S. California Edison Co. v. Fed. Enegy Comm'n

• Decision Date: 02 November 1999
• Docket Number: No. 98-1439,98-1439
• Citation: 195 F.3d 17
• Parties: (D.C. Cir. 1999) Southern California Edison Company, Petitioner v. Federal Energy Regulatory Commission, Respondent Laidlaw Gas Recovery Systems, Inc., Intervenor
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 17

195 F.3d 17 (D.C. Cir. 1999)

Southern California Edison Company, Petitioner v. Federal Energy Regulatory Commission, Respondent

Laidlaw Gas Recovery Systems, Inc., Intervenor

No. 98-1439

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 16, 1999

Decided November 2, 1999

Petition for Review of Orders of the Federal Energy Regulatory Commission

Russell C. Swartz argued the cause for petitioner. With him on the briefs was Joseph E. Stubbs.

Timm L. Abendroth, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were Douglas W. Smith, General Counsel, Jay L. Witkin, Solicitor, and John H. Conway, Deputy Solicitor, Federal Energy Regulatory Commission.

Before: Williams, Rogers and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Rogers.

Rogers, Circuit Judge:

Southern California Edison Company ("Edison") appeals two orders of the Federal Energy Regulatory Commission ("FERC") interpreting the "small power production facility" provision of 3(17) of the Federal Power Act to permit such a facility to use fossil fuels to supplement alternative fuels in a manner not expressly authorized under the statute.¹ Edison contends that 3(17)(A) & (B), on which FERC relied, is unambiguous, and consequently the two orders cannot stand. FERC, in response, contends that 3(17)(B) is ambiguous and that the court must defer to FERC's reasonable interpretation of the statute inasmuch as it fosters the congressional purpose of encouraging the development of power production from alternative fuel sources by addressing circumstances that Congress could not have foreseen.

While there is a certain appeal to FERC's final point, neither FERC nor the court can ignore the plain terms of the statute. Section 3(17) is plainly crafted to allow small power producers to engage in a rather carefully defined set of exceptional uses for fossil fuels, whereas FERC has adopted an interpretation under which fossil fuel uses may encompass essentially whatever FERC may find desirable in light of policy considerations and various statutory goals. In contrast to FERC's interpretation, the rather obvious alternative reading offered by Edison gives effect to all of the text. FERC's interpretation of 3(17) in the orders under review is also contradicted by FERC's own regulation. Consequently, FERC's continued application of its interpretation of 3(17)(B) in LUZ Solar Partners, Ltd., 30 FERC (CCH) p 61,122 (1985), is inconsistent with the unambiguous terms of its post-LUZ regulation. Accordingly, on either ground, FERC's orders cannot stand, and we grant the petition.

I.

The Public Utilities Regulatory Policies Act of 1978 ("PURPA"), Pub. L. No. 95-617, 92 Stat. 3117 codified at 16 U.S.C. §§ 796(17)-(18), 824a-3, 824i, 824k (1994), was one of five statutes enacted in 1978 as part of the National Energy Act, in response to the nation's fuel shortage.² At that time, approximately one-third of the electricity in the United States was generated through use of oil and natural gas, S. Rep. No. 95-361 at 32 (1977), and in the five-year period prior to enactment, oil costs had increased by approximately 400% and natural gas costs had increased by more than 175%. S. Rep. No. 95-442 at 9 (1977). Responding to heightened fuel costs and potential fuel shortages, Congress sought to promote conservation of oil and natural gas by electricity utilities. See FERC v. Mississippi, 456 U.S. 742, 745-46 (1982).Thus, to encourage the development of facilities that generate electricity using renewable resources and facilities engaged in cogeneration of electricity and useful heat or steam that might otherwise be wasted, id. at 750, and to overcome the reluctance of traditional utilities to buy from, and sell to, these alternative producers, Congress granted qualifying small power production facilities certain benefits. Under PURPA, such facilities were exempt from certain regulatory controls, and they were assured a market by providing a right to interconnect with the local public utility and to receive rates, as prescribed by FERC, up to the full avoided cost of the utility. See American Paper Inst. v. American Elec. Power Serv. Corp., 461 U.S. 402, 404-06 (1983); PURPA §§ 210, 212, 16 U.S.C. §§ 824a-3, 824i, 824k.

Of relevance to the instant appeal are two provisions of PURPA and one provision of FERC's regulations. The first two define the features of a "small power production facility" potentially eligible for the statutory entitlements. The regulation, discussed in Part IV, further defines the permissible uses of fossil fuels by such a facility.³ In 3(17)(A), Congress defined a "small power production facility," in pertinent part, to be:

a facility which ... produces electric energy solely by theuse, as a primary energy source, of biomass, waste,renewable resources, geothermal resources, or any com-bination thereof[.]

