Windway Technologies, Inc. v. Midland Power Cooperative

696 N.W.2d 303, 2005 Iowa Sup. LEXIS 40, 2005 WL 736025

• Court: Supreme Court of Iowa
• Decided: April 1, 2005
• Docket: 02-1113
• Status: Published

Opinions

TERNUS, Justice.

The primary issue in this case is whether a nonrate-regulated utility should be required to sell energy to alternate energy producers on a net metering basis. The district court ruled the appellant, Midland Power Cooperative, must connect to wind generators owned by the appellees, Gregory and Beverly Swecker and Welch Motels, Inc., using net metering. When this court first considered Midland’s appeal of the district court judgment, we agreed with the district court. Thereafter, we granted Midland’s petition for rehearing and withdrew our original opinion. Upon further consideration of the parties’ arguments and the pertinent legal authorities, we now reverse the district court’s ruling requiring net metering. We affirm, as modified, the court’s order requiring Midland to disclose avoided-costs data to the Sweckers and Welch Motels.

I. Background Facts and Proceedings.

The Sweckers and Welch Motels, plaintiffs in the action below, purchased wind-powered electric generators from the ap-pellee, Windway Technologies, Inc. They sought to reduce their energy expense by generating their own power. The plaintiffs also hoped to sell any excess energy they produced to Midland. Customers such as the plaintiffs who buy from and sell energy to a utility are known as cogen-erators or alternate energy producers (AEPs). The present dispute arose when the Sweckers and Welch Motels sought to connect their generators to the electric distribution system operated by Midland. Midland took the position that purchases and sales of energy by the ANPs should be separately measured and billed. The plaintiffs, on the other hand, wanted an arrangement they describe as “net metering” where only the net purchase or sale is billed.

There has been some confusion in this ease over the correct terminology to describe the parties’ respective positions. Midland has argued that the arrangement it seeks to impose is “net billing.” It appears, however, that the terms “net metering” and “net billing” are used interchangeably to refer to the same method of measuring the power used by a cogenerator over a specified period of time. The Federal Energy Regulatory Commission (FERC) has used the term “net billing” in the following sense:

“Net billing involves only one meter and one net transaction. Under net billing, the [cogenerator] produces power primarily for the owner’s needs. However, at times the [cogenerator] generates ‘excess’ power which is supplied to the utility through the single meter. Other times, the [cogenerator] may not generate sufficient power for the owner’s needs and [it] draws power from the utility through the single meter. Electricity flows through the meter in both directions and is netted out and one meter reading [is] made at the end of a billing period.”

MidAmerican Energy Co., 94 F.E.R.C. ¶ 61,340, at 62,262 (2001) (order denying request for declaratory order) (citation omitted). The term “net metering” has been used to describe the same process. See FirstEnergy Corp. v. Pub. Utils. Comm’n, 95 Ohio St.3d 401, 768 N.E.2d 648, 650 (2002) (defining “net metering” as “ ‘measuring the difference in an applicable billing period between the electricity supplied by an electric service provider and the electricity generated by a customer-generator which is fed back to the electric service provider’ ” (citation omitted)).

In contrast, under the approach urged by Midland, two separate measurements would be required — one to measure power flowing from Midland and the other to measure power flowing from the cogenerator. The applicable billing rates would then be separately applied to each measurement and the resulting dollar amounts would be offset against one another. A more appropriate description of Midland’s proposed billing system is separate or independent billing, which is the terminology we will use in this opinion. This type of billing is reflected in the tariffs Midland has filed with the Iowa Utilities Board (hereinafter “the utilities board”). See Iowa Code § 476.47(2)(b) (2003) (requiring a nonrate-regulated utility to file a tariff with the board outlining the utility’s alternate energy purchase program).

Midland advocates for separate billing of power usage because this system would allow Midland to collect its full retail rate for energy sold to the cogenerating customer but pay the customer a smaller sum for the electricity purchased from the co-generator based on Midland’s “avoided costs,” an incremental cost figure defined by federal law. See FERC Regulations Under the Public Utility Regulatory Policies Act of 1978, 18 C.F.R. § 292.304(a)(2) (2004) (providing utility shall not pay more than its avoided costs for energy purchased from AEPs), § 292.101(b)(6) (defining “avoided costs”). An example will illustrate the advantage to Midland of separate billing. Under the net metering or net billing approach, if each party, during a given billing period, provides the same amount of electricity to the other, their respective power usage would offset each other and neither party would owe any money to the other. Using the same example under the separate or independent billing approach, the cogenerating customer would owe Midland more than Midland owed the customer because the customer would pay Midland’s retail rate for power provided by Midland, while Midland would only pay the customer at its avoided costs for power provided by the customer, a rate that is considerably less than retail.

