Petition of Department of Public Service

596 A.2d 1303, 157 Vt. 120, 1991 Vt. LEXIS 163

• Court: Supreme Court of Vermont
• Decided: June 28, 1991
• Docket: 88-266
• Status: Published

Opinions

Dooley, J.

Appellant Ryegate is a small power producer seeking to overturn a decision of the Public Service Board (PSB) denying it rates set forth in an executed letter of intent with the Vermont Power Exchange, Inc. (VPX). We affirm.

Ryegate is the successor-in-interest to Decker Energy International, Inc. On December 30,1985, Decker entered into a letter of intent to sell to VPX power Decker would produce at a facility to be built in Randolph. The company’s plan was tailored to benefit from the federal Public Utility Regulatory Policies Act of 1978 (PURPA), 16 U.S.C. §§ 2601-2645 (1988), enacted to combat oil shortages and to encourage alternative forms of energy production. See In re Vicon Recovery Systems, 153 Vt. 539, 543, 572 A.2d 1355, 1357 (1990) (discussing objectives of the Act). The states are charged with implementing PURPA, under rules promulgated by the Federal Energy Regulatory Commission (FERC). In Vermont, implementation of the statute has been assigned to the Public Service Board. See 30 V.S.A. § 209(a)(8); In re Vicon, 153 Vt. at 547, 572 A.2d at 1359. The PSB’s plan implementing PURPA created a single purchasing agent to contract on behalf of all Vermont utilities for the purchase of power from qualifying small power production facilities. Vt. Pub. Serv. Bd. Rule 4.100, §§ 4.103(A)(8), 4.104(A) (as revised Aug. 28,1985). Under authority of the Rule, PSB has designated VPX to function as the purchasing agent.

Under Rule 4.100, the Department of Public Service determines rates utilities pay for power generated by qualifying facilities, subject to the approval of the PSB. The rates and rate order at issue in this case were approved by the Board on November 18, 1985, in Docket No. 4933, providing for qualifying facilities to sell up to 150 megawatts of power through long-term contracts of up to thirty years (as late as 2018). The rates were calculated on the basis of “avoided cost,” which means the “incremental cost to electric utilities of electric energy or capacity or both, which, but for the purchase from the qualifying facility, such utilities would generate themselves or purchase from another source.” Rule 4.100, § 4.103(A)(1); see 18 C.F.R. §§ 292.101(b)(6), 292.304(b)(2) (1990).

VPX established procedures detailing the general process set forth in Rule 4.100, and, on June 25, 1984, issued a Producer’s Guide for Power Sales Under Public Service Board Rule 1.100. The guide states in relevant part:

As an option, VPX will sign a Letter of Intent with producers who are awaiting the necessary Board approvals. This offer will set out deadlines for application to the Public Service Board, signing a Purchase Agreement with VPX, and project completion. The signed Letter will hold a producer’s place in the first 25 MW decrement of power committed to the agent so long as the producer meets the agreed to development schedule.

Producers needing PSB approval for a 248 Certificate and/or levelized rates have the option of applying for a Letter of Intent. The letter will state, for the sales option selected, a minimum price for the power generated by the project and a date for filing Board petitions for permits and rate approval, and a project completion schedule. The Letter of Intent will hold the producer’s place in the decrement. The Letter of Intent is conditioned upon final Board approval of the rate option selected and remains valid so long as the producer meets the agreed to development schedule. (Emphasis added.)

Ryegate’s predecessor signed a letter of intent with VPX on December 30, 1985. The letter of intent is an agreement to enter into a long-term power purchase and sale contract if certain conditions are satisfied. It provides that the producer’s first 8.855 megawatts of power would be sold at the “appropriate 30 year rate approved by the Vermont Public Service Board in docket number 4933.” The rate for the balance of the power does not involve Docket No. 4933 and is not in issue. The agreement is conditioned on the producer applying to the PSB for a certificate of public good within forty-five days, commencing construction within six months of receiving the certificate, and completing construction -within twenty-four months thereafter. It is also conditioned on the PSB determining an applicable rate and the producer entering into the purchase and sale agreement within sixty days thereafter.

The letter of intent was restated and signed by Ryegate and VPX in May of 1987. The site of the project was changed from Randolph to Ryegate. None of the relevant terms were changed.

PURPA rates were approved in Docket No. 4933 on November 11, 1985. The order contains extensive rate schedules, depending upon the length of the purchase and sale contract (up to 30 years) and the decrement (that is, block of 25 megawatts) within which the project falls: The applicable rate also depends upon the start date of the project. The schedules provide for start dates from the summer of 1985 through the winter of 1987-1988. There are no rate schedules applicable to projects that started to deliver power after April 30, 1988.

