North Am. Nat. Resources v. Michigan Public Serv.

• Decision Date: 07 July 1999
• Docket Number: No. 5:98-CV-22.,No. 5:98-CV-21.,No. 5:98-CV-24.,No. 5:98-CV-23.,5:98-CV-21.,5:98-CV-22.,5:98-CV-23.,5:98-CV-24.
• Citation: 73 F.Supp.2d 804
• Parties: NORTH AMERICAN NATURAL RESOURCES, INC., et al., Plaintiffs, v. MICHIGAN PUBLIC SERVICE COMM'N, et al., Defendants. Midland Cogeneration Venture Limited Partnership, Plaintiffs, v. Michigan Public Service Comm'n, et al., Defendants. Michigan Power Limited Partnership and ADA Cogeneration Limited Partnership, Plaintiff, v. Michigan Public Service Comm'n, et al., Defendants. Central Wayne Energy Recovery Limited Partnership, Plaintiff, v. Michigan Public Service Comm'n, et al. Defendants.
• Court: U.S. District Court — Western District of Michigan

Page 804

73 F.Supp.2d 804

NORTH AMERICAN NATURAL RESOURCES, INC., et al., Plaintiffs, v. MICHIGAN PUBLIC SERVICE COMM'N, et al., Defendants.

Midland Cogeneration Venture Limited Partnership, Plaintiffs, v. Michigan Public Service Comm'n, et al., Defendants.

Michigan Power Limited Partnership and ADA Cogeneration Limited Partnership, Plaintiff, v. Michigan Public Service Comm'n, et al., Defendants.

Central Wayne Energy Recovery Limited Partnership, Plaintiff, v. Michigan Public Service Comm'n, et al. Defendants.

No. 5:98-CV-21.

No. 5:98-CV-22.

No. 5:98-CV-23.

No. 5:98-CV-24.

United States District Court, W.D. Michigan, Southern Division.

July 7, 1999.

Thomas J. Waters, Fraser, Trebilcock, Davis & Foster, PC, Lansing, MI, for North American Nat. Resources, Inc., Com. Power Co., Hubbardson Power Co., Cadillac Renewable Energy, LLC, Granger Elec. Co., Adrian Energy Assoc., LLC, Mich. Cogeneration Systems, Inc., Sumpter Energy Assoc., Ltd. Partnership, Riverview Energy Systems Partnership, Inc., Viking Energy of Lincoln, Inc., Viking Energy of McBain, Inc., Grayling Generating Station Ltd. Partnership, Hillman Power

Co, LLC, Genesee Power Station, LP, Ypsilanti, Charter Tp. of, Central Wayne Energy Recovery Ltd., Partnership, Plaintiffs.

Stephen O. Schultz, Foster, Swift, Collins & Smith, PC, Lansing, for Midland Cogeneration Venture Limited Partnership, Plaintiff.

David A. Voges, Asst. Atty. Gen., Jennifer M. Granholm, Attorney General, Patricia S. Barone, Assistant Atty. Gen., Assistant Attorney General, Lansing, MI, for Michigan Public Service Commission, John G. Strand, John C. Shea, David A. Svanda, Defendants.

David E.S. Marvin, Fraser, Trebilcock, Davis & Foster, PC, Lansing, MI, for Michigan Power Limited Partnership, ADA Cogeneration Limited Partnership, Plaintiffs.

OPINION

QUIST, District Judge.

Background

The Plaintiffs in these consolidated cases own and operate electric cogeneration facilities which are "qualifying facilities" under the Public Utility Regulatory Policies Act of 1978 ("PURPA"), 16 U.S.C. §§ 824-824k.¹ Plaintiffs sued Defendants, Michigan Public Service Commissioners John G. Strand, John C. Shea, and David A. Svanda, alleging that certain orders (the "Restructuring Orders") issued by the Michigan Public Service Commission ("MPSC") are in conflict with and violate PURPA and seeking declaratory and injunctive relief.²

Defendants previously moved to dismiss the case on the grounds that: (i) Plaintiffs' claims were barred by the Eleventh Amendment; (ii) there was no case or controversy because Plaintiffs could not demonstrate actual harm; (iii) the Court should abstain under one or more abstention doctrines; and (iv) the claims under 42 U.S.C. § 1983 failed to state a claim. In an Opinion and Order dated November 24, 1998, the Court granted and denied the motion in part. In particular, the Court determined that Plaintiffs' claims against the MPSC were barred by the Eleventh Amendment but that Plaintiffs could maintain their claims against the individual Defendants for injunctive and declaratory relief under the doctrine of Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). See North Am. Natural Resources, Inc. v. Michigan Pub. Serv. Comm'n, 41 F.Supp.2d 736, 745 (W.D.Mich.1998). In addition, the Court found that Plaintiffs' claims for declaratory relief presented an actual controversy for adjudication because Plaintiffs demonstrated a real harm and had presented evidence that other parties interpreted the Restructuring Orders in the same manner as Plaintiffs. See id. at 742-43 and 742 n. 5. Finally, the Court rejected Defendants' abstention arguments and their argument regarding the § 1983 claims. See id. at 743-45.

