Phoenix Power Partners, L.P. v. Colorado Public Utilities Com'n

• Decision Date: 02 February 1998
• Docket Number: No. 97SA65,97SA65
• Citation: 952 P.2d 359
• Parties: 98 CJ C.A.R. 474 PHOENIX POWER PARTNERS, L.P., Plaintiff-Appellant, v. The COLORADO PUBLIC UTILITIES COMMISSION, Commissioner Christine E.M. Alvarez, Commissioner Vincent Majkowski, and the Public Service Company of Colorado, Defendants-Appellees.
• Court: Colorado Supreme Court

Page 359

952 P.2d 359

98 CJ C.A.R. 474

PHOENIX POWER PARTNERS, L.P., Plaintiff-Appellant, v. The COLORADO PUBLIC UTILITIES COMMISSION, Commissioner Christine E.M. Alvarez, Commissioner Vincent Majkowski, and the Public Service Company of Colorado Defendants-Appellees.

No. 97SA65.

Supreme Court of Colorado En Banc.

Feb. 2, 1998.

Jeffrey G. Pearson, Kelly/Haglund/Garnsey & Kahn, LLC, Denver, for Plaintiff-Appellant.

Gale A. Norton, Attorney General, Martha Phillips Allbright, Chief Deputy Attorney General, Richard A. Westfall, Solicitor General, Linda L. Siderius, Deputy Attorney General, Richard Djokic, First Assistant Attorney General, Mana L. Jennings-Fader, Assistant Attorney General, Regulatory Law Section, Denver, for Defendants-Appellees The Colorado Public Utilities Commission, Commissioner Christine E.M. Alvarez, and Commissioner Vincent Majkowski.

LeBoeuf, Lamb, Greene & MacRae, L.L.P., Mark A. Davidson, Public Service Company of Colorado, William M. Dudley, Denver, for Defendant-Appellee The Public Service Company of Colorado.

Justice KOURLIS delivered the opinion of the Court.

Phoenix Power Partners, L.P. (Phoenix) appeals a judgment of the district court affirming Orders of the Colorado Public Utilities Commission (PUC). This court has direct appellate jurisdiction under section 40-6-115(5), 11 C.R.S. (1997). Phoenix challenges the PUC's ruling, as affirmed by the district court, that certain amendments to a contract between Phoenix and Public Service Company of Colorado (PSCo) were so substantial as to create a new contract not entitled to grandfathered benefits. Phoenix also contests the ruling that the new contract must be submitted to PSCo in accordance with established bidding procedures. We now conclude that the district court correctly determined that the amendments created a new contract, and that the new contract would have to comport with the bidding procedures. Accordingly, we affirm the judgment of the district court.

I.

In 1988, Phoenix's predecessor in interest, Montrose Partners, Ltd., ¹ (Montrose/Phoenix) entered into a power purchase agreement with PSCo whereby Montrose/Phoenix agreed to sell energy and capacity ² to PSCo from a hydro-electric plant it proposed to build in Montrose, Colorado. The Montrose facility was to be a qualifying small power production facility under the Public Utility Regulatory Policies Act of 1978 (PURPA). See Pub.L. No. 95-617, 92 Stat. 3117 (1978).

In order to place the facts of this case in context, we begin with a brief review of PURPA and its related regulations. Congress enacted PURPA in 1978, in response to a nationwide energy crisis. The purpose of PURPA was to reduce reliance on foreign oil, and on fossil fuels generally, by encouraging energy efficient cogeneration ³ technologies and by stimulating the development of renewable, non-traditional energy resources. See 16 U.S.C. §§ 796, 2601 (1994). PURPA directed the Federal Energy Regulatory Commission (FERC) to adopt rules necessary to encourage utilities to purchase power from qualifying cogeneration and small power production facilities. ⁴ See 16 U.S.C. § 824a-3(a)(1994). The rates for these purchases were to be just and reasonable to electricity consumers and were not to exceed the incremental cost to the utility of alternative electric energy. See 16 U.S.C. § 824a-3(b)(1994). PURPA also required that state regulatory authorities implement the FERC rules for electric utilities within their jurisdictions. See 16 U.S.C. § 824a-3(f)(1)(1994).

In 1980, FERC promulgated rules defining small power production facilities and cogeneration facilities. See 18 C.F.R. §§ 292.203 to 292.206 (1997). The term "qualifying facility" or "QF" is used herein to describe either of these two types of PURPA-qualified facilities. The FERC rules require electric utilities to purchase energy and capacity from qualifying facilities. See 18 C.F.R. § 292.303 (1997)("Each electric utility shall purchase ... any energy and capacity which is made available from a qualifying facility"). FERC adopted the "full avoided cost" approach to setting rates for purchases from qualifying facilities. Under this approach, the utility sets rates based upon the cost that the utility would have incurred in building its own power plant or purchasing a like amount of power from a non-qualifying facility. See 18 C.F.R. §§ 292.304(b)(2), 292.101(b)(6) (1997).

