North American Natural Resources, Inc. v. Michigan Public Service Comm'n

41 F. Supp. 2d 736, 1998 U.S. Dist. LEXIS 21142
CourtDistrict Court, W.D. Michigan
DecidedNovember 24, 1998
Docket1:98-cr-00021
StatusPublished
Cited by3 cases

This text of 41 F. Supp. 2d 736 (North American Natural Resources, Inc. v. Michigan Public Service Comm'n) is published on Counsel Stack Legal Research, covering District Court, W.D. Michigan primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
North American Natural Resources, Inc. v. Michigan Public Service Comm'n, 41 F. Supp. 2d 736, 1998 U.S. Dist. LEXIS 21142 (W.D. Mich. 1998).

Opinion

OPINION

QUIST, District Judge.

The Plaintiffs in these consolidated cases own and operate electric cogeneration facilities which are “qualifying facilities” (“QF”) under the Public Utility Regulatory Policies Act of 1978 (“PURPA”), 16 U.S.C. §§ 824-824k. 1 Plaintiffs filed their complaints against Defendants seeking a declaration that certain orders issued by the Michigan Public Service Commission (“MPSC”) are in conflict with and violate PURPA. Plaintiffs in case nos. 5:98-CV-21 and 5:98-CV-22 also seek declaratory relief based upon Defendants’ alleged violation of Plaintiffs’ due process rights under the Fourteenth Amendment. Defendants have moved for dismissal of Plaintiffs’ complaints pursuant to Fed. R.Civ.P. 12 on several grounds, including Eleventh Amendment immunity and abstention. The parties have submitted briefs on the issue. For the reasons stated below, Defendants’ motions will be denied.

Overview of PURPA

Under the Federal Power Act (“FPA”), 16 U.S.C. § 791a - 825u, any person who owns or operates facilities used to transmit or sell electric energy in interstate commerce at wholesale is subject to the jurisdiction and regulatory power of the Federal Energy Regulatory Commission (“FERC”). See 16 U.S.C. § 824. In 1978, Congress modified the FPA by enacting PURPA 2 as part of a comprehensive package of energy legislation in response to the nationwide energy crisis. See FERC v. Mississippi 456 U.S. 742, 745, 102 S.Ct. 2126, 2130, 72 L.Ed.2d 532 (1982); Fulton Cogeneration Assocs. v. Niagara Mohawk Power Corp., 84 F.3d 91, 94 (2d Cir.1996). Among other things, “PURPA is intended to control power generation costs and ensure long-term economic growth by reducing the nation’s reliance on oil and gas and increasing the use of more abundant, domestically produced fuels.” Freehold Co-generation Assocs., L.P. v. Board of Regulatory Comm’rs of New Jersey, 44 F.3d 1178, 1182 (3d Cir.1995). Section 210 of PURPA reflects Congress’ policy of re *739 quiring utility companies to sell electric energy to, and buy electric energy from, nontraditional electric producing facilities.

Congress believed that increased use of these sources of energy would reduce the demand for traditional fossil fuels. But it also felt that two problems impeded the development of nontraditional generating facilities: (1) traditional electricity utilities were reluctant to purchase power from, and to sell power to, the nontraditional facilities, and (2) the regulation of these alternative energy sources by state and federal utility authorities imposed financial burdens upon the nontraditional facilities and thus discouraged their development.
In order to overcome the first of these perceived problems, § 210(a) directs FERC, in consultation with state regulatory authorities, to promulgate “such rules as it determines necessary to encourage cogeneration and small power production,” including rules requiring utilities to offer to sell electricity to, and purchase electricity from, qualifying co-generation and small power production facilities....
To solve the second problem perceived by Congress, § 210(e), 16 U.S.C. § 824a-3(e), directs FERC to prescribe rules exempting the favored cogeneration and small power facilities from certain state and federal laws governing electricity utilities.

FERC v. Mississippi 456 U.S. at 750-51, 102 S.Ct. at 2132-33.

Pursuant to § 210(b) and the regulations implemented by FERC, utilities must purchase electricity from qualifying facilities (“QF”) at rates which are “just and reasonable to the electric utility and in the public interest” and which do “not discriminate against” QFs. 16 U.S.C. § 824a-3(b); 18 C.F.R. § 292.304(a)(1)®, (ii). The FERC regulations require a utility to purchase electricity from a QF at the utility’s “avoided cost,” which is defined as “the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source.” 18 C.F.R. §§ 292.101(b)(6), .304(a)(2). In addition, the FERC’s rules exempt QFs from certain state laws and regulations, including state law governing the rates of electric utilities. See 18 C.F.R. § 292.602.

The FERC regulations permit a QF to either provide energy as the QF determines energy to be available for purchases, or to enter into an enforceable contract for the delivery of energy over a specified term. See 18 C.F.R. § 292.304(d). If a QF chooses the latter option, the QF may elect to set the rates based upon the utility’s avoided costs either at the time of delivery or at the time the QF incurs its obligation to deliver energy, i.e., up-front. See id. § 292.304(d)(2); Independent Energy Producers v. California Pub. Utils. Comm’n, 36 F.3d 848, 851-52 (9th Cir.1994).

State regulatory authorities such as the MPSC are required to implement PURPA pursuant to the rules and regulations promulgated by FERC. See 16 U.S.C. § 824a-3(f). A state has broad authority to implement PURPA with respect to the approval of purchase contracts between utilities and QFs. See Crossroads Cogeneration Corp. v. Orange & Rockland Utils., Inc., 159 F.3d 129, 135 (3d Cir.1998) (“Though PURPA does limit the authority of state agencies in some respects, e.g., by exempting cogeneration facilities from some regulation, PURPA still provides a substantial role to state agencies in regulating energy contracts between utilities and cogenera-tors”); Independent Energy Producers, 36 F.3d at 856 (noting that “[t]he state’s authority to implement section 210 is admittedly broad”). While states do play a substantial role in implementing PURPA and approving contracts between utilities and QFs, once a state regulatory commission establishes the “avoided cost” to be paid, the state no longer has authority to regulate the QF’s rate. See Freehold,

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41 F. Supp. 2d 736, 1998 U.S. Dist. LEXIS 21142, Counsel Stack Legal Research, https://law.counselstack.com/opinion/north-american-natural-resources-inc-v-michigan-public-service-commn-miwd-1998.