New York State Elec. & Gas v. Saranac Power, 97-CV-1169.

Decision Date29 September 2000
Docket NumberNo. 97-CV-1169.,97-CV-1169.
Citation117 F.Supp.2d 211
PartiesNEW YORK STATE ELECTRIC & GAS CORPORATION, Plaintiff, v. SARANAC POWER PARTNERS, L.P.; Lockport Energy Associates, L.P.; The Federal Energy Regulatory Commission; The Public Service Commission of the State of New York and The Chairman, The Deputy Chairman and the Individual Commissioners of the Public Service Commission of the State of New York, Defendants.
CourtU.S. District Court — Northern District of New York

Huber Lawrence & Abell, New York City, NY, for plaintiff, Richard M. Lorenzo, Jonathan D. Schneider, of counsel.

Akin Gump Strauss Hauer & Feld, L.L.P., Washington, D.C., for defendant Saranac, Merrill L. Kramer, Daniel Joseph, of counsel.

Chadbourne & Parke, L.L.P., Washington, D.C., for defendant Lockport, Robert F. Shapiro, Lynn N. Hargis, of counsel.

Federal Energy Regulatory Commission, Washington, D.C., David H. Coffman, of counsel, Public Service Commission of the State of New York, Albany, New York, Carl F. Patka, Michelle L. Phillips, of counsel, Latham & Watkins, Washington, D.C., for Electric Power Supply Association, Amicus Curiae, Edward J. Shapiro, Jared W. Johnson, of counsel.

Cohen Dax & Koenig, P.C., Albany, New York, for National Power Lenders Forum, Amicus Curiae, John W. Dax, of counsel.

Read and Laniado, Albany, New York, for Independent Power Producers of New

York, proposed intervenor, Howard S. Read, Davis B. Johnson, of counsel.

MEMORANDUM-DECISION AND ORDER

MORDUE, District Judge.

I. Introduction

In 1978, Congress passed the Public Utilities Regulatory Policies Act ("PURPA"), 16 U.S.C. § 824a-3, as part of a package of legislation1 entitled the "National Energy Act." PURPA was designed to promote long-term economic growth by reducing the nation's reliance on oil and gas, encourage the development of alternative energy sources and thereby combat a nationwide energy crisis. Section 210(a) of PURPA required the Federal Power Commission ("FPC"), now known as the Federal Energy Regulatory Commission ("FERC"), to "prescribe, and from time to time thereafter revise" rules requiring electric utilities to offer both to sell and purchase electric energy from qualifying cogeneration facilities ("QFs").2 16 U.S.C. § 824a-3(a). Section 210(b) of PURPA required that the rates utilities paid for power purchased from QFs be "just and reasonable to the electric consumers" and "not discriminate" against QFs. 16 U.S.C. § 824a-3(b). Finally, in Section 210(e), PURPA exempted QFs from federal and state regulatory control in connection with rates and financial organization. See 16 U.S.C. § 824a-3(e).3

Congress also directed that each state regulatory authority implement the rules prescribed by FERC concerning electric utilities' obligation to purchase power from QFs. See 16 U.S.C. § 824a-3(f).4 Pursuant to PURPA, the New York State legislature enacted New York Public Service Law § 66-c, which provided that the defendant New York Public Service Commission ("PSC") shall require state regulated electrical utilities to enter into long-term contracts for the purchase of electricity from alternative energy sources, including cogeneration facilities. See N.Y.PUB.SERV. LAW § 66-c. Furthermore, Section 66-c granted PSC authority to oversee the contracting process and set the purchase rate for long-term power contracts. See id.

