Plymouth Rock Energy Associates v. Department of Public Utilities

• Decision Date: 26 April 1995
• Citation: 420 Mass. 168,648 N.E.2d 752
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: , 161 P.U.R.4th 440, Util. L. Rep. P 26,490 PLYMOUTH ROCK ENERGY ASSOCIATES v. DEPARTMENT OF PUBLIC UTILITIES & another. 1

Page 752

648 N.E.2d 752

420 Mass. 168, 161 P.U.R.4th 440, Util. L.

Rep. P 26,490

PLYMOUTH ROCK ENERGY ASSOCIATES v. DEPARTMENT OF PUBLIC UTILITIES & another. ¹

Supreme Judicial Court of Massachusetts Suffolk.

Argued Feb. 8, 1995.

Decided April 26, 1995.

Steven Ferrey, Boston, for plaintiff.

Robert J. Munnelly, Jr., Asst. Atty. Gen., for Dept. of Public Utilities.

Eric J. Krathwohl, Boston (Robert P. Snell with him), for Com. Elec. Co., intervener.

Before LIACOS, C.J., and WILKINS, ABRAMS, LYNCH and GREANEY, JJ.

GREANEY, Justice.

The plaintiff, Plymouth Rock Energy Associates, (PREA) has appealed (G.L. c. 25, § 5 [1992 ed.] ), from a decision of the Department of Public Utilities (department), issued on February 18, 1994, in D.P.U. 92-122, which set the price at which the intervener, Commonwealth Electric Company (Commonwealth) is required to purchase power from PREA, a small power producer, pursuant to the department's integrated resource management regulations (IRM), 220 Code Mass.Regs. § 10.00 (1990). PREA argues that the decision violates the department's regulations and administrative decisions and also violates requirements of the Federal Public Utility Regulatory Policies Act of 1978 (PURPA) (16 U.S.C. §§ 796 and 824a-3 [1988] ). The department and Commonwealth respond that the department properly construed its own IRM regulations in setting the price for PREA's contract with Commonwealth, and that PREA's arguments asserting a conflict between the department's decision and PURPA should be rejected. A single justice of this court reported the case to the full court without decision.

The regulatory and factual background of this case is summarized as follows. ² PURPA was enacted to encourage the development of alternative power and cogeneration resources by nonutility power generators thereby reducing the demand for fossil fuels. Under PURPA, if a power generation project meets certain specified requirements, it is characterized as a Qualifying Facility (QF). 16 U.S.C. § 796(18)(B). PURPA requires that the Federal Energy Regulatory Commission (FERC) establish regulations that obligate public utilities to sell electric energy to and purchase power from QFs. 16 U.S.C. § 824a-3(a). PURPA also specifies that the rates established by FERC for these purchases may not exceed the "incremental cost" to the utility of purchasing alternative electric energy. 16 U.S.C. § 824a-3(b). This "incremental cost" is defined as "the cost to the electric utility of the electric energy which, but for the purchase from such [QF], such utility would generate or purchase from another source." 16 U.S.C. § 824a-3(d).

PURPA's implementing regulations, 18 C.F.R. Part 292 (1994), require that utilities purchase power from QF's at the utility's full "avoided cost" rate. 18 C.F.R. § 292.304(d). "Avoided costs" are defined as a utility's incremental costs of purchasing alternative electric energy. ³ 18 C.F.R. § 292.101(b)(6). See American Paper Inst. v. American Elec. Power Serv. Corp., 461 U.S. 402, 412-418, 103 S.Ct. 1921, 1927-1931, 76 L.Ed.2d 22 (1983) (upholding requirement that QFs receive full avoided costs rate). Thus, in essence, the statutory ceiling price has become the floor price. Although FERC's regulations provide guidelines for the calculation of avoided costs, 18 C.F.R. § 292.304(e), FERC has granted the States flexibility in implementing rates for purchase and, specifically, determining avoided costs. See Southern Cal. Edison Co., 70 F.E.R.C. par. 61,666, at 61,675 (1995) (Federal Commission gives States wide latitude in implementing PURPA in recognition of role Congress intended to give to States). See also Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, 45 Fed.Reg. 12,214, 12,226 (1980) (codified at 18 C.F.R. Part 292).

