Petition of East Georgia Cogeneration Ltd. Partnership

• Decision Date: 28 May 1992
• Docket Number: No. 91-345,91-345
• Parties: , Util. L. Rep. P 26,256 Petition of EAST GEORGIA COGENERATION LIMITED PARTNERSHIP.
• Court: Vermont Supreme Court

Page 799

614 A.2d 799

158 Vt. 525, Util. L. Rep. P 26,256

Petition of EAST GEORGIA COGENERATION LIMITED PARTNERSHIP.

No. 91-345.

Supreme Court of Vermont.

May 28, 1992.

Gerald R. Tarrant, Montpelier, and Stephen G. Kozey of Skadden, Arps, Slate, Meagher & Flom (of counsel), Washington, D.C., for plaintiff-appellant.

Joseph Kraus, Rutland, and Ralph W. Howe, III of Paterson & Walke, P.C. (of counsel), Montpelier, for defendant-appellee Central Vermont Public Service Corp.

Michael Marks of Lisman & Lisman, Burlington, for defendant-appellee Vermont Power Exchange, Inc.

Geoffrey Commons, Montpelier, for defendant-appellee Dept. of Public Service.

Before ALLEN, C.J., GIBSON, DOOLEY and MORSE, JJ., and PECK, J. (Ret.), Specially Assigned.

ALLEN, Chief Justice.

Appellant East Georgia Cogeneration Limited Partnership (EGC) appeals from an order of the Vermont Public Service Board (Board) denying a certificate of public good for EGC's proposed cogeneration facility. Appellees are Central Vermont Public Service Corporation (CVPS), a utility that would be required to purchase output from the proposed EGC facility; the Department of Public Service (DPS), which represents the interests of Vermont's ratepayers before the Board; and the Vermont Power Exchange, Inc. (VPX), the designated purchasing agent for output from cogeneration facilities. The Board's order is affirmed.

EGC proposed to build a 29-megawatt gas turbine cogeneration facility in the East Georgia Dairy Industrial Park in Georgia, Vermont. It designed the power plant to be a "qualifying facility" under § 210 of the Federal Public Utility Regulatory Policies Act of 1978 (PURPA). 16 U.S.C. § 824a-3. EGC gained its status as a "qualifying cogenerator" by contracting with the Vermont Whey Company to provide steam generated by the plant for that enterprise. EGC entered into a power sales agreement with VPX to sell its entire output of electrical energy at rates established by the Board. The Board reviewed the agreement between EGC and VPX and concluded that, at the "levelized" rates sought by EGC, there was neither present nor future need for the project's output. The Board, in rejecting EGC's application for a certificate of public good, also concluded that the project would not result in economic benefit to the state and its residents.

On appeal, EGC argues that federal law entitled it to rates established by the Board under Docket No. 5177, and that the Board cannot deny those rates based on its assessment of need and economic benefit. EGC also maintains that the Board's order amounted to a collateral attack of Docket

5177 rates in violation of state law, federal law, and the Board's own decisions. Finally, EGC argues that it secured a vested right to Docket 5177 rates when it tendered a power sales agreement to VPX. CVPS contends that EGC was properly denied a certificate of public good because it failed to satisfy the requirements for such a certificate. CVPS also argues that the agreement between EGC and VPX is not legally enforceable. DPS contends that the power purchase agreement between VPX and EGC was not part of the record below and that we should not, therefore, construe that document. DPS also emphasizes that state review of the contract was warranted because EGC sought levelized rates, which are higher than those mandated by federal law. VPX contends that EGC was entitled to Docket 5177 rates because it executed a legally enforceable agreement which satisfied state and federal requirements. Before reaching the issues[158 Vt. 528] presented, we set forth the regulatory framework, the relevant facts as found by the hearing officer and adopted by the Board, and the procedural history of this case. We also state the standards that apply to this Court's review of administrative orders.

REGULATORY FRAMEWORK

Congress enacted PURPA in 1978 to combat the nationwide energy crisis by encouraging the development of cogeneration and small power production facilities. See In re Vicon Recovery Systems, 153 Vt. 539, 543, 572 A.2d 1355, 1357 (1990). A "cogeneration facility" produces both electrical energy and steam or other forms of useful energy for industrial or commercial purposes. 16 U.S.C. §§ 824a-3(j), 796(18)(A). PURPA encourages the development of cogeneration by requiring utilities to purchase output from such facilities at rates not to "exceed[ ] the incremental cost to the electric utility of alternative electrical energy." Id. § 824a-3(b). PURPA further provides that the rates for such purchases "shall be just and reasonable to the electric consumers of the electric utility and in the public interest." Id.

