Opinion
No. CV04-0527217-S
March 20, 2006
MEMORANDUM OF DECISION
This case is an Administrative Appeal brought pursuant to the provisions of the Uniform Administrative Procedure Act (UAPA), Conn. Gen. Stat. § 4-166 et seq. The appeal is authorized pursuant to the UAPA § 4-183 and also Conn. Gen. Stat. § 16-35 relating to appeals from decisions of the Dept. of Public Utility Control (DPUC). The plaintiff appellant, Minnesota Methane, LLC, (MM), appealed from a decision of the DPUC dated March 19, 2004 in Docket No, 96-07-21RE01 (DPUC decision).
The DPUC decision at issue had granted a petition for declaratory ruling filed by the Connecticut Light Power Co. (CLP). In the DPUC decision, the ownership of Generation Information System Certificates (GIS Certificates, also known as Renewable Energy Certificates or RECS). The GIS Certificates or RECS were issued for MM's Hartford landfill gas project (Hartford Project). MM's Hartford Project generates electricity through the use of landfill gas generated by landfill biomass. The electrical output of the Hartford Project is delivered by MM to CLP under a twenty-year Energy Purchase Agreement (EPA) that was approved by the DPUC in 1996 and was amended in 1997. The generation of electricity through the use of landfill gas from biomass is a renewable energy source.
The GIS Certificates or RECS which are an issue in this case, did not exist when the MM/CLP EPA was approved by the DPUC in 1996. GIS/RECS were created in 2002 by the New England Power Pool (NEPOOL). The certificates are electronic certificates which track, for each megawatt hour of electricity produced in New England, certain power characteristics including air pollution emissions and types of fuel utilized (renewable). The GIS Certificates can be traded separate and apart front other products such as electrical energy and capacity. Renewable fuel related GIS Certificates (RECS) can be sold to electrical suppliers to meet state mandates for the use of a certain percentage of renewable energy.
In the petition, CLP argued that under its EPA with MM, it was entitled to the Hartford landfill facilities entire electrical output which would include the GIS/RECS Certificates. In its decision, the DPUC agreed with CLP, and awarded it the certificates and any finds that MM received from the sale of such certificates.
ISSUES
The appeal raises claims under state and federal law; however, the parties have agreed to reserve the federal claims for federal court determination. Accordingly, the court will not address the federal preemption and constitutional claims. The remaining issues which are decided in this decision relate to the jurisdiction of the DPUC pursuant to state law and the issue of whether there was substantial evidence in the record to support the DPUC determination. The court concludes that the DPUC had jurisdiction and the decision is supported by substantial evidence in the record. The DPUC decision is affirmed and the appeal is dismissed.
FACTUAL BACKGROUND
The Hartford Project resulted from legislative mandates requiring Connecticut electrical utilities (public services companies) to purchase "any electrical energy and capacity made available, directly by a private power producer . . ." Conn. Gen. Stat, § 16-243a(b). In addition to requiring the purchase of energy made available by private power producers, the DPUC was directed, pursuant to Conn. Gen. Stat. § 16-243a(c) to set the rate for such purchases based on the "full avoided costs of the electrical utility." Avoided costs under § 16-243a(a) meant the incremental costs to the utility of energy or capacity or both, which, but for the purchase of the private power producer, the utility would incur. The Connecticut statutes were in furtherance of federal policy set forth in the Public Utility Regulatory Policies Act, 16 U.S.C. § 824a-3 et seq. (PURPA). PURPA and the regulations of the Federal Energy Regulatory Commission (FERC) 18 CFR § 292, require electrical utilities to buy electrical energy and capacity from qualifying cogeneration and small power production facilities at avoided cost rates. The Hartford Project of MM is a qualifying facility (QF) pursuant to FERC regulations.
The PURPA and FERC regulatory scheme contemplates a continued role by state agencies such as the DPUC with respect to rate determinations and approval of EPA contracts. (See FERC American REF-fuel decision, Docket No. EL03-133-000, October 1, 2003; Freehold Cogeneration Assoc., L.P. v. Board of Regulatory Commissioners of the State of New Jersey, 44 F.3rd 1178 (3rd Cir. 1995); Crossroads Cogeneration v. Orange and Rockland, 159 F.3rd 129 (3rd Cir. 1998); Panda-Kathleen, L.P. v. Clark, 701 So. 2nd 322 (FLA. 1997).
