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LEHIGH VALLEY POWER COMMITTEE ET AL. v. PENNSYLVANIA PUBLIC UTILITY COMMISSION (08/07/89)

decided: August 7, 1989.

LEHIGH VALLEY POWER COMMITTEE ET AL., PETITIONERS,
v.
PENNSYLVANIA PUBLIC UTILITY COMMISSION, RESPONDENT



PETITION FOR REVIEW.

COUNSEL

David M. Kleppinger, with him, Richard S. Kahlbaugh, McNees, Wallace & Nurick, Harrisburg, for petitioners.

Lee E. Morrison, Asst. Counsel, with him, Billie E. Ramsey, Asst. Counsel, Bohdan R. Pankiw, Deputy Chief Counsel, and Daniel P. Delaney, Chief Counsel, Harrisburg, for respondent.

Douglas G. Robinson, with him, Glenn J. Berger, and Matthew W.S. Estes, Skadden, Arps, Slate, Meagher & Flom, Washington, D.C., Bernard Ryan, Jr., Dechert, Price & Rhoads, Harrisburg, and Charles A. Bowes, Jr., Air Products and Chemicals, Ins., Allentown, for intervenor, American REF-FUEL Co., of Lehigh Valley.

David B. MacGregor, with him, Paul R. Bonney, Morgan, Lewis & Bockius, Philadelphia, and Paul E. Russell, with him, David J. Dulick, Allentown, for intervenor, Pennsylvania Power & Light Co.

Crumlish, Jr., President Judge, and Craig, Doyle, Colins, Palladino, McGinley and Smith, JJ. Smith, J., dissents.

Author: Craig

[ 128 Pa. Commw. Page 278]

The Lehigh Valley Power Committee (LVPC), an ad hoc association of industrial customers of Pennsylvania Power and Light Company (PP & L or the utility), appeals from an order of the Pennsylvania Public Utility Commission (PUC or the commission) that granted a petition by PP & L for rate recognition, that is, full immediate recovery from ratepayers through PP & L's retail rates, of the cost of power that PP & L intends to purchase from American REF-FUEL Company of Lehigh Valley (REF-FUEL). REF-FUEL plans to build a 32 megawatt (Mw) small power production facility near Bethlehem, Pennsylvania, to be fueled by municipal solid waste and sludge from municipalities in and around the Lehigh Valley area. The Federal Energy Regulatory Commission (FERC) has certified the project*fn1 as a "qualifying facility" (QF) under the terms of sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA).*fn2

The principal issue involved in this appeal is whether the PUC violated LVPC's right to due process of law by approving

[ 128 Pa. Commw. Page 279]

    pass-through to ratepayers (in retail rates) of PP & L's costs for the purchase of power from REF-FUEL without holding a hearing to determine the justness and reasonableness of the utility's current recovery of the full amount of its payments to REF-FUEL, where the contract rate under which PP & L is to incur those costs incorporates a tariff rate previously approved by the commission that is a levelized rate, and the commission and PP & L concede that payments under that levelized rate will exceed the utility's actual avoided costs during the early part of the term of the contract.*fn3

PP & L's Pioneer Rate and the REF-FUEL Purchase Agreement

In 1981, before the PUC's adoption of its regulations implementing the FERC rules, the commission approved, in a formal rate proceeding, a so-called "Pioneer Rate" for PP & L purchases of power from QF's using biomass or municipal solid waste or renewable resources such as solar, wind or small hydro as the fuel source. Supplement No. 79 to Tariff Electric Pa. P.U.C. No. 198, Docket No. R-811515 (May 26, 1981). The Pioneer Rate provided for payments to eligible facilities at $.06 per kilowatt hour (Kwh) or at the calendar year weighted average value of PP & L's interchange energy sales and purchases, when such value exceeded $.06/Kwh. That rate has remained in effect until the present, although the commission recently approved, with certain modifications, PP & L's request to curtail the period for eligibility for that rate, in accordance with PP & L's desire to phase out the rate. Supplement No. 15 to Tariff Electric Pa. P.U.C. No. 200, Docket No. R-880956 (May 27, 1988).

On March 4, 1988, PP & L filed a petition with the PUC requesting rate recognition of purchased power costs resulting

[ 128 Pa. Commw. Page 280]

    from an agreement executed between PP & L and REF-FUEL on February 11, 1988, for the wholesale sale of electric energy. The parties conditioned the agreement on PUC approval for PP & L to recover, on a current basis through the mechanism of the Energy Cost Rate (ECR), all amounts paid to REF-FUEL. The contract rate, i.e., the payment obligation of PP & L to the QF, is a combination of the Pioneer Rate and an alternative percentage of actual avoided costs, as follows:

For the years 1988 and 1989 PP & L will purchase energy at 6.0 cents ($.06) per KWH or at the calendar year weighted average value of PP & L's interchange energy sales and purchases when such rate exceeds 6.0 cent/KWH. For each of the next seven years starting on January 1, 1990, the rate paid will be at 6.0 cent/KWH or 75% of PP & L's actual Energy-Only Avoided Cost for that month, whichever is higher. Thereafter, the rate paid will be 6.0 cents ($.06) per KWH or a rate calculated at 85% of the actual Energy-Only Avoided Cost for that month, whichever is higher.

LVPC filed a petition to intervene and an answer in opposition to PP & L's petition, requesting that the commission "limit PP & L's current recovery of payments made to American REF-FUEL to PP & L's current avoided costs until a later date when those costs begin to exceed the payments to American REF-FUEL." R. 134a.*fn4 PP & L and REF-FUEL filed responses to LVPC's answer. The Lehigh Valley Solid Waste Authority, an entity with a contract with REF-FUEL for the disposal of 200,000 tons of waste a year at the proposed facility, filed a petition to intervene and a response supporting PP & L's petition.

[ 128 Pa. Commw. Page 281]

The responses contended: that LVPC's position opposing current ECR recovery was contrary to federal and state law; that LVPC had no right to force the utility to prove the justness and reasonableness of a contract rate agreed upon pursuant to an existing, previously approved tariff; that an earlier commission decision in the case of Collection of Amounts Paid for Energy Purchases from Bethlehem Steel Corporation from PP & L Ratepayers Docket No. P-850039 (June 25, 1985) (Bethlehem Steel), expressly approving ECR recovery of higher early-year payments to qualifying facilities under the Pioneer Rate contained in PP & L's tariff, had already resolved the issue raised by LVPC, and LVPC had alleged no changed circumstances or other reasons to justify departure from the commission's precedent on this point; and that LVPC was attempting erroneously to compare payments to be made no earlier than 1991 with avoided costs in 1988.

The PUC granted PP & L's petition for approval of current rate recovery, stating that it previously had addressed the exact issue presented in the proceeding -- whether PP & L should be required to demonstrate that payments it would make under the Pioneer Rate would be less than actual avoided cost over the contract period -- in the Bethlehem Steel case, from which the commission quoted as follows:

'We think PP & L's request for this relief somewhat redundant, since we previously approved the Pioneer Rate Tariff which, as noted above, is the precise basis for the payments made to [Bethlehem Steel]. Having approved this tariff, it would be unconscionable for us to suggest that rates thus established could be unjust and unreasonable and a fortiori we think implicit in our approval of the tariff our approval also of collection of such amounts from ratepayers. Nonetheless, we recognize that we have not previously explicitly approved the collection of such amounts from ...


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