Presently before the Court are Plaintiffs' motions for summary judgment. The instant motions address the only issues remaining for decision, namely, whether the Restructuring Orders violate Plaintiffs' rights under PURPA, and whether certain Plaintiffs are entitled to attorneys fees under 42 U.S.C. § 1988.

Overview of PURPA

Under the Federal Power Act ("FPA"), 16 U.S.C. § 791a—825u, any person who owns or operates facilities used to transmit or sell electric energy in interstate commerce at wholesale is subject to the jurisdiction and regulatory power of the Federal Energy Regulatory Commission ("FERC"). See 16 U.S.C. § 824; New England Power Co. v. New Hampshire, 455 U.S. 331, 340, 102 S.Ct. 1096, 1101, 71 L.Ed.2d 188 (1982). In 1978, Congress modified the FPA by enacting PURPA as part of a comprehensive package of energy legislation in response to the nationwide energy crisis. See FERC v. Mississippi, 456 U.S. 742, 745, 102 S.Ct. 2126, 2130, 72 L.Ed.2d 532 (1982); Fulton Cogeneration Assocs. v. Niagara Mohawk Power Corp., 84 F.3d 91, 94 (2d Cir.1996). Among other things, "PURPA is intended to control power generation costs and ensure long-term economic growth by reducing the nation's reliance on oil and gas and increasing the use of more abundant, domestically produced fuels." Freehold Cogeneration Assocs., L.P. v. Board of Regulatory Comm'rs of New Jersey, 44 F.3d 1178, 1182 (3d Cir.1995). Section 210 of PURPA reflects Congress' policy of requiring utility companies to sell electric energy to, and buy electric energy from, nontraditional electric producing facilities.

Congress believed that increased use of these sources of energy would reduce the demand for traditional fossil fuels. But it also 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 nontraditional 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, § 210(a) directs FERC, in consultation with state regulatory authorities, to promulgate "such rules as it determines necessary to encourage cogeneration and small power production," including 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, § 210(e), 16 U.S.C. § 824a-3(e), directs FERC to prescribe rules exempting the favored cogeneration and small power facilities from certain state and federal laws governing electricity utilities.

FERC v. Mississippi, 456 U.S. at 750-51, 102 S.Ct. at 2132-33.

Pursuant to § 210(b) and the regulations implemented by FERC, utilities must purchase electricity from qualifying facilities ("QF") at rates which are "just and reasonable to the electric utility and in the public interest" and which do "not discriminate against" QFs. 16 U.S.C. § 824a-3(b); 18 C.F.R. § 292.304(a)(1)(i), (ii). The FERC regulations require a utility to purchase electricity from a QF at the utility's "avoided cost," which is defined as "the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source." 18 C.F.R. §§ 292.101(b)(6), 292.304(a)(2). In addition, the FERC's rules exempt QFs from certain state laws and regulations, including state laws governing the rates of electric utilities. See 18 C.F.R. § 292.602.

The FERC regulations permit a QF to either provide energy as the QF determines energy to be available for purchases, or to enter into an enforceable contract for the delivery of energy over a specified term. See 18 C.F.R. § 292.304(d). If a QF chooses the latter option, the QF may elect to set the rates based upon the utility's avoided costs either at the time of delivery or at the time the QF incurs its obligation to deliver energy, i.e., up-front. See id. § 292.304(d)(2); Independent Energy Producers v. California Pub. Utils. Comm'n, 36 F.3d 848, 851-52 (9th Cir.1994). Where a QF elects to set the contract rate up front, it is entitled to receive that rate even if the utility's future avoided costs turn out to be lower than estimated at the time the purchase contract is signed. See id. at 858 (stating that "the fact that the prices for fuel, and therefore the Utilities' avoided costs, are lower than estimated, does not give the state and the Utilities the right unilaterally to modify the terms of the standard offer contract. Federal regulations provide that QFs are entitled to deliver energy to utilities at an avoided cost rate calculated at the time the contract is signed").

State regulatory authorities such as the MPSC are required to implement PURPA pursuant to the rules and regulations promulgated by FERC. See 16 U.S.C. § 824a-3(f). A state has broad authority to implement PURPA with respect to the approval of purchase contracts between utilities and QFs. See Crossroads Cogeneration Corp. v. Orange & Rockland Utils., Inc., 159 F.3d 129, 135 (3d Cir.1998) ("Though PURPA does limit the authority of state agencies in some respects, e.g., by exempting cogeneration facilities from some regulation, PURPA still provides a substantial role to state agencies in regulating energy contracts between utilities and cogenerators"); Independent Energy Producers, 36 F.3d at 856 (noting that "[t]he state's authority to implement section 210 is admittedly broad").

While states do play a substantial role in implementing PURPA and approving contracts between utilities and QFs, once a state regulatory commission establishes the "avoided cost" to be paid, the state no longer has authority to regulate the QF's rate. See Freehold, 44 F.3d at 1191-92; cf. Independent Energy Producers, 36 F.3d at 858. Thus, once a state approves an avoided cost rate in a QF's contract with a utility, the state "cannot later review the contract to reconsider avoided costs." Smith...