MM petitioned the DPUC for approval of its EPA with CLP in petition of Minnesota Methane, LLC, Regarding the Sale of Electricity Generated the Hartford Landfill to the Connecticut Light Power Co. (MM petition, Docket No. 96-07-21 filed July 16, 1996). In its petition, MM requested exemption from certain DPUC regulations for private power producers "because it qualifies for such exemption, under the provision of § 16-243a-7"; essentially on the ground that pursuant to § 16-243a-5(3), it was a five-megawatt or less facility fueled by a renewable source other than wood. In their petition, they also sought an EPA in the form developed by the DPUC. The petition noted that the facility would utilize landfill gas generated by biomass from the Connecticut Resource Recovery Administration, Hartford Sanitary Landfill in Hartford, Connecticut and that such landfill gas was a "renewable energy source and the primary source of energy." In its 1996 decision on the MM petition, the DPUC granted the requested exemption to MM from the ranking and selection requirements of § 16-243a-5.
The contract between MM and CLP is standard electricity purchase agreement issued by the DPUC in Docket No. 89-01-16 standard electricity purchase agreement for exempt private power producers (April 30, 1991). The DPUC decision granting the MM petition ordered CLP to enter into the agreement with MM in the form of the standard electricity purchasing agreement [EPA]. The DPUC decision on the 1996 MM petition also found that CLP would not have been obligated to enter into the MM contact absent the facility status as a "small renewable power project" pursuant to § 16-243b(a)(6). The DPUC decision on the MM petition also notes that absent the renewable attributes, there is no need for the facility as CLP did not, at that time, need additional electrical generating capacity. Thus, MM would not be eligible for the avoided cost it received, absent its classification as a renewable power project. The DPUC MM decision also allowed MM to use CLP's "tenth annual filing" avoided costs which were too high and outdated. The MM pricing costs were fifty-four percent higher than CLP's updated avoided cost. The decision approved the MM fee structure because it felt constrained by Conn. Gen. Stat. § 16-243a to allow pricing based on the avoided cost in effect that the date the small renewable power project submitted its proposed contract.
The standard EPA authorized, approved and directed by the DPUC in the MM 1996 decision provided that for a twenty-year term, MM "shall sell and deliver" and CLP "shall purchase and accept delivery of the facility's entire electrical output." Pursuant to Section 2(d) of the EPA, the seller MM had the option of electing to deliver either the entire electrical output, net of station use, or the committed output of the facility. MM elected to deliver the facility's entire electrical output to CLP. Section a-24(a) provides that any disputes arising out of the agreement that are not "subject to the jurisdiction of the CDPUC (DPUC) are subject to resolution by arbitration."
In implementing the requirements of PURPA and Conn. Gen. Stat § 16-243a, the DPUC initiated several generic decisions and regulations. In Docket No. 85-04-16, DPUC Investigation Into Cogeneration and Small Power Production, "Going Back To The Future" (December 18, 1985). (The 1985 Cogen decision), the DPUC first issue generic guidelines for electricity purchase agreements between QF's and electric companies. In the 1985 Cogen decision, it is noted that "the federal and state requirements will be blended together by this decision to create a unique body of law to meet Connecticut's energy needs." 1985 Cogen decision at page 11. The ranking selection review process for private power producers was created in Docket No. 86-04-02, DPUC's Investigation Into CLP and UI (United Illuminating) First Annual Filing of the Status of Cogeneration and Small Power Production Project, Projected Avoided Costs and Related Matters, (July 22, 1986) (1986 Cogen decision). The agency regulations were established by the DPUC and are found in Conn. Agency Regs., Section 16-243a-1 et seq. In essence, the regulations established a competitive bidding process initiated when an electric utility had a demonstrated need for additional electric generating capacity. The regulations exempted certain renewable projects from the competitive bidding process and allowed them to obtain long-term contracts with favorable terms, regardless of whether the electric company needed additional generating capacity. Conn. Agency Regulations § 16-243a-7.
The Connecticut energy regulation scheme includes a renewable energy portfolio standard to increase the use of renewable energy. See Conn. Gen. Stat. § 16-245a as amended by Public Act 03-135 § 7. Electrical suppliers are required to include in their portfolio certain minimum amounts of energy generated by renewable energy sources.
The GIS program at issue here was initiated in 2002 by NEPOOL. The GIS Certificates are a mechanism for electricity suppliers to comply with state regulations regarding renewable energy portfolio requirements. GIS Certificates from renewable energy sources can be used as renewable energy credits or certificates (RECS) to meet state renewable portfolio standards.
In essence, GIS Certificates "unbundles" the renewable energy attribute from the underlying energy component allowing certificates to be traded separately from the energy. NEPOOL, on a quarterly basis, issues GIS Certificates to the entity producing the energy. The NEPOOL issuance of the GIS Certificates to the entity producing the energy is without prejudice as to contractual entitlement to such certificates. The GIS Certificates are tradable and a valuable commodity which can be sold to companies needing RECS to meet renewable portfolio requirements.