PURPA also contains an elaborate enforcement scheme and provisions for judicial review. See 16 U.S.C. § 824a-3(g)(h). Section 210(g) provides for (1) state court review of state regulatory authorities' orders implementing PURPA; and (2) state court actions to enforce requirements of state regulatory authorities. See 16 U.S.C. § 824a-3(g)(1)-(2). Section 210(h)(1) provides that for enforcement purposes, rules and regulations promulgated pursuant to PURPA shall be treated like FPA rules, see 16 U.S.C. § 824a-3(h)(1), which are enforceable by FERC in federal district court. See 16 U.S.C. § 825m. Section 210(h)(2)(A) of PURPA provides that FERC may bring an enforcement action against a state regulatory agency in district court, and Section 210(h)(2)(B) allows a utility or cogenerator to petition FERC to enforce Section 210(f) which governs state regulatory authorities' responsibilities to implement PURPA rules and regulations. See 16 U.S.C. § 824a-3(h)(2)(B). If FERC declines to bring such an enforcement action, the utility or cogenerator can commence its own enforcement action against the state regulatory authority in district court. See id.

Section 210(b) of PURPA declares that "[n]o such rule [promulgated by FERC] ... shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy." 16 U.S.C. § 824a-3(b). The "incremental cost" to the electric utility of alternative electric energy is defined as "the cost to the electric utility of the electric energy which, but for the purchase from such cogenerator or small power producer, such utility would generate or purchase from another source." 16 U.S.C. § 824a-3(d). The incremental cost described by Congress in PURPA is defined in the accompanying regulations as "avoided costs," or those costs which the utility "avoided" incurring itself by purchasing power from a QF. See 18 C.F.R. § 292.101(b)(6).

Plaintiff, New York State Energy & Gas Corporation ("NYSEG"), a traditional electrical utility, brings the present action principally to obtain relief from long-term contracts with two QFs, defendants Saranac Power Partners, L.P. ("Saranac")5, and Lockport Energy Associates, L.P. ("Lockport").6 In each case, NYSEG's contract requires it to pay for energy purchased from these two companies at a fixed rate equal to its estimated long-run avoided costs ("LRACs") as calculated — or miscalculated — in 1988 by NYSEG and other public utilities in conjunction with PSC. Unfortunately for NYSEG, its LRACs as estimated at the time it entered into required contracts with Saranac and Lockport are considerably higher than its current LRAC projections. According to two independent analysts retained by NYSEG, payments under both the Saranac and Lockport agreements will significantly exceed NYSEG's avoided costs over the terms of the agreements.7 Based on these predictions, NYSEG asserts that the fixed rates of its power purchase agreements ("PPAs") with Saranac and Lockport are unauthorized under PURPA which limits rates for QF purchases to a utility's "incremental" or avoided costs. 16 U.S.C. § 824a-3(b).

II. Procedural and Regulatory History
A. FERC's Rulemaking

PURPA required FERC to prescribe regulations to implement the statute "[n]ot later than 1 year after November 9, 1978." 16 U.S.C. § 824a-3(a). Following public rulemaking proceedings, FERC promulgated regulations governing transactions between utilities and QFs in connection with purchase and sales of electricity. See Small Power Prod. and Cogeneration Facilities; Regs. Implementing Section 210 of [PURPA], Order No. 69, 45 Fed.Reg. 12214 (Feb. 25, 1980). In American Elec. Power Serv. Corp. v. FERC, 675 F.2d 1226 (D.C.Cir.1982) ("AEP"), four utilities challenged the legality of the very regulations at issue in this case. There, the court held that FERC failed to adequately explain or justify its adoption of the full avoided cost standard in light of the enabling statute, PURPA, which mandated that rates charged to consumers be reasonable and that rates paid to QFs not exceed utilities' incremental costs. See AEP, 675 F.2d at 1232. The plaintiff utilities in AEP argued that the "just and reasonable" language regarding purchase rates in Section 210(b) of PURPA required that rates be set at the lowest possible reasonable rate consistent with the maintenance of adequate service in the public interest. Although FERC could have enacted rules which required states to set PPA rates at less than avoided costs, FERC adopted "as a uniform rule, the maximum purchase rate specified in the statute," after concluding that the full avoided cost standard "would be just and reasonable in every case" as necessary to encourage cogeneration. Id. at 1233. The court found that FERC failed to adequately balance the interests of cogenerators, the public and consumers of electric utilities in rejecting, in an "across-the-board manner," PPA rates below full avoided costs. Id. at 1236.

