Consolidated Edison Co. of New York, Inc. v. Public Service Com'n

Citation98 A.D.2d 377,471 N.Y.S.2d 684
PartiesIn the Matter of CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Petitioner, v. PUBLIC SERVICE COMMISSION of the State of New York, Respondent, and Brooklyn Union Gas Company, Intervenor-Respondent.
Decision Date30 December 1983
CourtNew York Supreme Court Appellate Division

David E. Blabey, Albany (Howard J. Read, Albany, of counsel), for respondent.

Cullen & Dykman, Brooklyn (William R. Coleman, Brooklyn, of counsel), for intervenor-respondent.

Chadbourne, Parke, Whiteside & Wolff, New York City, for American Paper Institute, Inc., amicus curiae.

Before MAHONEY, P.J., and KANE, MAIN, YESAWICH and WEISS, JJ.

OPINION FOR MODIFICATION

MAIN, Justice.

On November 9, 1978, the Public Utility Regulatory Policies Act of 1978 (PURPA) was signed into law as part of the Federal response to the nationwide energy crisis. Section 210 of PURPA (U.S.Code, tit 16, § 824a-3) was designed to encourage the development of alternate energy sources, and thereby decrease dependence on traditional fossil fuels, by requiring the Federal Energy Regulatory Commission (FERC) to adopt rules requiring, inter alia, electric utilities to purchase electric energy from any cogeneration facility or small power production facility qualifying under Federal rules 1 (US Code, tit 16, § 824a-3, subd [a] ). Section 210 of PURPA further provides that the rate established by FERC for the purchase of such electricity:

(1) shall be just and reasonable to the electric consumers of the electric utility and in the public interest, and

(2) shall not discriminate against qualifying cogenerators or qualifying small power producers.

No such rule prescribed under subsection (a) of this section shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy 2 (id. at subd. [b] ).

This section also permits FERC to exempt Federal qualifying facilities from certain Federal and State laws governing electric utilities if such was deemed necessary to encourage cogeneration and small power production (id. at subd. [e] ). Under section 210 of PURPA, State regulatory authorities are charged with implementing the rules promulgated by FERC (id. at subd [f] ). These rules, in 1980, were promulgated by FERC (18 CFR Part 292) and they established the rate for the purchase of electricity from Federal qualifying facilities at the avoided cost (18 CFR 292.304[b][2] ), the statutory maximum rate, and ruled that all Federal qualifying facilities eligible for the exemption should be exempt from certain provisions of the Federal Power Act (18 CFR 292.601).

Also in 1980, New York State enacted legislation, like PURPA, designed to develop alternate energy sources by encouraging cogeneration and small hydro facilities (Public Service Law, § 66-c, subd. 1). The definitions for such facilities (id. at § 2, subds. 2-a--2-c) overlap aspects of the Federal definitions, but are not identical thereto. 3 The State law, as amended, further requires electric facilities to enter into long-term contracts to purchase electricity or useful thermal energy from State qualifying facilities under terms that are "just and economically reasonable to the corporation's ratepayers, non-discriminatory to [State qualifying facilities] and [in furtherance of] the public policy" behind the legislation, but at a sales price not less than 6 cents per kilowatt-hour (id. at § 66-c, subd. 1, par. [a] ).

Proceedings to implement the Federal and State legislation and regulations were held before respondent Public Service Commission (PSC) and culminated in an opinion issued May 12, 1982. On September 9, 1982, petitioner Consolidated Edison Company of New York, Inc., instituted this CPLR article 78 proceeding to review various aspects of the PSC's opinion. After this proceeding was transferred to this court, petitioner and the PSC stipulated to hold the case in abeyance pending the outcome of American Paper Institute v. American Elec. Power Serv. Corp., 461 U.S. 402, 103 S.Ct. 1921, 76 L.Ed.2d 22, then before the Supreme Court and since decided. Based on the decision in American Paper, which upheld the validity of FERC's rules under section 210 of PURPA, and Arkansas Elec. Coop. Corp. v. Arkansas Public Serv. Comm., 461 U.S. 375, 103 S.Ct. 1905, 76 L.Ed.2d 1, decided the same day, petitioner dropped all but the three issues concerning the rates for the purchase of electricity from Federal and State qualifying facilities now before us. We note that we granted leave to intervene to Brooklyn Union Gas Company and leave to file a brief amicus curiae to American Paper Institute, Inc.

