Liquid Carbonic Industries Corp. v. Federal Energy Regulatory Commission

29 F.3d 697, 308 U.S. App. D.C. 51
CourtCourt of Appeals for the D.C. Circuit
DecidedJuly 22, 1994
DocketNos. 93-1095 to 93-1097
StatusPublished
Cited by2 cases

This text of 29 F.3d 697 (Liquid Carbonic Industries Corp. v. Federal Energy Regulatory Commission) is published on Counsel Stack Legal Research, covering Court of Appeals for the D.C. Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Liquid Carbonic Industries Corp. v. Federal Energy Regulatory Commission, 29 F.3d 697, 308 U.S. App. D.C. 51 (D.C. Cir. 1994).

Opinion

Opinion for the court filed by Circuit Judge HENDERSON.

KAREN LeCRAFT HENDERSON, Circuit Judge:

In this consolidated proceeding, Petitioner Liquid Carbonic Industries Corporation (Liquid Carbonic), a Delaware corporation in the business of producing and selling industrial gases, seeks review of three orders issued by the Federal Energy Regulatory Commission (FERC). In each order, FERC certified a proposed cogeneration facility1 as a “qualifying cogeneration facility” within the meaning of section 201(8) of the Public Utility Regulatory Policies Act of 1978, Pub.L. No. 95-617, 92 Stat. 3117 (PURPA). 16 U.S.C. § 796(18). FERC rejected Liquid Carbonic’s arguments that the proposed facilities did not meet PURPA’s “qualifying cogeneration facility” standards and denied Liquid Carbonic’s request for rehearing. On three petitions for review, Liquid Carbonic asserts that FERC’s orders violate PURPA standards and conflict with FERC precedent and that FERC’s refusal to hold hearings on the orders was arbitrary and capricious. We do not reach the merits of Liquid Carbonic’s petitions, however, because it lacks standing before this court.

I.

Congress enacted PURPA in the wake of the energy crisis of the early 1970s to lessen dependence on foreign oil, reduce the risk of natural gas shortages and control consumer costs. See FERC v. Mississippi 456 U.S. 742, 746, 102 S.Ct. 2126, 2130, 72 L.Ed.2d 532 (1982). Toward those ends, section 210 of PURPA encourages the development of co-generation facilities. 16 U.S.C. § 824a-3(a). Cogeneration is the sequential use of energy to produce electricity and either steam or some other useful thermal energy. American Elec. Power Serv. Corp. v. FERC, 675 F.2d 1226, 1229 (D.C.Cir.1982), rev’d on other grounds, 461 U.S. 402, 103 S.Ct. 1921, 76 L.Ed.2d 22 (1983). The rationale behind encouraging cogeneration is that the production of electricity frequently results in the production of thermal energy as a byproduct; by using small amounts of additional fuel, cogenerators can produce large amounts of thermal energy. As we earlier observed, “[b]ecause both heat and electricity are created in a single process, about half as much fuel is used to produce electricity and heat as would be needed to produce the two separately.” American Elec., 675 F.2d at 1230. The additional thermal energy can be used instead of discarded as waste. PURPA encourages cogeneration by exempting cogen-eration facilities certified by FERC as “qualifying cogeneration facilities” (QFs) from certain state and federal regulations, see 16 U.S.C. § 824a-3(a), and by requiring electric utilities to purchase electricity from, and sell backup power to, QFs at statutorily specified prices. Id. §§ 824a-3(a)-(c). Thus, QFs are ensured a market for their electricity production.2

PURPA establishes guidelines for the certification of facilities as QFs. First, PURPA defines a cogeneration facility as one that produces “(i) electric energy, and (ii) steam or forms of useful energy (such as heat) which are used for industrial, commercial, heating, or cooling purposes.” 16 U.S.C. § 796(18)(A). It then provides that a “qualifying cogeneration facility” means a cogener-ation facility that “the Commission determines, by rule, meets such requirements (including requirements respecting minimum size, fuel use, and fuel efficiency) as the Commission may, by rule, prescribe.” Id. § 796(18)(B)(i). In 1980, FERC adopted [700]*700rules prescribing the standards for QFs. Such facilities must “produce electric energy and forms of useful thermal energy (such as heat or steam), used for industrial, commercial, heating or cooling purposes through the sequential use of energy.” 18 C.F.R. § 292.-202(c) (emphasis added).

FERC deems “useful” those applications of thermal energy that are common in industrial or manufacturing processes. Electrodyne Research Corp., 32 F.E.R.C. ¶ 61, 102 (1985). Therefore, when a facility’s proposed thermal energy use is common in industry, FERC certifies the facility as a QF. The facility may use the thermal energy itself or export the energy to a non-affiliated entity; so long as the thermal energy use is common, the facility qualifies as a QF. When the use of the facility’s thermal energy output is a new one or not common, FERC analyzes the application differently. Id. ¶ 61,278. First, FERC considers whether the thermal energy user — the “thermal host” — is, on the one hand, the cogenerator itself or its affiliate or, on the other hand, an independent entity. When an independent entity uses the energy, FERC considers the new application useful because it assumes that no entity would buy and use the thermal energy unless it served a legitimate purpose. If the thermal host at some point ceases purchasing the energy, the facility is no longer in compliance with FERC’s rules and loses its QF certification. Id.

When the ultimate user of the thermal output is the cogenerator itself, or its affiliate, and the use is a new or uncommon one, FERC requires the cogenerator to demonstrate that the use involves “an independent business purpose with some economic justification.” York Canyon Generation Assocs., 44 F.E.R.C. ¶¶ 61, 101, 61, 287 (1988). FERC requires an independent business purpose because otherwise a cogenerator could use its thermal energy for an impractical purpose and claim qualifying status simply because it is “using” the thermal energy. To allow such a result, FERC maintains, would contradict Congress’s intent to promote energy efficiency.

Liquid Carbonic challenges FERC’s certifications of three facilities as QFs. On June 12, 1992- FERC certified Lavair Cogeneration Limited Partnership (Lavair) as a QF. Lavair proposed to generate electricity by burning natural gas and to export the steam generated during the process to an adjacent, unaffiliated C02 manufacturing plant to use as energy in producing liquid C02. In addition to the steam, Lavair also proposed to export exhaust gas, called “flue gas,” which is rich in C02; the thermal host would use the flue gas as raw feed gas for purification and conversion into liquid C02. FERC classified the production of liquid C02 using steam and flue gas, the “flue method,” as common because it has certified many cogenerating facilities whose thermal hosts are C02 production facilities. Because the production of C02 is common, FERC certified Lavair. Lavair Cogeneration Ltd. Partnership, 59 F.E.R.C. ¶ 62,266 (1992). On July 13, 1992 Liquid Carbonic challenged the certification by requesting a rehearing, which FERC denied on December 3,1992. See Joint Appendix (JA) 124-30.

AES WR Limited Partnership (AES WR) filed an application for QF status on April 13, 1992. AES WR proposed burning coal to produce electricity and using the thermal energy output to produce liquid C02 in its own production facility.

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29 F.3d 697, 308 U.S. App. D.C. 51, Counsel Stack Legal Research, https://law.counselstack.com/opinion/liquid-carbonic-industries-corp-v-federal-energy-regulatory-commission-cadc-1994.