West Penn Power Co. v. Pennsylvania Public Utility Commission

659 A.2d 1055, 1995 Pa. Commw. LEXIS 255
CourtCommonwealth Court of Pennsylvania
DecidedMay 25, 1995
StatusPublished
Cited by12 cases

This text of 659 A.2d 1055 (West Penn Power Co. v. Pennsylvania Public Utility Commission) is published on Counsel Stack Legal Research, covering Commonwealth Court of Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
West Penn Power Co. v. Pennsylvania Public Utility Commission, 659 A.2d 1055, 1995 Pa. Commw. LEXIS 255 (Pa. Ct. App. 1995).

Opinion

PELLEGRINI, Judge.

West Penn Power Company (West Penn) petitions for review of an order of the Pennsylvania Public Utility Commission (PUC) dismissing a complaint filed by West Penn requesting the rescission of prior orders approving rates associated with three qualifying facilities (QFs), the Burgettstown Power Station, the Shannopin Power Station, and the Milesburg Power Station. See Section 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA), 16 U.S.C. § 824a-3.

I.

PURPA was enacted as part of the National Energy Act during a time of nationwide energy crisis. Congress sought to lessen the dependence of electric utilities on foreign oil and on natural gas by encouraging the development of alternative power sources in the form of cogeneration and small power production facilities.1 Section 210(a) of PURPA directs the Federal Energy Regulatory Commission (FERC) to promulgate rules to encourage the development of the alternative sources of power, including rules requiring utilities to offer to buy electricity from qualifying cogeneration facilities and small power production facilities, and requiring the setting of rates that are just and reasonable to consumers. The determination of rates under Section 210(b) of PURPA is not to exceed the incremental cost to the utility of alternative electric energy. Additionally, Section 210(e) directs FERC to adopt rules exempting QFs from most state public utility regulation. For further discussion of PURPA and the federal regulations implementing PURPA, see Barasch v. Pennsylvania Public Utility Commission, 119 Pa.Commonwealth Ct. 81, 546 A.2d 1296 (1988), petition for allowance of appeal denied, 523 Pa. 652, 567 A.2d 655 (1989) CMilesburg I).

To further encourage these alternate power sources, Congress also sought to reduce the burden of state and federal regulation on these new types of power generators. FERC v. Mississippi, 456 U.S. 742, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982). Section 210(e) of PURPA requires FERC to implement regulations exempting QFs from regulations to which traditional electric utilities are subject, including most provisions of the Federal Power Act and “[sjtate laws and regulations respecting the rates, or respecting the finan[1059]*1059cial or organizational regulation, of electric utilities.” 16 U.S.C. § 824a-3(e)(l).2

PURPA had the unintended consequence of promoting competition in the electric industry in that non-utility, independent power producers3 are entering the market to supply electrical power both to utilities and to large customers. To promote this emerging competition, Congress enacted the Energy Policy Act of 19924 giving FERC certain powers to open the wholesale electrical market. Implementing the expanded “wheeling” 5 authority it was given in the Energy Policy Act, FERC issued a policy statement increasing competition by establishing transmission pricing policies. See Policy Statement at Docket No. RM93-19-000 (October 26, 1994).

If this move to competition is fully implemented, traditional vertically integrated monopolistic territorial utilities may be impacted if they have “stranded investment” because it is non-competitive or if there is need for less capacity because of less demand. Stranded investment represents that portion of capacity which has capital costs and operating costs so great that the power is produced at a cost that will not be competitive in the coming competitive marketplace and has the potential to be written off. As to loss of demand, potential independent power producers or, for that matter, other utilities will have the ability to wheel power into their market, taking away, at least initially, their large industrial and commercial customers by offering lower priced power, thereby lowering the demand and need for capacity.

These concerns are at the core of the disputes concerning PURPA contracts taking place before courts and regulatory bodies throughout this country. See, e.g., Freehold Cogeneration Associates v. Board of Regulatory Commissioners of the State of New Jersey, 44 F.3d 1178 (3rd Cir.1995). Because those contracts are “take or pay” at “avoided cost”6, there is a concern that QF contracts may be another form of stranded investment. The fear is either QFs will supply energy that the utility no longer needs because customers have walked away with their demand and are purchasing from independent power producers or that the avoided costs paid for QF power is at a cost higher than the cost of power that may become available in the potential competitive marketplace. See Part III B discussion relating to In re Southern California Edison Company, F.E.R.C. No. EL95-16-000 and No. EL95-19-000, 1995 WL 169000, issued February 23,1995. However, despite Congressional intent to foster competition and the concerns of utilities and FERC, Congress has yet to amend or repeal PURPA and the requirement that utilities purchase QF power.

II.

While that is the legal and market landscape behind the dispute, the phrase that a case has a long and torturous history, though overused, certainly applies. It all began when West Penn negotiated and signed electric energy purchase agreements (EEPAs) in 1987 with Washington Power Company, L.P. (Washington) as the developer of the Bur-gettstown Power Station, with Mon Valley Energy Corporation (Mon Valley) as the developer of the Shannopin Power Station, and [1060]*1060with Milesburg Energy, Inc. (Milesburg) as the developer of the Milesburg Power Station. The EEPAs incorporated rates agreed on in principle in 1986 which were based on West Penn’s own determination of its avoided costs and were calculated to be at or below those avoided costs as of 1986. The EEPAs were made conditional on the promulgation of a rule or the issuance of an order by the PUC approving the legality of the agreements and specifically determining that the purchase of power would not result in excess capacity.7

Related litigation began when West Penn filed a petition seeking the PUC’s approval of the EEPA for the Milesburg facility and the rates therein. The PUC held that West Penn’s agreement was consistent with PURPA, that the rate payments were lower than what West Penn would otherwise incur and that the payments were recoverable. On appeal from the PUC’s order, this court held that customer notice and hearings were required on the issues of whether West Penn’s payments could be lower through other sources of energy or of whether West Penn needed the capacity. Milesburg I.

The PUC then held hearings on those issues for all three QF projects. At these hearings, Milesburg and Washington requested that milestone deadlines8 related to their EEPAs be extended.

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Bluebook (online)
659 A.2d 1055, 1995 Pa. Commw. LEXIS 255, Counsel Stack Legal Research, https://law.counselstack.com/opinion/west-penn-power-co-v-pennsylvania-public-utility-commission-pacommwct-1995.