Snow Mountain Pine Co. v. Maudlin

• Decision Date: 08 April 1987
• Citation: 84 Or.App. 590,734 P.2d 1366
• Parties: SNOW MOUNTAIN PINE COMPANY, Respondent, v. Gene MAUDLIN, Public Utility Commissioner of the State of Oregon, Appellant, and CP National Corporation, a potential interested party, Appellant, and Idaho Power Company, a potential interested party, Respondent. A8501-00567; CA A37762.
• Court: Oregon Court of Appeals

Page 1366

734 P.2d 1366

84 Or.App. 590

SNOW MOUNTAIN PINE COMPANY, Respondent, v. Gene MAUDLIN, Public Utility Commissioner of the State of

Oregon, Appellant,

and

CP National Corporation, a potential interested party, Appellant,

and

Idaho Power Company, a potential interested party, Respondent.

A8501-00567; CA A37762.

Court of Appeals of Oregon.

Argued and Submitted June 27, 1986.

Decided April 8, 1987.

W. Benny Won, Asst. Atty. Gen., Salem, argued the cause for appellant Gene Maudlin, Public Utility Com'r. With him on the briefs were Dave Frohnmayer, Atty. Gen., James E. Mountain, Jr., Sol. Gen., and Thomas E. Twist, Asst. Atty. Gen., Salem.

Jeffrey M. Batchelor, Portland, argued the cause for appellant CP Nat. Corp. With him on the briefs were John W. Gould, Marvin D. Fjordbeck and Spears, Lubersky, Campbell, Bledsoe, Anderson & Young, Portland.

Donald A. Haagensen, Portland, argued the cause for respondent Snow Mountain Pine Co. With him on the brief were Paul E. Levy, Spokane, Wash., Mildred J. Carmack and Schwabe, Williamson, Wyatt, Moore & Roberts, Portland.

Before BUTTLER, P.J., and RICHARDSON and ROSSMAN, JJ.

BUTTLER, Presiding Judge.

Snow Mountain filed a complaint with the Public Utility Commissioner asking the commissioner to compel CP National Corporation (CP), a regulated nongenerating electric power distributor, to purchase power from Snow Mountain Pine Company (Snow Mountain), a qualifying cogeneration facility, and to determine the rate to be paid for the power so purchased. The commissioner ordered CP to purchase power, approved a contract and set the purchase rate at CP's "avoided cost" on file with the commissioner at the time of the publication of his order, September, 1984. ¹

The circuit court affirmed the commissioner's order requiring CP to purchase power from Snow Mountain but held that the commissioner had used the wrong "avoided cost" schedule to determine the price. It reversed the commissioner in part and remanded for the preparation of a contract reflecting a rate based on the "avoided cost" schedule on file in July, 1983. Both CP and the commissioner appeal the circuit court's order. ²

We review the commissioner's order under ORS 756.594 and ORS 756.598(1) and may disturb it only if it is not supported by substantial evidence or is unreasonable or unlawful. Market Transport v. Maudlin, 301 Or. 727, 725 P.2d 914 (1986).

Cogeneration facilities simultaneously produce two forms of useful energy, such as electric power and steam. They use significantly less fuel to produce the two types of energy together than would be required to produce the two types separately. See 45 Fed.Reg. 12215 (1980). To encourage the conservation of oil and gas by electric utilities, Congress enacted section 210 of the Public Utility Regulatory Policies Act of 1978, 16 U.S.C. § 824a-3 (PURPA). FERC v. Mississippi, 456 U.S. 742, 750, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982). That section requires the Federal Energy Regulatory Commission (FERC) to prescribe rules to encourage cogeneration and small power production. FERC's rules require electric utilities to offer to purchase electric energy from "qualifying energy facilities." 16 U.S.C. § 824a-3(a).

State regulatory authorities are required to implement FERC's regulations within one year after they are promulgated. 16 U.S.C. § 824a-3(f)(1). Oregon has enacted legislation that closely parallels the federal statute, and the commissioner has, in turn, prescribed administrative rules, which, with a few exceptions, are substantively the same as the federal regulations.

ORS 758.505(2)(a) defines a "cogeneration facility" as a facility that "[p]roduces, through the sequential use of energy, electric energy and useful thermal energy including but not limited to heat or steam, used for industrial, commercial, heating or cooling purposes."

A cogeneration facility is a "qualifying facility" as defined by PURPA rules and Oregon law. 18 CFR § 292.101(b)(1); ORS 758.505(8).

ORS 758.515 states the legislature's goals and policies with respect to the encouragement of qualifying facilities:

"(1) The State of Oregon has abundant renewable resources.