MM, upon receipt of the GIS Certificates in 2002, determined to keep and, in some instances, sold such certificates. CLP, unable to resolve their claim for the certificates with MM, initiated their petition with the department in March of 2003. The DPUC, in its decision on the petition, decided that MM was required to transfer the GIS Certificates to CLP along with proceeds from any prior sale of the certificates.
STANDARDS OF JUDICIAL REVIEW
In a UAPA appeal, the court must first determine the aggrievement of the plaintiff appellant. In this case, there is no question that MM was aggrieved by the decision. Its financial interest in the valuable GIS Certificates is certainly sufficient to establish aggrievement. See Broadnax v. City of New Haven. 270 Conn. 133, 154 (2004). In that the jurisdiction of the DPUC is challenged in this appeal, the court's review is plenary. "The issues of whether the department properly had exercised jurisdiction . . . and whether the department bad exceeded its authority . . . present questions of law," Southern New England Telephone Co. v. DPUC, 261 Conn. 1, 13 (2002). "Cases that present pure questions of law, however, invoke a broader standard of review than is ordinarily involved in deciding whether, in light of the evidence, the agency has acted unreasonably, arbitrarily, illegally or in the abuse of its discretion." MacDermid, Inc. v. Dept. of Environmental Protection, 257 Conn. 128, 137 (2001). In that the statute's regulations and decisions addressed in this decision had not previously been interpreted in a "time-tested manner" by the DPUC, there is no basis for deferential judicial review of the agency's decision. Tele Tech of Connecticut Corp. v. Dept. of Public Utility Control, 270 Conn. 778, 788 (2004).
The standard of review concerning the weight of the evidence in the record supporting the agency decision does, on the other hand, involve a deferential standard of review by the court to the agency. Conn. Gen. Stat. § 4-183j of the UAPA directs that the court shall not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. The court shall affirm the decision of the agency unless the court finds the decision was "clearly erroneous in view of the reliable, probative, substantial evidence on the whole record." "Because the DPUC, in evaluating the evidence before it, brought to bear its expertise, technical competence and specialized knowledge; . . . its interpretation of the evidence must be sustained unless its conclusions are unreasonable." Connecticut Light Power Co. v. DPUC, 216 Conn. 627, 644 (1990). With regard to questions of fact it is neither the function of the trial court to retry the case nor substitute its judgment for that of the administrative agency. Connecticut Light Power Co. v. DPUC, 219 Conn. 51, 57 (1991).
THE DPUC HAD JURISDICTION TO INTERPRET THE AGREEMENT
The declaratory judgment statute, a section under the UAPA under which CLP initiated its petition, provides in section 4-176a; that any person may petition "for a declaratory ruling as to the validity of any regulation, or the applicability to specified circumstances of a provision of the general statutes, a regulation, or a final decision on a matter within the jurisdiction of the agency."
The issue presented by the CLP petition was whether the EPA in the form of the standard contract created by the DPUC required MM to transfer to CLP the GIS Certificates issued for the Hartford facility. The DPUC decision at page 6, with respect to its jurisdiction, concluded as follows: "CLP's petition is interpreted by the department as properly seeking a declaratory ruling regarding the applicability of Connecticut General Statutes §§ 4-176, 16-19e; 16-243a, 16-243b, 16a-2 and 16a-35k; Conn. Agency's Regs. §§ 16-1-46, 16-1-114, 16-243a-5 and 16-243a-7; and relevant department decisions as further discussed below."
The decision goes on to discuss the DPUC decisions which it is required to interpret and apply in responding to the CLP petition. Those decisions include the 1985 Cogen decision, the 1991 decisions creating the standard electric purchase agreement for exempt private power producers as well as its June 1996 decision in Docket No. 95-06-04, the Tenth Annual Review of CLP and UI Integrated Resource Planning (Status of Private Power Producers and Conservation Load Management Temp Annual Filing.)
What is particularly significant is the EPA contract between MM and CLP is in effect a DPUC decision, the 1991 decision creating the standard EPA for private power producers. Thus, the DPUC is interrupting its decision which created the contract at issue.
THE DPUC DECISION ASSIGNING THE GIS CERTIFICATES TO CLP IS NOT AN UNCONSTITUTIONAL TAKING
The assignment to MM of the GIS Certificates by NEPOOL was pursuant to NEPOOL operating rule 2.6 made "without prejudice to which person or entity is the owner of such certificates." The short answer to the taking claim under the Connecticut Constitution is that the GIS Certificates are not the property of MM.
MM had in its EPA with CLP assigned the GIS Certificates.
