Pennsylvania Elec. Co. v. Pennsylvania Public Utility Com'n

• Citation: 166 Pa.Cmwlth. 413,648 A.2d 63
• Parties: , Util. L. Rep. P 26,426 PENNSYLVANIA ELECTRIC COMPANY, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent. CAMBRIA PARTNERS, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.
• Decision Date: 07 October 1994
• Court: Commonwealth Court of Pennsylvania

Page 63

648 A.2d 63

166 Pa.Cmwlth. 413, Util. L. Rep. P 26,426

PENNSYLVANIA ELECTRIC COMPANY, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.

CAMBRIA PARTNERS, Petitioner, v. PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent.

Commonwealth Court of Pennsylvania.

Argued June 9, 1994.

Decided Aug. 4, 1994.

Application for Reconsideration Granted in Part and Denied

in Part Oct. 7, 1994.

Alan Michael Seltzer, for petitioner PA Elec. Co.

William T. Hawke, for petitioner Cambria Partners.

Lee E. Morrison, Asst. Counsel, for respondent.

Clifford B. Levine, for intervenors American Power Corp. and CMS Generation Co. Tanya J. McCloskey, Asst. Consumer Advocate, for intervenor Office of Consumer Advocate.

Before PELLEGRINI and FRIEDMAN, JJ., and RODGERS, Senior Judge.

PELLEGRINI, Judge.

The Pennsylvania Electric Company (PECO) ¹ and Cambria Partners (Cambria) ² have filed consolidated appeals from an order of the Pennsylvania Public Utility Commission (PUC) directing PECO to enter into two separate agreements with qualifying facility ³ (QF) developers LG & E Energy Systems, Inc. (LG & E) and American Power Corporation and CMS Generation Company (American/CMS) for the purchase of electrical power from their respective proposed QFs.

I.

This appeal arises as a result of petitions filed by three QF developers to have the PUC order PECO to enter into power purchase agreements with them under the provisions of PURPA. Each involves a long and involved history, but as to the issues relevant to this appeal, they can be summarized as follows.

LG & E requested the PUC to order PECO to enter into a power purchase agreement for 80 megawatts (MW) of capacity and energy from its QF to be located at the International Paper Company's mill in Erie, Pennsylvania. ⁴ LG & E contended that PECO had a need to purchase at least 80 MW of capacity by relying on its 1990 Annual Resource Planning Report (ARP) ⁵ in which it indicated that it had a need for 100 MW of additional peak capacity by 1995, and about 600 MW of new base load capacity to be phased in as three 200 MW blocks during the 2000-2009 timeframe. The PUC found that it had an effective filing date of March 21, 1991.

American/CMS petitioned to have the PUC order PECO to purchase power from a 300 MW QF which it proposed to build at the Juniata Locomotive Repair Shop owned by Consolidated Rail Corporation located in Blair County, Pennsylvania. While it had engaged in discussions with PECO to purchase power, it contended that PECO had refused to enter into a purchase power agreement as required by PURPA regulations. It requested that the PUC order PECO to enter into a 30-year contract for the purchase of capacity and electricity from that project.

Cambria also filed a petition requesting that the PUC direct PECO to enter into a long-term purchase power agreement with it from its proposed QF to be located in New Germany, Cambria County, Pennsylvania. The project would provide a total of 350 MW, consisting of a 200 MW indigenous coal-fired component and a 150 MW natural gas-fired component. Cambria alleged that based on PECO's 1990 ARP, PECO would require approximately 700 MW of new capacity from 1995-2000, broken down by 100 MW of peak capacity in 1995-96 and three 200 MW increments of base load capacity from 2000-2009. Cambria further alleged that it first contacted PECO in December of 1987, had ongoing communications through January of 1991 regarding PECO's purchase of power from the Cambria project, and ultimately made an offer to PECO on April 30, 1990, to sell it capacity and energy. However, it contended that PECO ultimately refused to sign a long-term agreement because it stated it did not need any of the capacity offered by Cambria.

PECO filed individual answers to each of the petitions opposing the projects because it alleged it only needed, at most, 100 MW of peak capacity during 1995 based upon its 1990 ARP filed with the PUC, and 200 MW of base load capacity by the year 2000. It further alleged that based on its 1991 ARP filed with the PUC on May 1, 1991, it had no need for any additional capacity until 1999.