16 U.S.C. 796(17)(A)(i). Elaborating on the meaning of "primary energy source," Congress defined that term in 3(17)(B) to mean:

the fuel or fuels used for the generation of electric energy, except that such term does not include, as deter-mined under rules prescribed by the Commission, in consultation with the Secretary of Energy --

(i) the minimum amounts of fuel required for ignition, startup, testing, flame stabilization, and control uses, and

(ii) the minimum amounts of fuel required to alleviate or prevent --

(I) unanticipated equipment outages, and

(II) emergencies, directly affecting the public health, safety, or welfare, which would result from electric power outages[.]

16 U.S.C. 796(17)(B).

FERC also promulgated regulations under PURPA. Of significance here is FERC's amendment, effective February 24, 1995, which provided at the time Laidlaw sought a declaratory ruling that:

(b) Fuel Use

.....

(2) Use of oil, natural gas and coal by a facility, under section 3(17)(B) of the Federal Power Act, is limited to the minimum amounts of fuel required for ignition, start-up, testing, flame stabilization, and control uses, and the minimum amounts of fuel required to alleviate or preventun anticipated equipment outages, and emergencies, directly affecting the public health, safety, or welfare, which would result from electric power outages. Such fuel use may not, in the aggregate, exceed 25 percent of the total energy input of the facility during the 12-month period beginning with the date the facility first produces electric energy and any calendar year subsequent to the year in which the facility first produces electric energy.

18 C.F.R. 292.204(b)(2) (1999).

II.

Laidlaw Gas Recovery Systems, Inc. ("Laidlaw")⁴ owns and operates 13 landfill gas-to-energy plants at which methane gas produced by decomposition is burned to generate electricity. On May 19, 1995, Laidlaw sought a declaratory ruling from FERC that its Coyote Canyon Landfill Gas Power Plant in Orange County, California, would remain a "qualifying small power production facility" under 3(17)(C), and FERC's regulations, if it began burning natural gas in any amount up to 25% of its annual energy input. Specifically, Laidlaw requested permission to burn natural gas to boost output from 17 megawatts ("MW") to 20MW, to sustain output at that level despite fluctuations in landfill gas supply, and to alleviate the effects of forced outages and landfill maintenance.

Laidlaw's request for a declaratory ruling arose from its potential inability to supply the required power under its 30year purchase power contract with Edison. In 1984, Laidlaw had agreed to supply Edison with at least 80% of Coyote Canyon's contract capacity during the peak hours of the four summer months. Initially, contract capacity had been 15MW, but the contract was amended in 1986 to increase contract capacity to 20MW. Once commercial operation at Coyote Canyon began in 1989, Laidlaw encountered difficulties. During the summer of 1989, Laidlaw failed to meet its contractual supply obligations, and, under the terms of the contract, Coyote Canyon's capacity was permanently derated to 17.1MW, and Laidlaw was forced to refund $600,000 to Edison. In 1990, the landfill was closed, but Laidlaw expects to have a commercially-sustainable gas supply until at least 2010.

According to Laidlaw's petition, Coyote Canyon's current production problems stem from two environmental requirements under state law, whereby the closed landfill has been covered with an 18-inch impermeable clay cover and condensation can not be reinjected, a process that would have increased the rate of decomposition and therefore gas production. Combined with the limitations imposed by the atmospheric pressure in southern California, implementation of the state requirements has resulted in a smaller gas supply than Laidlaw had anticipated.

Edison and the Public Utilities Commission of the State of California ("CPUC") intervened in opposition to the petition. Edison maintained that under PURPA Laidlaw was restricted in its use of natural gas to the purposes specified in the statute. Edison argued that Laidlaw could not justify its proposed use of natural gas as one of the specified uses in 3(17)(B), nor could it meet the "essential fixed assets" standard enunciated in LUZ whereby FERC had recognized permissible uses for fossil fuels beyond those expressly set forth in the statute. See Laidlaw Gas Recovery Sys., Inc., 74 FERC (CCH) p 61,176 (1996) ("1996 Order"). Edison concluded that even if Laidlaw could meet the LUZ standard, FERC should abandon it as no longer supported by the policy considerations that led to its adoption and as inconsistent with PURPA's plain language.⁵

In LUZ, FERC ruled that a solar-powered plant could burn fossil fuels to operate a gas-fired super heater, an oilfired "emergency" steam generator, and an auxiliary gas-fired steam boiler even though these uses of fossil fuels were not expressly authorized under 3(17)(A) &...