The plaintiffs originally filed this suit in federal court, alleging, in part, that Midland’s tariff setting the rate at which it would purchase energy from cogenerators violated a federal statute, the Public Utility Regulatory Policies Act (PURPA). See Public Utility Regulatory Policies Act of 1978, 16 U.S.C.,§ 824a-3 (2000). The federal court remanded the case to state court on the ground that federal courts lack subject matter jurisdiction of a suit involving a nonrate-regulated utility such as Midland. In the Iowa district court, the parties agreed to bifurcate the case for trial and submit some of the issues to the court, saving the balance of the issues for a jury trial. A bench trial was held on the plaintiffs’ claim that Midland’s tariff violated PURPA, and the district court held (1) the parties are required to use net metering, and (2) Midland must file periodic reports with FERC from which its avoided costs may be determined. Midland sought an interlocutory appeal, which we granted. Our review is for correction of errors of law. See Iowa R.App. P. 6.4.

II. Net Metering Requirement.

A. Arguments of parties. On appeal, Midland argues the trial court erred because (1) net metering is not required under PURPA or state law, and (2) the Iowa courts have no authority to impose requirements on Midland that are not required by federal or state law. In response, the plaintiffs claim “the district court had the discretion and authority to impose net metering.” They point out that net metering will provide incentives for alternate energy production sources, thereby advancing one of the goals of PURPA. See Am. Paper Inst, Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 404-05, 103 S.Ct. 1921, 1924, 76 L.Ed.2d 22, 27 (1983) (stating PURPA “was designed to encourage the development of cogeneration and small power production facilities”). The plaintiffs also rely on FERC’s position that net metering .does not violate PURPA to support the trial court’s ruling.¹

B. Applicable law. We start with a brief examination of the statutory and regulatory framework. PURPA requires FERC to adopt “such rules as it determines necessary to encourage cogeneration and small power production,” including rules that require electric utilities to purchase electric energy from qualifying cogeneration facilities. 16 U.S.C. § 824a-3(a)(2). Rates for such purchases have two statutory restrictions: they must be “just and reasonable” to electric consumers of the utility and to the public, and they must “not discriminate against [AEPs].” 16 U.S.C. § 824a-3(b). Congress considered, but did not adopt, a requirement that utilities purchase energy from AEPs on a net metering basis. See, e.g., 145 Cong. Rec. S5291 (1999); 144 Cong. Rec. S7952 (1998).

The rules adopted by FERC require electric utilities to purchase energy from qualifying AEPs. 18 C.F.R. § 292.303. FERC’s rules-also parrot the two requirements for purchase rates set forth in PURPA and, in addition, state that utilities shall not be required to pay more than avoided costs for any excess energy produced , by an AEP. 18 C.F.R. § 292.304(a)(l)-(2). “Avoided costs means 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). State regulatory authorities and nonregulated electric utilities were given the responsibility to implement the rules adopted by FERC. 16 U.S.C. § 824a-3(f).

In Iowa the legislature enacted a law requiring all utilities to purchase energy from qualifying AEPs and to file tariffs with the utilities board explaining their program for doing so. See Iowa Code § 476.47(l)-(2). Although the legislature provided that rate-regulated utilities’ tariffs were subject to the requirements of rules adopted by the utilities board, the statute states that nonrate-regulated utilities’ tariffs are to be filed “for informational purposes only.” Id. § 476.47(2). One rule adopted by the utilities board requires net billing between rate-regulated utilities and AEPs. See Iowa Admin. Code r. 199 — 15(H)(5). Midland, as a nonrate-regulated utility, is not subject to this rule.² Id. With these laws and regulations in mind, we turn to the net metering issue.

