San Isabel Elec. Ass'n, Inc. v. Pub. Utilities Comm'n of Colo.

• Decision Date: 01 June 2021
• Docket Number: Supreme Court Case No. 20SA103
• Citation: 487 P.3d 665
• Parties: SAN ISABEL ELECTRIC ASSOCIATION, INC., Petitioner-Appellant, v. The PUBLIC UTILITIES COMMISSION of the State of Colorado; Jeffrey Ackermann, in his official capacity as Chairman of the Public Utilities Commission of the State of Colorado; Frances A. Koncilja, in her official capacity as a member of the Public Utilities Commission of the State of Colorado; John Gavan, in his official capacity as a member of the Public Utilities Commission of the State of Colorado; Black Hills Colorado Electric, LLC ; and Black Hills Colorado Wind, LLC, Respondents-Appellees.
• Court: Colorado Supreme Court

487 P.3d 665

SAN ISABEL ELECTRIC ASSOCIATION, INC., Petitioner-Appellant,

v.The PUBLIC UTILITIES COMMISSION of the State of Colorado; Jeffrey Ackermann, in his official capacity as Chairman of the Public Utilities Commission of the State of Colorado; Frances A. Koncilja, in her official capacity as a member of the Public Utilities Commission of the State of Colorado; John Gavan, in his official capacity as a member of the Public Utilities Commission of the State of Colorado; Black Hills Colorado Electric, LLC ; and Black Hills Colorado Wind, LLC, Respondents-Appellees.

Supreme Court Case No. 20SA103

Supreme Court of Colorado.

June 1, 2021

Attorney for Petitioner-Appellant: Sisto Mazza, Trinidad, Colorado

Attorneys for Respondents-Appellees Public Utilities Commission of the State of Colorado, Jeffrey Ackermann, Frances A. Koncilja, and John Gavan : Philip J. Weiser, Attorney General, Paul C. Gomez, First Assistant Attorney General, Ruth M. Harper, Assistant Attorney General, Denver, Colorado

Attorneys for Respondents-Appellees Black Hills Colorado Electric, LLC; and Black Hills Colorado Wind, LLC: Wilkinson Barker Knauer, LLP, Raymond L. Gifford, Caitlin M. Shields, Ethan D. Jeans, Denver, Colorado, Black Hills Corporation, Tyler E. Mansholt, Denver, Colorado

En Banc

JUSTICE MARQUEZ delivered the Opinion of the Court.

¶1 Appellant San Isabel Electric Association, Inc. is a rural cooperative electric association that holds two certificates of public convenience and necessity ("CPCNs") issued by the Colorado Public Utilities Commission ("PUC"). Under its CPCNs, San Isabel has the exclusive right to provide electric service as a public utility to members and non-member customers in its certificated area, which spans seven counties in southern Colorado. The question before us is whether San Isabel's CPCNs include the right to provide station power to two wind farms located in San Isabel's certificated territory that are owned by another utility, Black Hills Colorado Electric, LLC and Black Hills Colorado Wind, LLC (collectively, "Black Hills"). The PUC concluded that San Isabel's CPCNs do not include the right to provide station power to operate the wind turbines' electronics, hydraulic pumps, heaters, and other auxiliary equipment at Black Hills' wind farms, and that the decision to allow Black Hills to self-supply station power to its wind farms did not violate San Isabel's state and federal constitutional rights to due process. The district court affirmed the PUC's ruling.

¶2 We now affirm the judgment of the district court. We hold that, on the facts of this case, the PUC regularly pursued its authority in concluding that San Isabel's right under its CPCNs does not include the right to provide station power to Black Hills' generation facilities and that Black Hills, as a vertically integrated utility, may self-supply such power using its own interconnected transmission network and electric generation resources. We further hold that, because San Isabel did not have a property right to supply station power to another utility, the PUC's decision did not amount to a taking of property without due process.

I. Facts and Procedural History

A. Background

¶3 Section 40-9.5-105(1), C.R.S. (2020), allows the PUC to issue a CPCN assigning specific service territories to a cooperative electric association. An electric utility that has been granted a CPCN generally has the exclusive right to provide electricity in its certificated territory. Pub. Utils. Comm'n v. Home Light & Power Co., 163 Colo. 72, 428 P.2d 928, 936 (1967) ("[O]nce an area has been [c]ertificated to [a] utility, it and it alone has the right to serve the future needs of that area provided it can do so."). The key issue in this case is whether such a right includes the provision of "station power," a term understood in the industry as the electric energy required to operate and maintain electric generation facilities. See, e.g., PJM Interconnection, LLC, 94 FERC ¶ 61,251, at 61,889 (2001) ("PJM II")¹ (Federal Energy Regulatory Commission defining "station power" as the electric energy used for, inter alia, "operating the electric equipment that is on the generating facility's site").