THE EPA BETWEEN MM AND CLP SECTION A-24 RECOGNIZES THE DPUC JURISDICTION
The EPA provision between MM and CLP provides in Section A-24: "A. Any and all disputes and differences pertaining to or arising out of this agreement or the breach thereof, which cannot be settled by mutual consent of both parties and which are not subject to the jurisdiction of the CDPUC, may be submitted to arbitration at the request of either party."
The DPUC decision at page 10, concludes that this provision clearly provides for arbitration only if the parties could not agree and the DPUC had no jurisdiction. In that the EPA standard contract was in itself a DPUC decision, the DPUC had jurisdiction pursuant to General Statute 4-176a to interpret and apply its decision. In addition, the CLP petition raised issues of state law which required DPUC interpretation and application.
SUBSTANTIAL EVIDENCE IN THE RECORDS SUPPORTS THAT DPUC DETERMINATION THAT THE EPA REQUIRES MM TO TRANSFER ALL GIS CERTIFICATES TO CLP
The GIS Certificates did not exist when MM and CLP entered into their standard form EPA. In this decision DPUC reviews the history and purpose of the cogeneration provisions allowing private power producers to, in effect, compel the utilities to buy at higher prices. This statutory scheme enabled MM to require CLP to enter into an agreement at a price determined by the DPUC, without any demonstration that CLP needed such power or could obtain cheaper energy elsewhere. The implementation of PURPA through the 1985 Cogen decision was intended to create benefits that will "directly inure to" rate payors. Though, GIS Certificates were not in existence at that time; the earlier decisions referenced the existence of NEPOOL and the utilities relationship to it. Attachment B, Section A-3(b) of Appendix A, Section A-3(b) of the 1985 Cogen decision (also Section A-3(b) of Appendix A of the CLP and MM EPA agreement) provides "the utility, in order to benefit from the capacity provided by the facility, may periodically need to obtain recognition of any credit for the capability of the facility for the New England Power Pool (NEPOOL) or other associations or on entities to which the utility has contractual responsibility for providing electrical capacity . . ." (Decision Page 11.)
The DPUC concludes that "for CLP rate payors to benefit from the `capacity' provided by MM, CLP needs to obtain recognition of any credit for the `capability' of the MM facility from NEPOOL . . . to give meaning to this agreement term and for CLP rate payors to obtain the benefit of MM facilities `capability' (separate and distinct from the electricity `capacity' provided by the MM facility), the department believes that MM must transfer the GIS Certificates and proceeds from any sale of any GIS Certificates to CLP."
The DPUC conclusion and decision is supported by other language of the MM and CLP agreement. Sections 2(a) and 2(d) require MM to sell and deliver the entire electrical output of its facility to CLP.
MM's argument is that GIS Certificates are unrelated to the electricity generated and sold to CLP. The department rejected this argument finding that the GIS Certificates merely quantify the renewable attributes of the renewable fuel generated electricity. Thus, the GIS Certificates cannot exist apart from the generated electricity. DPUC found the GIS Certificates inseparable from the renewable energy.
The substantial evidence in the record supporting these conclusions includes the presentation by APX, Inc., the administrator of the New England GIS Program, which was presented in testimony before the DPUC (Transcript of February 5, 2004 and 22-26). The APX presentation explains the unbundling concept which was adopted as a low-cost alternative to a tacking system, which would tack energy from generation to end user. The unbundling concept involves separation of the environmental attributes of electrical power from the electrical commodity resulting in; 1) energy, end 2) certificates reflecting the environmental attributes. The certificates and unbundled tradable commodity contains the fuel source and emission characteristics of the energy. This is consistent with the DPUC's determination that GIS Certificates are an integral part of renewable energy.
MM also argues that under the agreement, CLP was only purchasing generic electric energy. This is not supported by review of the application by MM in 1996. The petition of MM was only entertained and the exemptions granted based on its use of renewable fuel-generated electricity. The MM petition, agreement and preferential pricing was based on the renewable fuel generating the energy.
The DPUC determined from the evidence that the GIS Certificates were an integral part of renewable energy and that the MM/CLP EPA conveyed renewable energy generated by MM to CLP. Thus, the GIS Certificates were also conveyed by such agreement.
THE PARTIES WAVE RESERVED FEDERAL CLAIMS FOR FEDERAL COURT ADJUDICATION The parties agreed to the plaintiff MM's motion to reserve federal claims for Federal Court adjudication. Accordingly, the plaintiff's preemption claims and federal constitutional claims and any other federal claims pertaining to the proceedings are reserved for Federal Court adjudication. In its decision, the court has considered the state law claims and is unpersuaded. The Appeal is dismissed. The DPUC decision is affirmed.