C. Discussion. To place our consideration of this issue- in context, we note that the underlying claim giving rise to this issue was the plaintiffs’ request in their petitions that Midland be ordered to comply with PURPA. Interestingly, the district court did not rule that Midland’s tariffs violated PURPA by not providing for net metering. Rather, the court held that net metering did not violate the PURPA provision that a utility could not pay more than its avoided costs for energy purchased from AEPs. The court then concluded that if net metering were not allowed, “PURPA’s purposeful passage to render alternative energy production reasonably attractive [would be] shelved.”

The implicit conclusion of the district court that net metering is not expressly required by law appears to be correct. The plaintiffs cite no statute, rule, or controlling decision that requires a nonregu-lated utility to use net metering. The FERC order upon which the plaintiffs rely is not to the contrary. In MidAmerican Energy Co., FERC simply held that state laws requiring rate-regulated utilities to use net metering are not inconsistent with PURPA. 94 F.E.R.C. at 62,263-64. We have found no federal case or regulatory decision holding that net metering is required by PURPA.

Having determined there is no express requirement for net metering, we consider whether there is an implied requirement in PURPA that net metering be used. We think the answer to this question is clearly “no.” FERC has repeatedly stated that it would leave the implementation of PURPA to state regulatory authorities and non-regulated utilities, including the determination as to whether to institute net energy billing for AEPs. See, e.g., Swecker v. Midland Power Coop., 87 F.E.R.C. ¶ 61,-187, at 61,721-22 (1999); Order No. 69, Small Power Production and Cogeneration Facilities, Regulations Implementing Section of the Public Utility Regulatory Policies Act of 1978, FERC Statutes and Regulations 1977-1982 ¶ 30,128, at 30,892 (1980), 45 Fed.Reg. 12,231 (1980) [hereinafter Order No. 69]; see also MidAmerican Energy Co., 94 F.E.R.C. at 62,263 (“In implementing PURPA, the Commission ... recognized that net billing arrangements ... would be appropriate in some situations, and left the decision of when to do so to. state regulatory authorities.” (Emphasis added.)). FERC has also stated that nonregulated electric utilities “are to be afforded ‘great latitude’ in determining ‘the manner of implementation’ ” of FERC’s regulations concerning AEPs. Co-generation Coalition of America, Inc., 61 F.E.R.C. ¶ 61, 252, at 61,925 (1992) (order denying petition for a nationwide investigation). Given the broad discretion granted to regulatory authorities and nonrate-regulated utilities to determine -whether and when to use net metering, we conclude it would be wrong to interpret PURPA to require Midland to offer net metering, to all AEPs in its tariffs.

Despite the absence of any authority that requires net metering, the plaintiffs argue the trial court had “discretion” to order Midland to use net metering. See generally Order No. 69, 45 Fed.Reg. 12,-231 (1980) (noting review of a nonregulated utility’s implementation of PURPA may be pursued in a state court forum pursuant to section 210(g) of PURPA); see also Policy Statement Regarding the Commission’s Enforcement Role Under Section 210 of the Public Utility Regulatory Policies Act of 1978, 23 F.E.R.C. ¶ 61,304, at 61,644. To exercise discretionary authority over a nonregulated utility’s implementation of PURPA would place the Iowa courts in the position of acting as a regulatory board for such utilities. We think this role is neither advisable nor necessary.

FERC itself has authority “to undertake an enforcement action to require a State regulatory authority or nonregulated electric utility to implement [FERC’s] regulations.” Tenn. Power Co., 77 F.E.R.C. ¶ 61,125, at 61,483 (1996) (order denying petition for enforcement under section 210 of PURPA) (citing 16 U.S.C. § 824a-3(h)(2)) (emphasis added). In the Tennessee Power decision, FERC stated that it would most likely use its enforcement power wheré claim is made that the nonregulated utility has not implemented FERC’s regulations or has implemented them in a manner contrary to PURPA. 77 F.E.R.C. ¶ 61,125, at 61,485. FERC would leave to the states and state judiciaries challenges to the utility’s application of implementing Regulations, i.e., fact-specific questions. Id.; Cogeneration Coalition of America, Inc., 61 F.E.R.C: ¶ 61,252, at 61,926.

