Morgantown Energy Assocs. v. Pub. Serv. Comm'n of W. Va.

Decision Date30 September 2013
Docket NumberCivil Action No. 2:12-cv-6327
PartiesMORGANTOWN ENERGY ASSOCIATES, Plaintiff, v. PUBLIC SERVICE COMMISSION OF WEST VIRGINIA and MICHAEL A. ALBERT, in his official capacity as Chairman of the Public Service Commission, and JON W. MCKINNEY, in his official capacity as Commissioner of the Public Service Commission, and RYAN B. PALMER, in his official capacity as Commissioner of the Public Service Commission, and MONONGAHELA POWER COMPANY and THE POTOMAC EDISON COMPANY, Defendants.
CourtU.S. District Court — Southern District of West Virginia

MORGANTOWN ENERGY ASSOCIATES, Plaintiff,
v.
PUBLIC SERVICE COMMISSION OF WEST VIRGINIA
and MICHAEL A. ALBERT, in his official capacity as Chairman of
the Public Service Commission, and JON W. MCKINNEY,
in his official capacity as Commissioner of
the Public Service Commission, and RYAN B. PALMER,
in his official capacity as Commissioner of the Public Service Commission,
and MONONGAHELA POWER COMPANY
and THE POTOMAC EDISON COMPANY, Defendants.

Civil Action No. 2:12-cv-6327

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF WEST VIRGINIA AT CHARLESTON

ENTER: September 30, 2013


MEMORANDUM OPINION AND ORDER

Pending is the motion to dismiss by defendants Public Service Commission of West Virginia, and Commissioners Michael A. Albert, Chairman, Jon W. McKinney, and Ryan B. Palmer (collectively, "the Commission"), filed December 7, 2012. Also pending is the motion for judgment on the pleadings by defendants Monongahela Power Company ("Mon Power") and The Potomac Edison Company ("Potomac Edison" and together with Mon Power, "the Utilities"), filed January 25, 2013.

The plaintiff, Morgantown Energy Associates ("MEA"), is a general partnership with a principal place of business in

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Morgantown, West Virginia. Compl. ¶ 7. MEA is engaged in generating electric power from alternative energy resources which it sells to electric utilities. Compl. ¶¶ 19, 41. The Public Service Commission is an administrative agency of the State of West Virginia, having the "authority and duty to enforce and regulate the practices, services and rates of public utilities." W. Va. Code § 24-1-1(a). Mon Power is an electric utility in West Virginia and Potomac Edison is its sister company. Id. ¶ 12.

I. Background

This case arises from a dispute over ownership of alternative and renewable energy credits (commonly called "RECs," or "credits") that are a relatively recent creature of state law. Here, the credits relate to electric energy provided by MEA to the Utilities under a pre-existing 1989 contract that runs until 2027, pursuant to federal law.

Congress enacted the Public Utility Regulatory Policies Act ("PURPA") in 1978, in the wake of the energy crisis of the 1970s, to promote greater use of domestic alternative and renewable energy and to decrease the nation's dependence on foreign oil. Pub. L. No. 95-617, 92 Stat. 3117; FERC v. Mississippi, 456 U.S. 742, 746 (1982). Under PURPA, certain facilities that produce electricity in nontraditional ways are designated as "qualified facilities" ("QFs"). 16 U.S.C. § 824a-3. Rulemaking power to

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encourage proliferation of QFs is generally held by the Federal Energy Regulatory Commission ("FERC"), while state regulatory commissions are charged with implementing1 those rules. 16 U.S.C. 824a-3(a, f). Under PURPA, utilities must purchase any electricity made available to them by a QF at a special price called the "avoided cost" rate. Id.; 18 C.F.R. §§ 292.303-304. The avoided cost rate is a rate equal to the costs that the utility would have incurred from generating the electricity or purchasing the electricity from another source. 16 U.S.C. § 824a-3(d); 18 C.F.R. §§ 292.101(b)(6), 292.303. The contracts by which utilities purchase electricity supplied by a facility, whether or not it is a QF, are commonly called electric energy purchase agreements ("EEP Agreements" or "EEPAs") or power purchase agreements ("PPAs").

West Virginia is among that states that, independent of PURPA, have enacted their own laws to "encourage the development of more efficient, lower-emitting and reasonably priced alternative and renewable energy resources." W. Va. Code §§ 24-2F-1, 24-2F-2(3). West Virginia's Alternative and Renewable Energy Portfolio Act ("the W.Va. Portfolio Act" or "the Portfolio Act") was enacted in 2009, and tasks the Public Service Commission with rulemaking to

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"establish a system of tradable credits to establish, verify and monitor the generation and sale of electricity generated from alternative and renewable energy resources facilities." Id. § 24-2F-4(a). A "qualified facility" under PURPA is not necessarily an "alternative and renewable energy resource" facility under the Portfolio Act, and vice versa. The two classification schemes operate independently of one another and do not have the same requirements.