On September 24, 1986, the Department petitioned the PSB for a declaratory ruling that rate options being offered to producers and certain other VPX practices were illegal. The catalyst for the Department’s action was that, due to an unexpected fall in world oil prices, the rates approved in Docket No. 4933 represented significant overestimates of the avoided cost of energy. Part of the Department’s position was that the VPX letters of intent did not foreclose the PSB from denying Docket No. 4933 rates to projects like Ryegate’s if they did not start delivering power by April 30, 1988.

On August 26,1987, the PSB issued an order concluding that the VPX letters of intent were not binding obligations given the involuntary nature of the letters vis-a-vis the utilities and that “[cjontract analysis, therefore, is simply inapposite.” It also concluded that “because the letters are contingent, they are not ‘binding obligations’ within the meaning of the FERC regulations.” It ruled, however, that qualifying facilities that came on line by April 30, 1988 — the date the relevant Docket No. 4933 rate schedule was to begin — should receive the rates. Although the rate order in Docket No. 4933 had not explicitly declared that it was limited to qualifying facilities coming on line by April 30,1988, the PSB concluded that such a deadline was implied in the temporal framework of the schedule. Finally, it concluded that no claims of equitable entitlement under the letters of intent would follow unless the “sole substantial purpose” of the letters had been to secure a particular rate. Because there were other significant purposes for the letters of intent, it concluded that they did not create equitable rights.

Ryegate advances three main theories under which it claims the right to Docket No. 4933 rates irrespective of when it starts delivering power: (1) it is entitled to those rates under PURPA; (2) it has an enforceable contract with VPX for those rates; and (3) it has a vested right to those rates. We take these arguments in turn.

I. PURPA RIGHTS

The parties appear to agree that the relevant law in determining whether Ryegate has a right to Docket No. 4933 rates is contained in regulations issued by the Federal Energy Regulatory Commission with respect to “Small Power Production and Cogeneration.” See 18 C.F.R. §§ 292.101-292.602 (1990). The operative section of these regulations is § 292.304(d), which provides:

Purchases “as available” or pursuant to a legally enforceable obligation. Each qualifying facility shall have the option either:

(1) To provide energy as the qualifying facility determines such energy to be available for such purchases, in which case the rates for such purchases shall be based on the purchasing utility’s avoided costs calculated at the time of delivery; or

(2) To provide energy or capacity pursuant to a legally enforceable obligation for the delivery of energy or capacity over a specified term, in which case the rates for such purchases shall, at the option of the qualifying facility exercised prior to the beginning of the specified term, be based on either:

(i) The avoided costs calculated at the time of delivery; or

(ii) The avoided costs calculated at the time the obligation is incurred.

The two rate options contained in § 292.304(d)(2) correspond to the rate options available under the VPX letter of intent. The second option is for the rates specified in Docket No. 4933. These rates are available as a matter of federal law, however, only as of the date Ryegate incurs “a legally enforceable obligation for the delivery of energy or capacity over a specified term.” § 292.304(d)(2). The question under federal law reduces to whether Ryegate incurred such an obligation when it signed the VPX letter of intent.

The obligation specified in the federal regulation is Ryegate’s obligation to deliver energy over a specified term. See Snow Mountain Pine Co. v. Maudlin, 84 Or. App. 590, 599, 734 P.2d 1366, 1370-71 (1987). We have examined carefully the letter of intent in the context of the entire Vermont scheme to implement PURPA and the VPX producer’s guide. The letter clearly binds VPX as a matter of allocation of the power purchase obligations and rates available to it. Nowhere, however, has Rye-gate assumed a legally enforceable obligation to deliver any energy to VPX and through it to the utilities and consumers in the state. At best, Ryegate has obligated itself to go through a number of development and regulatory steps that may lead to an obligation to deliver energy, if all goes well.

Ryegate appears to make three arguments to respond to the wording of the regulation. First it notes that the failure to find it is entitled to Docket No. 4933 rates undermines the intent of FERC “to ensure that a qualifying facility which has obtained the certainty of an arrangement is not deprived of the benefits of its commitment as a result of changed circumstances.” 45 Fed. Reg. 12224 (1980). The FERC intent is applicable, however, only when there is the “certainty of an arrangement” as defined in the regulation. Having never provided that certainty, Ryegate has no entitlement to be immune from changed circumstances.

The second argument is that the PSB violated PURPA by not providing Ryegate a legally binding obligation to sign. We find nothing in the federal law that imposes that obligation on the PSB. Nor has Ryegate made any showing that it was prepared to sign such an agreement. Ryegate can obtain the benefit of federal law only by “tendering an agreement that obligates it to provide power.” Snow Mountain Pine Co., 84 Or. App. at 600, 734 P.2d at 1371.