In 1982, the PUC adopted rules implementing the FERC rules. See Rules Implementing Sections 201 and 210, PURPA, Small Power Production and Cogeneration Facilities, 4 C.C.R. § 723-19 (adopted 1982 and as amended) (the Colorado QF Rules). The Colorado QF Rules parallel the FERC rules in requiring electric utilities to purchase power from QF's at rates based on the full avoided cost. See 4 C.C.R. § 723-19, Rules 1.207, 3.401. In order to facilitate financing of QF projects, the avoided cost rate calculated at the inception of the contract can be fixed or "locked in" for the full term of the contract. ⁵ See 18 C.F.R. 292.304(d)(2) (1997); 4 C.C.R. § 723-19, Rule 3.507.

Initially, PSCo set its QF avoided costs administratively and filed tariffs establishing capacity payments derived from these administratively determined avoided costs. Over the next few years, numerous QF developers approached PSCo seeking to sell electricity at the rates set by tariff. By 1987, PSCo reported to the PUC that continued mandatory QF purchases would result in excess capacity in the system during the years 1991 through 1993. Payments for excess or unnecessary capacity would translate into higher rates for consumers. Consequently, PSCo sought approval for a moratorium on its obligation to purchase QF power.

In Decision No. C87-1690 (Dec. 16, 1987)(the Moratorium Decision), the PUC authorized a temporary moratorium on purchases from QF's, but exempted certain contracts from the moratorium by operation of a grandfather clause. The PUC specifically exempted from the moratorium the pending contract with Montrose/Phoenix and required PSCo to continue negotiating with Montrose/Phoenix in good faith. The PUC reserved the right to approve or disapprove any resulting contract on the basis of whether or not it contributed to the excess capacity and cost problems that prompted the moratorium. Shortly after the moratorium was granted, the PUC approved a biennial bidding process to establish avoided costs for future power purchases from QF's. See In re Public Serv. Co. of Colo., 93 Pub. Util. Rep. 4th 384, 399 (June 9, 1988)(Dec. No.C88-726).

On April 6, 1988, Montrose/Phoenix and PSCo signed a fifteen-year contract under which PSCo would purchase approximately 48.5 Megawatts of capacity from a qualifying water-powered small power production facility to be built in Montrose (the 1988 Agreement). The 1988 Agreement was based upon the 1987 tariffs and was not subject to the new bidding procedure for setting avoided costs because of the grandfather provision in the Moratorium Decision. See Dec. No. C87-1690 (Dec. 16, 1987). Hence, the contract purchase rate was determined by PSCo's filed 1987 tariffs reflecting PSCo's administratively set avoided costs. Under the terms of the 1988 Agreement, power deliveries were to begin no earlier than April 1992. The PUC approved the contract on June 29, 1988 in its Decision Number C88-792.

Montrose/Phoenix began to encounter significant difficulties with the federal permitting process and, in November 1991, negotiated an amendment extending the earliest delivery date to September, 1994 (the 1991 Amendment). The 1991 Amendment also reduced the capacity from 48.5 to 43.5 megawatts. The PUC approved the 1991 Amendment at an open meeting in December of 1991.

Permitting difficulties associated with the Montrose site continued, and in 1992, Montrose/Phoenix and PSCo began to negotiate further amendments to the 1988 Agreement. In March of 1993, Phoenix ⁶ and PSCo entered into an agreement purporting to amend and restate the 1988 Agreement (the 1993 Amendment). The parties executed the 1993 Amendment in the form of a full contract, some 133 pages in length including exhibits, and restated their entire agreement including the changes.

The 1993 Amendment changed the location of the plant from Montrose to Greeley, and the method of power generation from a water-powered facility to a natural gas-fired cogeneration facility. The waste heat from the Greeley facility would have been used to heat and cool the University of Northern Colorado (UNC) campus. The 1993 Amendment also slightly changed the contemplated capacity. The maximum capacity output at the Montrose hydro-electric plant would have depended upon the varying flows of the Uncompahgre River. As a result, capacity would have averaged about 35 megawatts in summer and 43.5 megawatts in winter. The Greeley site offered a steady 43.5 megawatts of capacity throughout the year. This feature would have allowed PSCo to dispatch, or schedule, the output more dependably and was a benefit to PSCo over the Montrose site. The price also changed somewhat. The Greeley site, because of its greater dispatchability, commanded a higher rate under the 1987 tariffs than the Montrose site. ⁷

In accordance with the language of the agreement itself, and with PUC rules and decisions, PSCo submitted the 1993 Amendment to the PUC for approval. The staff of the PUC raised concerns about the 1993 Amendment, suggesting that the proposed changes were so significant and numerous as to create a new contract, not entitled to the grandfathered status granted to the 1988 Agreement. The staff report further noted that as a proposed new contract for QF power, Phoenix would have to compete for the right to sell its power in the bidding system established for QF's by Decision Number C88-726. The PUC set the matter for hearing before an Administrative Law Judge (ALJ) on October 14, 1993.

Both Phoenix and PSCo took the position at the hearing that the 1993 Amendmen...