"(2) It is the goal of Oregon to:

"(a) Promote the development of a diverse array of permanently sustainable energy resources using the public and private sectors to the highest degree possible; and

"(b) Insure that rates for purchases by an electric utility from, and rates for sales to, a qualifying facility shall over the term of a contract be just and reasonable to the electric consumers of the electric utility, the qualifying facility and in the public interest.

"(3) It is, therefore, the policy of the State of Oregon to:

"(a) Increase the marketability of electric energy produced by qualifying facilities located throughout the state for the benefit of Oregon's citizens; and

"(b) Create a settled and uniform institutional climate for the qualifying facilities in Oregon."

Electric utilities are required to purchase all energy made available by a qualifying facility at a price sufficient to encourage the production of energy. 18 CFR § 292.303(a); ORS 758.525(2); OAR 860-29-030(1). ³ Although an electric utility and a qualifying facility are free to negotiate the rate and terms of any purchase, 18 CFR § 292.301(b)(1); OAR 860-29-005(2), the price paid must not be less than the utility's "avoided costs." ORS 758.525(2). ⁴ "Avoided costs" are defined in ORS 758.505(1) as

"the incremental costs to an electric utility of electric energy or energy and capacity that the utility would generate itself or purchase from another source but for the purchase from a qualifying facility."

A utility is required regularly to provide "[s]ufficient data concerning its avoided costs * * * to allow the owner or operator of the qualifying facility to estimate, with reasonable accuracy, the payment it would receive from the utility" for power. OAR 860-29-080(1). In addition, at least every two years, utilities must file a schedule of avoided costs in a forecast covering at least the next 20 years. The schedules are reviewed and approved by the commissioner. ORS 758.525(1).

If a qualifying facility elects to provide power pursuant to a "legally enforceable obligation," the facility may choose to have the purchase price based on the utility's "avoided costs" calculated at the time of delivery, or the "avoided costs" projected to apply over the life of the obligation, as calculated "at the time the obligation is incurred." ORS 758.525(2); OAR 860-29-040(4)(b). ⁵ Snow Mountain has chosen the latter method.

The commissioner's order describes the course of negotiations between Snow Mountain and CP, which began in earnest in May, 1983, and continued until September, 1983. The parties discussed the quantity of power and the rate at which it would be purchased. They considered various rates, including those based on CP's August, 1982, February, 1983, and September, 1983, "avoided cost" schedules on file with the commissioner. Snow Mountain favored use of the earlier "avoided cost" schedules, which reflected a higher rate. The parties agree that on July 6, 1983, officials of Snow Mountain presented CP with a contract in which Snow Mountain agreed to deliver power to CP over a period of years at rates based on the August, 1982, "avoided cost" schedule on file with the commissioner. CP's representative told Snow Mountain that CP would agree to the August, 1982, rate only if the commissioner would permit CP to pass the rate on to its customers. Negotiations fell through at that point.

When negotiations reached an impasse, Snow Mountain filed a complaint with the commissioner, pursuant to OAR 860-29-005. ⁶ The commissioner determined that CP had an obligation to purchase power from Snow Mountain. In a second order, he held that CP had incurred that obligation at the time of the publication of the commissioner's second order, which decided that the rate for the purchase should be determined on the basis of CP's most recent "avoided cost" schedule on file. The circuit court held that CP's obligation to purchase power arose in July, 1983, when Snow Mountain tendered a contract to provide power, ⁷ and that the "avoided cost" schedule on file at the time of the tender was the proper schedule to be used in determining the purchase rate.

The dispute now concerns only the rate to be paid for the power; the answer depends on the resolution of two questions: (1) when the obligation to purchase power was incurred and (2) whether the "avoided cost" schedules filed by CP are binding for the purpose of settling the purchase price or whether actual "avoided costs" must be used.

CP contends that, for purposes of determining the time for calculation of a utility's "avoided costs," an obligation to purchase power is incurred only when the utility and a qualifying facility execute a written contract for the purchase of power or when the commissioner issues an order determining the contract terms for the parties in a case brought before him pursuant to OAR 860-29-005(3). It asserts that an obligation is not incurred by a qualifying facility's unilateral presentation of a contract, the terms of which have not been agreed upon.

CP's obligation is not governed by common law concepts of contract law; it is created by statutes, regulations and administrative rules. ORS 758.525 requires a utility to purchase power from a qualifying facility. Similarly, 18 CFR 292.303(a) and OAR 860-29-030 provide that an electric utility "shall purchase" any energy and capacity "which is made available from a qualifying facility." Thus, the obligation to purchase power is imposed by law on a utility; it is not voluntarily assumed.

ORS 758.525 allows a qualifying facility to choose to have the purchase price calculated on the basis of avoided costs calculated at the time the legal obligation to purchase energy is incurred. The regulations and administrative rules...