Petitioner challenges two of the PSC's determinations on preemption grounds. First, petitioner contends that the PSC's determination requiring it to purchase electricity from on-site generators that are not Federal qualifying facilities is invalid as contrary to the Federal Power Act (FPA) (U.S.Code, tit. 16, § 791a et seq.), under which wholesale sales of electricity from on-site generators to electric utilities in interstate commerce are subject to FERC's exclusive jurisdiction (id. at § 824). Second, petitioner contends that the State-mandated minimum purchase rate of 6 cents per kilowatt-hour is at times higher than the Federal rate of avoided cost set by FERC and, thus, is invalid as contrary to Federal Law.

Initially, we reject the procedural challenges to petitioner's claims. The PSC failed to raise at the appropriate time petitioner's alleged lack of standing and failure to exhaust its administrative remedies and, thus, we deem these challenges to be waived (see Matter of Hilton v. Dalsheim, 81 A.D.2d 887, 888, 439 N.Y.S.2d 157; Matter of Cook v. Town of New Scotland, 75 A.D.2d 703, 704, 427 N.Y.S.2d 77; see, also, CPLR 7804, subd. [f] ). We further note that although the PSC did not comment on the first preemption ground raised by petitioner, apparently because petitioner did not raise it at the time of the enactment of the State legislation before the administrative law judge's recommended decision, we shall entertain this issue because petitioner did raise it in submissions before the PSC's final opinion. Likewise, we reject Brooklyn Union's claim that petitioner's second preemption claim is an impermissible collateral attack on the PSC's reliance on FERC's Order No. 69 because the rule against such attacks of administrative determinations is not applicable where the agency acted outside its jurisdiction in a manner not authorized by statute (see, e.g., 2 NY Jur 2d, Administrative Law, §§ 150, 176, pp 236, 282), which is petitioner's claim herein.

On the merits, we conclude that Federal law has preempted this area and that New York State law or regulations cannot require petitioner to purchase electricity from on-site generators unless they are Federal qualifying facilities or to purchase electricity from such facilities at a rate greater than the Federally mandated rate. A review of the legislative intent behind the enactment of section 210 of PURPA, as well as the legislative framework of the FPA and PURPA, leads us to this result. In reaching this conclusion, we emphasize that the policy being addressed is the Federal policy of developing alternate energy sources to combat the nationwide energy crisis and not the State policy of utility regulation. The Federal government has undertaken substantial activity in the energy field to benefit the nation as a whole and, where State action is contrary, it must fall (see, e.g., Fidelity Fed. Sav. & Loan Assn. v. de la Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664; Chicago & North Western Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 317, 101 S.Ct. 1124, 1129, 67 L.Ed.2d 258).

The authority of FERC, and its predecessor the Federal Power Commission, to regulate, under the FPA, wholesale sales of electricity in interstate commerce, no matter how small the interstate effect, is well established (see, e.g., US Code, tit 16, § 824, subd. [b]; Federal Power Comm. v. Florida Power & Light Co., 404 U.S. 453, 92 S.Ct. 637, 30 L.Ed.2d 600; Federal Power Comm. v. Southern California Edison Co., 376 U.S. 205, 215-216, 84 S.Ct. 644, 651, 11 L.Ed.2d 638). The PSC claims that the Supreme Court, in Arkansas Elec. Coop. Corp. v. Arkansas Public Serv. Comm., 461 U.S. 375, 103 S.Ct. 1905, 76 L.Ed.2d 1, supra, modified FERC's authority by permitting State regulation of wholesale sales if the impact on interstate commerce was not undue. The Supreme Court in that case, however, permitted State regulation of wholesale sales of electricity under the legislative framework of the Rural Electrification Act (REA) and not the FPA, thus rendering the case suspect as authority for modification of FERC's jurisdiction under the FPA.

The Supreme Court noted, though, that the State's authority to regulate such wholesale sales under the REA would be preempted if the Federal agency with jurisdiction "changes its present policy, and announces that state regulation of rural power cooperatives is inconsistent with federal policy" (id. 103 S.Ct. at 1915). In this case, a somewhat different scenario exists, but the Supreme Court's language is instructive. FERC, the agency which has historically regulated wholesale sales of electricity in interstate commerce, did not announce any change in its policy of exclusive jurisdiction over such wholesale sales, but merely acquired additional statutory options under PURPA. Moreover, PURPA itself, enacted against the backdrop of the FPA and FERC's exclusive jurisdiction, did not herald any changes in FERC's jurisdiction except those specifically provided in the statutory language, none of which transfers such jurisdiction to State regulatory agencies. Consequently, the PSC has no authority to act in this area.

We also conclude that...

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