The department's IRM regulations (220 Code Mass.Regs. § 10.00) were promulgated in 1990 to govern the planning, solicitation, and procurement of new and additional resources by investor-owned electric utilities such as Commonwealth from small power producers and cogenerators which qualify as QFs. The IRM regulations replaced the department's QF regulations. 220 Code Mass.Regs. § 8.00 (1986). Under the QF regulations, utilities had to conduct periodic competitive solicitations under which QFs could respond to a request for proposals (RFP) by submitting bids to sell specified amounts of energy or capacity to the utility under long-term contracts. 220 Code Mass.Regs. § 8.05. Acceptable bids under this process led to the establishment of an "Award Group" from which the utility was obliged to select, and contract with, a supplier. 220 Code Mass.Regs. § 8.05(6). Under the new IRM regulations, cogenerators and small power producers submit bids for the fulfilment of a utility's resource needs, the utility eventually designates a "proposed award group" from among the bids submitted, and the department, after a hearing, approves and designates a "final award group." 220 Code Mass.Regs. § 10.04(3)(f). 220 Code Mass.Regs. § 10.05(4)(a). There is an exception to the procedure for a small power producer with a proposed project not exceeding five megawatts (MW) whereby the producer may enter into a long-run standard contract B (not to exceed twenty years) without participating in the solicitation process. The exception is set out in 220 Code Mass.Regs. § 10.07(1), which specifies that the contract price for such a project shall be "equivalent in value, on a present worth basis, to the weighted average stream of contractually-set prices paid to all of the project developers from the most recent final award group."

PREA, a limited partnership, is the developer of a five MW cogeneration power production facility adjacent to a regional shopping mall in Kingston. PREA's project will produce steam for heating and cooling the mall and electricity for sale to the utility grid. PREA made contact with Commonwealth in early 1992 to sell electricity to Commonwealth under a long-run standard contract B. When Commonwealth disputed any obligation to enter such a contract with PREA, these proceedings were commenced at the department. The department found that PREA's project fell within the exception for projects of five MW or less and would be governed by the provisions of § 10.07(1). Because the IRM regulations had recently become effective, and because Commonwealth had not by then had a "final award group" under the IRM regulations, the question arose as to how to establish a contract price. ⁴ (The IRM regulations did not address this point.) PREA maintained that the department should employ the price for Commonwealth's last "award group" under the predecessor QF regulations (RFP 2 price). Commonwealth resisted this approach. The department determined that, because Commonwealth had no current need for additional capacity until 2001, the contract price should be set at Commonwealth's short-run energy purchase rate for the first quarter of 1992, which does not include any capacity payments throughout the twenty-year contract term. (This is a rate of 2.7 cents per kilowatt hour. Commonwealth Elec. Co., D.P.U. 91-31, at 5 [1992].) The pertinent portion of the department's decision on this issue is set forth below. ⁵ PREA then pursued this appeal.

1. PREA correctly points out that, under PURPA, it is entitled to full avoided costs as the price Commonwealth will pay for the power furnished it under the PREA contract. The department, however, has the task of determining what the avoided costs are. PREA maintains that, under department regulations, the avoided costs were those determined in the RFP 2 bidding conducted under the QF regulations. We disagree.

The parties do not dispute that the department's IRM regulations govern PREA's sale of electricity to Commonwealth. Nowhere do those regulations provide that the RFP 2 bidding process determines avoided costs in the absence of a "final award group." Indeed, as the department noted in its decision, the promulgation of the new IRM regulations marked a distinct departure from the superseded QF regulations. Nevertheless, in support of its position, PREA emphasizes that its project was already in the development "pipeline" during the transition from the QF regulatory framework to the IRM process in 1991 and 1992. The department's regulations explicitly state, however, that the QF solicitation regulations were to have no effect after the implementation date of the IRM regulations, which for Commonwealth was November 15, 1991. PREA did not initiate discussions with Commonwealth regarding the proposed project until January, 1992, and did not tender a formal offer to enter into a contract until April, 1992. The department thus acted well within its authority in concluding that the QF regulations did not apply and, specifically, that the RFP 2 award prices were not relevant. We will not substitute our or PREA's judgment for that of the department. Attorney Gen. v. Department of Pub. Utils., 390 Mass. 208, 228, 455 N.E.2d 414 (1983).

Similarly, the department was also warranted in concluding that its decision in Altresco Lynn, Inc., D.P.U. 91-142, did not require it to award PREA the RFP 2 prices. In Altresco Lynn, Inc., Commonwealth asserted that it was relieved from its obligation to enter into a contract with the RFP 2 bid winners, referring to decreased projections for additional capacity and, therefore, decreased avoided costs. The department disagreed, determining that the interests of ratepayers would be best served by requiring Commonwealth to execute the contracts. PREA argues that it is entitled to the identical RFP 2 prices upheld by the department in the Altresco Lynn, Inc., proceeding because the contracts at issue in that case were executed at the same time that PREA sought to enter into a contract with Commonwealth. The Altresco Lynn, Inc., proceeding however, did...