In American Paper Inst., Inc. v. American Elec. Power Serv. Corp., 461 U.S. 402, 103 S.Ct. 1921, 76 L.Ed.2d 22 (1983) ("API"), the Supreme Court reversed, in part, the D.C. Circuit's determination that FERC had improperly promulgated its avoided cost rules. There, the Court found that FERC had fulfilled its obligation under PURPA to set a rate which was "in the public interest," because "the words `public interest' in a regulatory statute ... take meaning from the purposes of the regulatory legislation." 461 U.S. at 417, 103 S.Ct. 1921 (quoting Nat'l Assoc. for the Advancement of Colored People v. FPC, 425 U.S. 662, 669, 96 S.Ct. 1806, 48 L.Ed.2d 284 (1976) ("NAACP v. FPC")). The Court found that the primary purpose of PURPA was to encourage cogeneration and that the "just and reasonable to ... consumers" language of PURPA required FERC only to "consider[] ... potential rate savings for electric utility consumers." Id. at 415, n. 9, 96 S.Ct. 1806. In the Court's estimation, FERC did consider the possibility of such rate savings, but rejected a percentage-of-avoided-costs approach after determining that purchase rates set at below avoided costs might discourage QF production. See id. at 415, 96 S.Ct. 1806 (citing Small Power Prod. and Cogeneration Facilities; Regs. Implementing Section 210 of [PURPA], Order No. 69, 45 Fed.Reg. at 12222-12223).

B. PSC Proceedings

The PSC adopted rules to implement PURPA in 1982. See Consol. Edison Co. of New York, Inc., PSC Case No. 27574 Opinion No. 82-10, 48 P.U.R.4th 94 (May 12, 1982). There, PSC set forth generic...

To continue reading

Request your trial
16 cases
  • Niagara Mohawk Power Corp. v. F.E.R.C., 95-CV-634.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court of Northern District of New York
    • August 27, 2001
    ...Niagara "turns PURPA inside out by seeking to enforce the statute's alleged rate cap against FERC," see NYSEG v. Saranac Power Partners, L.P., 117 F.Supp.2d 211, 255 (N.D.N.Y.2000).21 Indeed, Niagara admits in its memorandum of law in opposition to defendants' motions that an enforcement ac......
  • Great Divide Wind Farm 2 LLC v. Aguilar
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • May 16, 2019
    ...v. La. Pub. Serv. Comm'n, 494 F. Supp. 2d 401, 409-11 (M.D. La. 2007) (Brady, J.); N.Y. State Elec. & Gas Corp. v. Saranac Power Partners L.P., 117 F. Supp. 2d 211, 242 (N.D.N.Y. 2000) (Mordue, J.), aff'd, 267 F.3d 128 (2d Cir. 2001). PURPA permits suits when a state fails to implement the ......
  • Rios v. WASH. DEPT. OF LABOR AND INDUSTRIES, 70294-2.
    • United States
    • United States State Supreme Court of Washington
    • February 7, 2002
    ...Health Sys. v. Bowen, 864 F.2d 1084, 1095 (3d Cir.1988); Kappelmann, 539 F.2d at 171-73; N.Y. State Elec. & Gas Corp. v. Saranac Power Partners, L.P., 117 F.Supp.2d 211, 236 & n. 50 (N.D.N.Y.2000); Midwater Trawlers Co-op. v. Mosbacher, 727 F.Supp. 12, 15 (D.D.C. 1989); Hoffmann-La Roche, I......
  • Great Divide Wind Farm 2 LLC v. Aguilar, CIV 19-0099 JB\CG
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • November 7, 2019
    ...Serv. Comm'n, 494 F. Supp. 2d 401, 409-11 (M.D. La. 2007) (Brady, J.); N.Y. State Elec. & Gas Corp. v. Saranac Power Partners L.P., 117 F. Supp. 2d 211, 242 (N.D.N.Y. 2000) (Mordue, J.), aff'd, 267 F.3d 128 (2d Cir. 2001). PURPA permits suits when a state fails to implement the FERC regulat......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT