecticut Valley's claim that S 3(17)(C)(ii) of the FPA requires the Commission to revoke the facility's QF status, and we conclude that the Commission's decision to deny any relief was a valid exercise of its remedial discretion. We therefore deny the petition for review.

I. Background

The Congress enacted Title II of the PURPA, Pub. L. No. 95-617, 92 Stat. 3117, 3134 (1978), in an effort to encourage the development of cogeneration and small power production facilities. A "cogeneration facility" produces both electric energy and steam or some other form of usable energy, 16 U.S.C. S 796(18)(A); a "small power production facility" produces less than 80 megawatts of electricity using biomass, waste, renewable resources, or geothermal resources as the primary energy source, id. S 796(17)(A). The Supreme Court described S 210 of the PURPA in FERC v. Mississippi, 456 U.S. 742, 750-51 (1982) (citations omitted):

... [Congress] felt that two problems impeded the development of nontraditional generating facilities: (1)traditional electricity utilities were reluctant to purchase power from, and to sell power to, the non-traditional facilities, and (2) the regulation of these alternative energy sources by state and federal utility authorities imposed financial burdens upon the nontraditional facilities and thus discouraged their development.

In order to overcome the first of these perceived problems, S 210(a) directs FERC ... to promulgate ...rules requiring utilities to offer to sell electricity to, and purchase electricity from, qualifying cogeneration and small power production facilities....

To solve the second problem perceived by Congress, S 210(e), 16 U.S.C. S 824a-3(e), directs FERC to pre-scribe rules exempting the favored cogeneration and small power facilities from certain state and federal laws governing electricity utilities.

In order to secure these benefits to qualifying cogeneration and small power production facilities--so-called Qualifying Facilities, or QF's--the Commission has promulgated the following regulations, respectively: 18 C.F.R. SS 292.303-305, which require an electric utility to sell to a QF electricity for use in its operations at regulated tariff rates and to buy the QF's output at the utility's "avoided cost";^* and 18 C.F.R. SS 292.601-602, which exempt a QF from the Public Utility Holding Company Act of 1935, 15 U.S.C. § 79 et seq., most state regulation as a public utility, and much of the FPA. A small power producer (SPP) is a QF only if it (1) meets various Commission requirements respecting fuel use, fuel efficiency, and reliability, 16 U.S.C. § 796(17)(C)(i) and (2) "is ... not primarily engaged in the generation or sale of electric power (other than electric power solely from cogeneration facilities or small power production facilities)," id. S 796(17)(C)(ii).

A. Regulatory Background: Gross Versus Net Output

There are two ways of measuring the power production capacity of a QF: one looks to gross output, which is all electricity produced by the facility, the other to net output, which is gross output less the electricity used in the QF's own operations. The distinction is important because many QF's purchase their internal operating needs at tariffed rates from the electric utility to which they sell their output, which the utility is required to buy at the utility's full avoided cost. If the QF were allowed to sell its gross output to the electric utility at full avoided cost, then it would in effect be selling back at a significant markup the quantum of electricity it purchased from the utility for its internal operating needs.

In 1991, the Commission for the first time addressed whether a facility that sold its gross output would lose its status as a QF because it would no longer be, as required by S 3(17)(C)(ii),¹ "not primarily engaged in the generation or sale of electric power (other than electric power solely from cogeneration facilities or small power production facilities)."Turners Falls Ltd. Partnership, 55 FERC p 61,487. The Commission began by recognizing that S 3(17)(C)(ii) is ambiguous: If a utility provides a QF with power for its operations through one line, and the QF provides its gross output back to the utility through a separate line, then in one sense (namely, the physical) the QF is selling only electricity "solely from cogeneration or small power production facilities" and the requirement of S 3(17)(C)(ii) is satisfied; in another (namely, the economic) sense, however, the QF is selling back to the utility electricity that was generated by the utility, in violation of that section. See id. at 62,668.

In light of this ambiguity and the broad discretion the Congress granted the Commission in S 3 of the FPA to determine the requirements for QF certification, the Commission concluded that it could lawfully interpret the statute either to allow or to preclude a QF's sale of its gross output. See id. at 62,669. In the end, however, the Commission decided that the policies of the PURPA are served better if the statute is read to say that a facility that sells its gross output is not a QF. See id. at 62,671.

B. Procedural Background: Petition to Revoke Claremont's QF Status

Wheelabrator Claremont Company (hereinafter Claremont) operates an SPP facility in Claremont, NH. In 1983 the New Hampshire Public Utilities Commission approved a settlement agreement among Connecticut Valley, Claremont (through its predecessor in interest), and the NHPUC's own staff. See In re New Hampshire/Vermont Solid Waste Project, DR 82-343, Order No. 16,232, 68 NHPUC 96. The settlement, as embodied in a contract executed between Connecticut Valley and Claremont and approved by the NHPUC in 1984, provided that Connecticut Valley would purchase the "entire electrical output" of Claremont's proposed SPP facility for 20 years at Connecticut Valley's full avoided cost (of nine cents per kWh, adjusted for inflation) while simultaneously providing Claremont with its needs for electricity in its operations, at Connecticut Valley's consolidated tariff rate, which has proven to be less than the adjusted contract rate. Claremont applied to the Commission for QF certification, representing that its output would be 4.5 MW but it did not specify whether that was its gross or net output. The Commission certified the Claremont facility as a QF in 1986, and in 1987 Claremont began selling to Connecticut Valley its gross electrical output of 4.5 MW.

In 1993 Claremont, in response to an inquiry from the NHPUC, reported that its gross output was 4.5 and its net output 3.9 MW. Connecticut Valley then asked the NHPUC to investigate whether Claremont qualified as a QF in view of its having sold its gross output. Instead, the NHPUC, noting that the FERC has exclusive jurisdiction over the decertification of a QF, ordered Connecticut Valley to petition the Commission for revocation of Claremont's QF status. See In re Connecticut Valley, DR 93-196, Order No. 21,000 (NHPUC Oct. 18, 1993).

Connecticut Valley duly filed a complaint with the Commission seeking revocation of Claremont's QF status based upon Claremont's sales of gross output and its alleged misrepresentations to the Commission in applying for QF status. Connecticut Valley further requested that, once Claremont's QF status was revoked, the Commission take jurisdiction over Connecticut Valley's contract with Claremont pursuant to SS 205-206 of the FPA and either rescind the contract and retroactively determine just and reasonable rates for past sales, or at least prospectively reform the contract so that Connecticut Valley need purchase only Claremont's net output.

Although the Commission agreed with Connecticut Valley that Claremont could not be a QF because its gross sales took it outside the rule of S 3(17)(C)(ii), the Commission denied Connecticut Valley any relief. See Connecticut Valley Elec. Co. v. Wheelabrator...