Charged with implementation of PURPA, the Federal Energy Regulatory Commission (FERC) promulgated rules that set the rates for purchases of output from qualifying facilities by utilities, absent negotiated rates, at "avoided cost." 18 C.F.R. §§ 292.301(b), 292.304(d). "Avoided costs means the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility ..., such utility would generate itself or purchase from another source." Id. § 292.101(b)(6). FERC places implementation of its avoided cost scheme in the hands of state regulatory authorities. Id. § 292.401(a).

The Public Service Board issued Rule No. 4.100 to meet Vermont's responsibilities under PURPA and the FERC regulations. The rule defines a "qualifying facility" as a cogeneration or small power production facility under federal and state law which has also "received a certificate of public good under 30 V.S.A. § 248." 4.103(A)(9). The rule also establishes the authority of the Board to designate a purchasing agent, 4.102(C), and directs that agent to purchase electricity offered by any qualifying facility located in Vermont and to sell such power to all Vermont electric utilities on a pro rata basis. 4.104(A). The purchasing agent, however, "shall not be empowered to enter into any agreement for purchases from a qualifying facility until such agreement shall have been approved by the Board." Id. The Board adopts rates for purchases at the utilities' "full avoided costs ... as specified under 4.104(E)." Id.

Rule 4.104(E) requires the Department of Public Service to "annually determine the avoided capacity and energy costs of the Vermont composite electric utility system, and ... file proposed rate schedules with the Board for approval." The Board, "after hearing, shall approve or modify such schedules." Id. The rates adopted must provide three options to qualifying facilities: "short-term sales," which have a term of one year; "long-term non-firm sales," which have a term of five, ten, or fifteen years; and "long-term firm sales," which have a term of ten, twenty or thirty years.

4.104(E)(1), (2), (3). Pursuant to this rule, the Board adopted the rate schedule involved in this appeal. PSB Docket No. 5177 (March 13, 1989). To remain eligible for those rates, "[p]rojects ... must satisfy the requirements of Rule 4.100 and achieve commercial operation by April 30, 1993." Id. at 4.

A qualifying facility which is eligible for firm rates may elect nonlevelized, fully levelized, or partially levelized rates. 4.104(E)(5). Levelized rates provide a constant revenue stream by converting a series of annual rates to an equivalent annuity, resulting in larger payments during the early years of a project's operation. See In re Hydro Energies Corp., 147 Vt. 570, 571 n. 1, 522 A.2d 240, 240 n. 1 (1987). All long-term and levelized rates "shall be available only to qualifying facilities which have been found by the Board, after due hearing, to satisfy the substantive criteria of 30 V.S.A. § 248(b)." 4.104(H). Section 248(b) sets forth the criteria for obtaining a certificate of public good from the Board. Before issuing a certificate, the Board must find, inter alia, that the proposed facility "is required to meet the need for present and future demand for service which could not otherwise be provided in a more cost effective manner," 30 V.S.A. § 248(b)(2), and "will result in an economic benefit to the state and its residents." Id. § 248(b)(4). No entity may begin construction of an electric generation facility without first obtaining a certificate of public good from the Board. Id. § 248(a)(2).

FACTS AND PROCEDURAL HISTORY

EGC's proposed facility was designed to produce both steam and electric power. The plant was to consist of (1) a gas-fired turbine and electric generator, and (2) a heat-recovery boiler, steam turbine, and electric generator. The steam produced would be sold to the Vermont Whey Company. The steam contract, executed in January of 1990, would result in an annual loss to EGC of approximately $200,000 per year. EGC also executed a gas supply contract with a large Canadian supplier securing a firm twenty-year supply of natural gas from Alberta or Saskatchewan. To secure this long-term, secure contract, EGC paid a premium estimated at between six and nine million dollars.

EGC eventually sought from the Board approval of twenty-year, 58 percent levelized rates. EGC and VPX had a long-standing relationship leading to the power purchase agreement that contained these rates. VPX originally solicited 150 megawatts of power, divided into 25-megawatt decrements, from small power producers and cogenerators under Rule 4.100. Rates set by the Board established that each subsequent decrement receive a lower price based on the decreasing need for additional sources of energy. EGC signed a letter of intent with VPX in 1985, placing the project in the sixth decrement position for Docket No. 4933 rates. After the adoption of Docket 5177 rates by the Board in March 1989, VPX and EGC entered into a power sales agreement incorporating those rates and filed for approval with the Board in June 1989.

The Board compared Vermont's "presently committed generation mix" to projected annual peak load and capacity...