Extensive hearings were held before an ALJ concerning PECO's need for additional capacity, the issue of the proposed QFs' priority, and the calculation of avoided costs. In the ALJ's decision, he first determined that PECO's 1991 ARP would be used to determine PECO's need for capacity. Rejecting PECO's suggestion that it should be allowed to define its own need for service, he then determined that based on the 1991 ARP, PECO had a clear need for approximately 100 MW during 1997 (or at least 80 MW of capacity). As to PECO's avoided cost, the ALJ based the avoided cost on PECO's projected installation of a 125 MW combined cycle plant during 1999 as stated in its 1991 ARP, rather than on a coal plant proxy ⁶ as urged by American/CMS and Cambria. He found that PECO's cost to produce the same amount of power would be 8.467 cents per kilowatt hour (kWh) on a "rolled in" 30-year levelized basis, with a 1997 in-service date. He did not address any capacity needs past 1997 or provide an explanation as to why future needs were not addressed.

Finally, he concluded that LG & E should be first in line to develop its project and contract with PECO, relying primarily on the "first to file" rule and the plant size, noting that LG & E filed its petition with the PUC on March 21, 1991, while American/CMS filed on April 5, 1991, and Cambria filed on April 27, 1991. The ALJ did, however, also consider the time a bona fide offer was made to PECO; the benefits of the project, economic and otherwise; plant size, and fitness/viability of the QF developer. Notably, he made no priority determinations as to contracts with American/CMS or Cambria. Exceptions to the ALJ's recommended decision were filed by all of the parties.

Contrary to the ALJ's findings and recommendation, the PUC determined by order dated November 17, 1992, that PECO had an additional need for up to 169 MW of capacity by the year 2000 rather than the ALJ's finding of 100 MW by 1997, an amount sufficient to require two contracts for 80 MW of capacity each. It then determined that the contracts would be awarded to LG & E and American/CMS. While declining to adopt the ALJ's pure "first to file" rule, it determined that priority of contracts would be decided after two preliminary criteria were met: 1) that the proposed QF demonstrated it was somewhat developed rather than merely a concept; and 2) the proposed QF had contacted the utility and attempted to reach an agreement. After these criteria were met, it would then consider the experience of the proposed developers, the viability and benefits of the proposed QF, the quality of existing utility service to the site, project size and time of initiation of proceedings. The PUC agreed with the ALJ that the 1991 ARP would be the starting point for determining the appropriate timing related to avoided cost and need because those factors had to be determined within a reasonable proximity to the date the proceedings were initiated; however, it was also required by FERC and PUC regulations ⁷ to examine capacity needs for a ten-year period from that starting date.

The PUC further determined that the pricing for the sale of capacity and energy to PECO would be as set forth in the offers made by LG & E and American/CMS with 20 to 30 year contracts, as long as their price offers were at or below avoided costs determined by use of a coal plant proxy rather than PECO's projected installation of a 125 MW combined cycle plant during 1999 as used by the ALJ. ⁸ The PUC explained that because PECO "has not committed to sufficient plant to meet its reserve margin obligation and maintain adequate system reliability," 52 Pa.Code § 57.34(c)(4)(iii) required that a coal proxy be utilized to determine construction costs of a new coal plant in calculating capacity credit. Finally, the PUC stated that in the event LG & E and/or American/CMS declined to enter into a contract with PECO, PECO was required to offer Cambria the opportunity to enter into such a contract for the balance of its capacity needs as determined by this order. It then remanded the case to the ALJ for the limited purpose of considering the calculations of avoided costs using a coal plant proxy with an on-line date of 1997 and a 25 to 33 year useful life.

Pursuant to the PUC's order, the ALJ requested the parties to submit calculations on avoided costs using a coal plant proxy with an on-line date of 1997 and a 25 to 33 year useful life. Upon review of those submissions, the ALJ issued a decision on January 19, 1993, recommending to the PUC that it use the calculations submitted by American/CMS and the Office of Consumer Advocate (OCA) with certain modifications, ultimately resulting in an avoided cost being calculated based on a 33-year calculation using a coal plant size of 400 MW. ⁹

The PUC adopted the ALJ's recommendation as to avoided cost, but concluded modification was appropriate to develop a basis for avoided costs on a coal plant proxy of 200 MW rather than 400 MW. It then issued an order calculating avoided cost at 8.9 cents/kWh. Both PECO and Cambria filed appeals with this court from the PUC's October 25, 1993 order directing PECO to enter into power purchase agreements with LG & E and American/CMS, and using a coal plant proxy to calculate avoided cost. ¹⁰

II.

PURPA was originally enacted in 1978 to combat the energy crisis of the early 1970's resulting from increased oil prices and natural gas shortages. FERC v. Mississippi, 456 U.S. 742, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982). Under Section 210 of PURPA, 16 U.S.C. § 824a-3, the Federal Energy Regulatory Commission (FERC) was directed to promulgate rules to encourage the development of alternative sources of power, including rules requiring utilities to offer to buy electrical power from QFs. Under 16 U.S.C. § 824a-3(b),...