Third, Ryegate argues that the PSB violated PURPA by terminating the availability of Docket No. 4933 rates without creating an alternative, thus taking away its rights to rates calculated on avoided costs on the date it incurs its obligation to provide power. Apparently there was a gap between April 30, 1988 — the date by which a project had to be in operation to qualify for Docket No. 4933 rates — and the date on which the PSB issued a new rate order. Nothing in the record indicates that Ryegate tendered a legally binding obligation to deliver power during that gap. Further, there is no indication that the PSB was unwilling to calculate rates on a case-by-case basis during the gap period. We see no violation of Ryegate’s rights under PURPA.

II. CONTRACT RIGHTS

Ryegate next argues that the VPX letter of intent gave it a contractual right to Docket No. 4933 rates and that the right could not be diminished by a PSB order. The PSB answered this claim by concluding that Ryegate’s rights were derived wholly from regulatory law and not from contract. To understand this point, we must look at the nature of VPX.

The PSB created VPX to serve as an intermediary between small power producers and private utilities who are obligated under PURPA to purchase power from the small producers. The purpose of VPX is to insure proper financial and power accounting so every utility takes on its fair share of the state’s PURPA obligation. See Vt. Pub. Serv. Bd. Rule 4.100, §§ 4.103(A)(8), 4.104(A). VPX is not a utility. Its agreements are binding on utilities only to the extent provided by law and PSB regulations. In no sense have the utilities agreed to any actions of VPX. Their obligation to purchase power pursuant to VPX contracts is entirely created by the PURPA laws and associated regulations.

The power of VPX to agree and bind the utilities exists only to the extent PURPA and federal and state implementing regulations create that power. Thus, we agree with the PSB that this case is about regulatory law, not VPX contracts. See Snow Mountain Pine Co., 84 Or. App. at 598, 734 P.2d at 1370. In this light, Ryegate’s argument that it has a binding obligation with VPX is of no assistance to it. Any agreement of VPX is binding on the PSB or on the utilities only to the extent that PURPA and the applicable regulations make it so. As we discussed above, Ryegate has no rights under PURPA.

III. VESTED RIGHTS

Finally, analogizing the letter of intent to a building permit, Ryegate argues that it has a vested right to Docket No. 4933 rates. Thus, it seeks to invoke the vested rights doctrine as developed in Preseault v. Wheel, 132 Vt. 247, 315 A.2d 244 (1974), and Smith v. Winhall Planning Comm’n, 140 Vt. 178, 436 A.2d 760 (1981). While we recognize the similarities giving rise to the analogy, we are more persuaded by the differences. The question here is whether we can require electricity consumers to pay rates above those established by the marketplace to protect the producer’s investment in facilities and development costs. Ordinarily, the private producer of any commodity must take the risk that the price available at the time of production will result in a sufficient profit. Ryegate’s risk in this case is no different.

In this special case, however, we are willing to reduce the marketplace risk to achieve a public benefit of increased reliance on renewable energy sources. The equation of public benefit and public burden is set out in PURPA and its implementing regulations. We will not apply vested rights doctrine to change the equation to expand private rights at the expense of an added public burden.

We have, in fact, recognized similar limits on the applicability of vested rights even in permit cases. Thus, in In re Ross, 151 Vt. 54, 56, 557 A.2d 490, 491 (1989), we held: “Smith should not be interpreted as an open-ended right to ‘freeze’ the applicable regulatory requirements by proposing a development with inadequate specificity.” The FERC requirement for a legally enforceable obligation can be viewed as a requirement for adequate “specificity” to give the producer a vested right to the rate option contained in the regulation. Ryegate failed to provide the necessary specificity.

To the extent Ryegate is raising an estoppel claim against the PSB, we note that the PSB allowed individual producers who could not meet the April 30, 1988, deadline to show that “their unique circumstances have created an entitlement to 4933 rates.” Ryegate attempted to make the requisite showing in a separate proceeding, but the PSB found that its failure to achieve commercial operation by April 30, 1988, resulted not from administrative or regulatory delay but from Ryegate’s own conduct. That order was appealed to this Court, and the appeal was voluntarily dismissed by Ryegate. Ryegate is now foreclosed from showing an estoppel.

*

In view of our disposition of Ryegate’s argument, we need not reach the alternative rationale for the PSB’s order that Docket No. 4933 rates were always limited to projects in operation by April 30, 1988.

Affirmed.

Because of the dismissal of the appeal in the separate proceeding, Green Mountain Power Corp. moved to dismiss “the claim of error” based on its estoppel argument. We have addressed the merits of the argument and deny the motion to dismiss.