The dispute here clearly falls in the category of an implementation, not an application, issue. The plaintiffs challenge Midland’s tariff, not Midland’s application of the tariff to particular customers. The arguments they advance in support of their position are not fact-specific to these plaintiffs or to this utility but instead rest on general principles of fairness and the desire to encourage alternate energy production. -In essence, a decision by our court upholding the district court’s decision-would mean that all nonrate-regulated utilities in Iowa would be required to use net metering for all AEPs. Yet neither Congress, FERC, our state legislature, nor the utilities board saw fit to impose a universal requirement on nonregulated utilities to implement net metering.³

In conclusion, we decline the opportunity to make a policy decision on whether net metering would be preferable in the situation before us. There are several reasons that support our decision: (1) the specialized and technical nature of the net-metering issue, (2) the absence of any meaningful guidance for case-by-case determinations of when net metering is appropriate and when it is not, (3) the broad precedential effect of requiring net metering in this case, which would be contrary to FERC’s position that net metering is appropriate “in some situations,” (4) the authority of the Iowa legislature and the utilities board to require net metering for nonregulated utilities and their failure to do so, and (5) the authority of FERC to regulate the implementation of PURPA by nonrate-regulated utilities, including ordering net metering. Federal law gives nonregulated utilities broad discretion to implement PURPA, and we cannot say that Midland’s position on net metering is contrary to that law. Therefore, the district court erred when it ordered Midland to use net metering in selling energy to and buying energy from the plaintiffs.

III. Filing of Avoided-Costs Data.

The plaintiffs included in this action a request that Midland produce cost information so that the plaintiffs could compute the avoided-costs component of Midland’s billings. The district court ordered Midland to make available its avoided-costs data at least every two years and to file this information with FERC. Midland complains about both aspects of the court’s order.

We first reject Midland’s argument that the district court lacked authority to enter an order requiring disclosure of the requested information. Because the requested data is pertinent to Midland’s charges to the AEPs, it is likewise pertinent to its implementation of PURPA, which requires that rates be “just and reasonable.” Ordering the disclosure of this information is certainly within a state court’s authority to review a nonregulated utility’s implementation of PURPA.

Nonetheless, we think filing the requested data at FERC is unnecessary. FERC does not require any utility to file cost data with it. Moreover, FERC has made it clear that it will not use its enforcement power to determine whether cost data is adequate, but will leave such issues to state courts. It simply serves no purpose to have the data filed with FERC, as FERC does not want it or need it. We think the plaintiffs can obtain the information they need if we simply require Midland to make its cost data available at its office for review by the public, including AEPs. As ordered by the district court, this data shall be updated every two years.

IV. Conclusion and Disposition.

We conclude the district court erred in requiring Midland to use net metering in its dealings with the plaintiffs. Net metering is not required by state or federal law. Therefore, Midland’s tariffs do not violate PURPA. Accordingly, we reverse the district court’s order that Midland implement net metering.

We affirm the district court’s decision ordering Midland to produce cost data for the plaintiffs’ examination. We modify the court’s decision, however, to provide that this information may be made available at Midland’s principal place of business rather than filed with FERC.

This case comes before us on an interlocutory appeal. Therefore, we remand the matter for disposition of the plaintiffs’ remaining claims.

REVERSED IN PART AND AFFIRMED IN PART AS MODIFIED. CASE REMANDED FOR FURTHER PROCEEDINGS.

All justices concur except CARTER, J., who concurs specially, and LARSON, J., who dissents.

1 . The plaintiffs have argued on appeal that “it would be discriminatory to require rate-regulated utilities in Iowa to provide net metering pursuant to [state regulatory rules] and deny the same to customers of [nonrate-regulated utilities].” We do not think this claim was preserved for review, however. To bolster its conclusion that net metering was appropriate, the trial court mentioned that “[t]here may also be an equal protection of law consideration.” (Emphasis added.) We do not think the trial court squarely addressed an equal protection claim and therefore we give it no consideration on appeal.

2 . Midland is a cooperative owned by its approximately 6800 member customers. As such, it is not subject to rate regulation by the utilities board. See Iowa Code § 476.1A (stating "electric cooperative corporations and associations are not subject to the rate regulation authority of the board”).

3 . PURPA does not preclude state regulators from requiring net metering by a utility that is not rate-regulated. See Swecker v. Midland Power Coop., 105 F.E.R.C. ¶ 61,238, at 62,270 (2003) (order granting petition for enforcement action).