¶4 An electric generation facility can procure station power through one of three means: (1) on-site self-supply (i.e., by redirecting electricity generated on site for internal use); (2) remote self-supply (i.e., by obtaining power from an off-site generator owned by the same company); or (3) third-party supply (i.e., by drawing power through the grid from an unaffiliated provider). See Calpine Corp. v. FERC, 702 F.3d 41, 42 (D.C. Cir. 2012) ; PJM II, at 61,890.

¶5 Historically, electric utilities were vertically integrated, meaning they owned all three aspects of electric service—electricity generation, long-distance power transmission, and local distribution of electricity to end users—and sold these services as bundled packages in their service areas. Calpine, 702 F.3d at 42. These vertically integrated utilities did not charge themselves for the use of station power at their generating facilities but instead subtracted ("netted") the energy consumed as station power from their gross output of electric energy. Id. at 43. In other words, whether through on-site or remote self-supply, a vertically integrated utility used only its own generating resources for station power and accounted for such usage through the practice of netting. In so doing, the energy industry has traditionally treated station power as distinct from other types of electric service.

¶6 In 1996, however, the Federal Energy Regulatory Commission ("FERC") issued Order 888, which unbundled electricity generation from transmission and distribution services. Calpine, 702 F.3d at 43 ; Niagara Mohawk Power Corp. v. FERC, 452 F.3d 822, 824 (D.C. Cir. 2006). Order 888 successfully encouraged the creation of independent wholesale generators, but it raised questions about how independent generators would be charged for their use of station power when the source of that station power is a third party. Calpine, 702 F.3d at 43 ; PJM II, at 61,882. A series of FERC decisions, see PJM Interconnection, LLC, 93 FERC ¶ 61,061, at 61,163 (2000) ("PJM I "); PJM II, at 61,890; PJM Interconnection, LLC, 95 FERC ¶ 61,470, at 62,187 (2001) ("PJM III "), addressed this question by devising "netting intervals," reasoning that if a generator uses more power than it sends over a fixed period, it is deemed to have obtained the shortfall in a retail sale from a third party. Calpine, 702 F.3d at 43. Those decisions also gave rise to jurisdictional issues between federal authorities (which regulate wholesale sales and transmission of electric energy in interstate commerce), see 16 U.S.C. § 824(b)(1) (2018), and state authorities (which regulate other sales and local distribution of electricity), see id. As relevant here, those decisions made clear that a generator's self-supply of station power does not involve a sale at all (wholesale or retail). See, e.g., PJM II, at 61,890 (reasoning that "[f]or both on-site self-supply and remote self-supply," a generator uses "only its own generating resources" and "is not consuming another party's energy," meaning "there is no sale (for end use or otherwise) between two different parties, but only one party using its own generating resources for the purposes of self-supply and accounting for such usage through the practice of netting"); see also Niagara Mohawk , 452 F.3d at 826.

B. Facts

¶7 Appellant San Isabel is a rural, nonprofit, cooperative electric association regulated by the PUC under section 40-9.5-101, C.R.S. (2020).² On January 13, 1958, the PUC granted San Isabel a CPCN through Decision No. 49302. The 1958 CPCN furnished San Isabel with the exclusive right to provide electric service "for light, heat, power, and other purposes" in Huerfano, Las Animas, Pueblo, Freemont, and Custer Counties. San Isabel also holds a CPCN granted on December 9, 1970, in Decision No. 76421, which expanded its service territory and authorized it to provide electric service in designated areas of Pueblo County. The 1970 CPCN provided that "[n]othing contained herein shall be interpreted to preclude a utility from traversing an area certificated to another utility with transmission or distribution feeder lines or from locating substations or other needed facilities therein."

¶8 Black Hills is a vertically integrated, for-profit public electric utility governed by the Public Utilities Law, sections 40-1-101 to 40-7-118, C.R.S. (2020). It is engaged in the generation, transmission, distribution, and purchase of electricity in service territories within Colorado for which it holds CPCNs or territorial grandfather rights.

¶9 Black Hills owns and operates two wind-powered electric generation facilities ("Wind Facilities") located in San Isabel's certificated territory under the 1958 CPCN. The first is Busch Ranch, a 29.04-megawatt facility located in Huerfano County. In 2011, the PUC granted a CPCN to Black Hills to develop, construct, and own fifty percent of the wind turbines and other facilities at Busch Ranch.³ Busch Ranch became operational in October 2012. The second is Peak View, a 60-megawatt facility that is located in Huerfano and Las Animas Counties. In 2015, the PUC granted a CPCN to Black Hills to purchase and own Peak View. Peak View became operational in November 2016. Both facilities are renewable energy resources.

¶10 To obtain electricity generated by the Wind Facilities for its own certificated territory, Black Hills applied for permission to construct and operate the Rattlesnake Butte Project, which included a 36-mile long, 115-kilovolt transmission line and substation located within San Isabel's certificated territory in Huerfano County. The transmission line and substation are designed to accommodate two-way power flows out of and into the Wind Facilities.

¶11 The PUC approved the Rattlesnake Butte...