The Portfolio Act awards one REC to electric utilities for each megawatt hour of electricity purchased or generated from specified alternative energy resource facilities. Id. § 24-2F-4(b)(1-2). Utilities earn two RECs for each megawatt hour from specified renewable energy resource facilities. Id. § 24-2F-4(b)(2). The specified facilities include those located within West Virginia, such as MEA's Morgantown facility. These state-created credits can be accumulated for use in years to come. Beginning in 2015, the Portfolio Act requires electric utilities to own RECs in amounts equal to at least 10 percent of the energy they sold to West Virginia retail customers in the preceding calendar year. Id. § 24-2F-5(d)(1). The requirement increases to 15 percent in 2020, and settles at 25 percent in 2025. Id. § 24-2F-5(c), (d)(1-2). If a utility cannot meet its requirement for a given year, the Commission will assess a per-credit penalty of at

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least the lesser of 200 percent of the average market value of a credit or 50 dollars. Id. § 24-2F-5(g). In meeting the Portfolio Act requirements, RECs may not be used more than once, but excess RECs may be carried over for use in future years. Id. § 24-2F-5(b, f).

On November 5, 2010, the Commission issued General Order No. 184.25, setting forth final rules for the Portfolio Act. The final rules provide that RECs may be obtained from non-utility generators of electricity from alternative and renewable resources, such as the plaintiff, MEA, either by purchasing the credits and the energy bundled together or by purchasing the credits independently, unbundled from the energy. W. Va. Code R. § 150-34-5.6.

This dispute concerns a circumstance that the final rules do not directly address: who should own the credits when a non-utility QF sells electricity to utilities through an EEPA that predates the Portfolio Act and consequently does not specify who owns the credits? On November 22, 2011, the Commission issued an order ("the Commission Order") that assigned the credits to the purchasing utilities. In this case, the court is asked to consider whether the Commission violated PURPA or otherwise erred in making that determination.

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A. Federal Statutory Framework

As noted, PURPA created a class of electricity generating facilities known as "qualified facilities," or "QFs". QFs include cogeneration,2 biomass, waste, and renewable resource facilities. See 16 U.S.C. § 824a-3. In addition to meeting any regulatory requirements for energy output or the manner in which energy is generated, a facility must also be certified to be a QF.3 If a facility does not seek certification, even if it would meet all of the other requirements necessary to be a qualified facility, it is not a "qualified facility" under the regulations. A facility may either file a notice of self-certification with FERC or apply directly to FERC for certification. 18 C.F.R. § 292.203. Whether to seek QF certification is up to the facility, as no part of PURPA or the FERC regulations requires an otherwise qualified facility to do so. See generally 16 U.S.C. §§ 824-824a-3; 18 C.F.R. §§ 292.101-292.602. The plaintiff, MEA, is a qualified facility.

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To encourage the development of QFs, PURPA obligates electric utilities to buy any electricity made available by a QF at the avoided cost rate. The QF may sell power on an "as available" basis, in which case the purchasing utility will buy at the avoided cost rate at the time of purchase. 18 C.F.R. § 292.304(d)(1). Alternatively, the QF can enter into a contract with a utility (known as EEPAs or PPAs), where the price may be either the avoided cost at the time of contracting or the avoided cost at the time of delivery. 18 C.F.R. § 292.304(d)(2).

PURPA directs the Federal Energy Regulatory Commission ("FERC") to prescribe "such rules as it determines necessary to encourage cogeneration and small power production." PURPA § 210(a), 16 U.S.C. § 824a-3(a). Section 210(f), headed "Implementation of rules for qualifying cogeneration and qualifying small power production facilities," then directs "each State regulatory authority" to "implement such [FERC] rule (or revised rule) for each electric utility for which it has ratemaking authority." Id. § 210(f), 16 U.S.C. § 824a-3(f).

PURPA § 210(e) instructs FERC to prescribe rules exempting qualifying facilities from certain federal and state utility regulation, including "State laws and regulations respecting the rates, or respecting the financial or organizational

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regulation, of electric utilities." 16 U.S.C. § 824a-3(e); see also Wheelabrator Lisbon, Inc. v. Conn. Dept. of Pub. Util. Ctr., 531 F.3d 183, 185 n.7 (2d Cir. 2008). FERC regulations accordingly provide, that any QF is "exempted . . . from State laws or regulations respecting: (i) The rates of electric utilities; and (ii) The financial and organizational regulation of electric utilities." 18 C.F.R. § 292.602(c). The exemption "is referred to as the 'exempt[ion] from . . . utility-type . . . regulation.'" Wheelabrator, 531 F.3d at 185 n.7 (quoting Freehold Cogeneration Assocs., L.P. v. Bd. of Reg. Comm'rs of N.J., 44 F.3d 1178, 1185 (3d Cir. 1995)).

In Freehold, the Third Circuit concluded that a state regulatory agency had impermissibly modified an EEPA by ordering the QF and utility to renegotiate the agreement's purchase rate terms. 44 F.3d at 1190. The court observed that PURPA reserves for FERC, not state regulators, the responsibility of regulating the rates at which electricity is purchased under EEPAs. Id. at 1191. PURPA gives state regulatory agencies the authority to review and approve EEPAs with a QF as a party, but once an EEPA is...

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