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July 9, 1997


Appealed From No. C-00935287. State Agency Pennsylvania Public Utility Commission.

Before: Honorable Dan Pellegrini, Judge, Honorable Jim Flaherty, Judge, Honorable Silvestri Silvestri, Senior Judge. Opinion BY Judge Pellegrini. Judge Leadbetter did not participate in the decision of this case.

The opinion of the court was delivered by: Pellegrini


FILED: July 9, 1997

South River Power Partners (South River) appeals an order of the Pennsylvania Public Utility Commission (PUC) granting West Penn Power Company's (West Penn) motion for summary judgment and dismissing South River's complaint filed against West Penn in which it alleged that West Penn refused to purchase power from its proposed power facility.

South River is a special purpose limited partnership that was established in 1993 for the sole purpose of developing a proposed 240 megawatt (MW) waste coal and coal-fired electric power facility in Fayette County, Pennsylvania. South River proposed to develop this facility, also referred to as a qualifying facility or QF, *fn1 based on its belief that West Penn, as a public utility, had a need for an additional 240 MW of capacity within the next ten years for which it had not made sufficient provisions. It sought to sell this capacity to West Penn.

South River's proposal came about as a result of the federal Public Utility Regulatory Policy Act of 1978 (PURPA), *fn2 which was originally enacted in 1978 to combat the nationwide energy crisis of the early 1970's resulting from increased oil prices and natural gas shortages. FERC v. Mississippi, 456 U.S. 742, 72 L. Ed. 2d 532, 102 S. Ct. 2126 (1982). Section 210(a) of PURPA, 16 U.S.C. § 824a-3, directed the Federal Energy Regulatory Commission (FERC) to promulgate rules to encourage the development of alternative sources of power, including rules requiring utilities to offer to buy electricity from and to sell electricity to QFs. FERC enacted such regulations and required each state to implement PURPA as it saw fit. See 18 C.F.R. Part 292.

As we explained in Pennsylvania Electric Company v. Pennsylvania Public Utility Commission, 166 Pa. Commw. 413, 648 A.2d 63, 69 (Pa. Commw. 1994), pursuant to FERC's mandate:

The Pennsylvania PUC enacted regulations at 52 Pa. Code § 57.31 et seq. adopting rules regarding the purchase and sale of energy and capacity from QFs. Under 52 Pa. Code § 57.32(a), the PUC specifically delineated that electric utility consumers were to be protected, as well as equalizing the bargaining power between QFs and utilities. The intention was to ensure that the purchasing utility and its customers were in the same or similar position to what they would have been if capacity and energy had not been purchased from a QF. See Allegheny Ludlum Corporation v. Pennsylvania Public Utility Commission, 149 Pa. Commw. 106, 612 A.2d 604 (Pa. Commw. 1992). This was accomplished by ensuring that the utility's avoided costs of purchasing capacity and energy from a QF rather than building and operating its own facility was equal to or less than utility produced power so that its rates to consumers did not increase as a result.

Because West Penn refused to negotiate with South River since it believed it did not have a future need for more power, South River tendered a contract which it had executed to West Penn for the sale of electrical capacity and energy from its QF. *fn3 West Penn refused to sign the contract.

South River filed a complaint with the PUC against West Penn on October 28, 1993, requesting relief under PURPA and the Commission's regulations in the form of an order directing West Penn to enter into a contract for the long-term purchase of electrical capacity and energy from its proposed QF. The matter was referred to an administrative law Judge (ALJ) for hearing. After discovery and before a hearing took place, West Penn filed a motion for summary judgment arguing that South River did not, as a matter of law, create a "legally enforceable obligation" requiring it to purchase South River's power because its project was not viable or developed, but merely a paper project.

In his Initial Decision, the ALJ agreed that South River's proposed QF was not a viable project but nothing more than a concept because South River was essentially a shell corporation erected only for the purpose of filing the complaint before him. The ALJ did not find evidence in the record that South River was able financially or otherwise to provide West Penn and its customers with the 240 MW of power that it was offering. Because of that, the ALJ concluded that there was no "legally enforceable obligation" existing under PURPA and granted West Penn's motion for summary judgment and dismissed South River's complaint. South River filed exceptions to the ALJ's decision with the PUC which, after adopting and affirming the ALJ's Initial Decision, the PUC denied. This appeal by South River followed. *fn4

South River contends that the PUC's order granting West Penn's motion for summary judgment was an abuse of discretion because it was premised on an erroneous interpretation of when a "legally enforceable obligation" is created. *fn5 The term "legally enforceable obligation" comes from language found under PURPA at 16 U.S.C. § 824a-3 requiring utilities to purchase capacity from QFs at a rate that does not exceed the utility's avoided cost as of the time a "legally enforceable obligation" between the utility and the QF is created. While the term "legally enforceable obligation" is used, it is not defined under PURPA. Because the implementation of PURPA was entrusted to the states under 18 C.F.R. § 292.401, different states adopted their own standards with respect to when a "legally enforceable obligation" was created.

South River argues that pursuant to the holdings in Armco Advanced Materials Corporation v. Pennsylvania Public Utility Commission (Milesburg II), 135 Pa. Commw. 15, 579 A.2d 1337 (Pa. Commw. 1990), affirmed, 535 Pa. 108, 634 A.2d 207 (1993), cert. denied, 513 U.S. 925, 115 S. Ct. 311, 130 L. Ed. 2d 274 (1994) and Pennsylvania Electric Company v. Pennsylvania Public Utility Commission (Penelec), 166 Pa. Commw. 413, 648 A.2d 63 (Pa. Commw. 1994), affirmed, 544 Pa. 475, 677 A.2d 831 (1996), a legally enforceable obligation is created when a utility willingly enters into a contract with a QF, or when a QF, as it did here, tenders a contract to a public utility or files a petition with the PUC to compel the utility to purchase power. Once it tendered a contract to West Penn and/or filed a petition with the PUC, South River contends the PUC was obligated, without any discretion to determine if the QF was viable, to order West Penn to enter into a contract with South River for the purchase of power because a legally enforceable obligation had been created. South River believes that the PUC refused to do so because it ...

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