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ARIPPA v. Pennsylvania Public Utility Commission

March 3, 2009


The opinion of the court was delivered by: President Judge Leadbetter

Argued: December 10, 2008



In this appeal, we are asked to determine which entity, the non-utility generation facility or the electric distribution company, owns alternative energy credits where the power purchase agreement executed by the two entities is silent on the issue. This occurred because the contract was entered into before the creation of alternative energy credits in 2005 by the Alternative Energy Portfolio Standards Act (AEPS).*fn2 After review, we affirm the Public Utility Commission's (Commission) order concluding that the electric distribution company owns the credits under these circumstances.

AEPS went into effect in 2005 and required, among other things, that a certain portion of the electricity that is sold to customers be generated from alternative energy sources.*fn3 Section 3(a)(1) of AEPS, 73 P.S. § 1648.3(a)(1). Pursuant to AEPS, the Public Utility Commission (Commission) created an alternative energy credits program. Section 3(e) of AEPS, 73 P.S. § 1648.3(e). An "alternative energy credit" is a tradable instrument "used to establish, verify and monitor compliance with the act." Section 2 of AEPS, 73 P.S. § 1648.2. A unit of credit equals "one megawatt hour of electricity from an alternative energy source." Id.

In order to comply with AEPS, an electric distribution company or electric generation supplier must "[purchase] sufficient alternative energy credits and [submit] documentation of compliance to the program administrator." Section 3(e)(4)(i) of AEPS, 73 P.S. § 1648.3(e)(4)(i). The alternative energy credits can be self-generated or purchased, either along with the electric commodity or separately through a tradable instrument. Section 3(a)(4)(ii)of AEPS, 73 P.S. § 1648.3(e)(4)(ii). As originally enacted, AEPS did not specify which entity owned the credits. In 2007, however, the legislature amended AEPS to provide that the credits are owned by the generator. Sections 2 and 3(e)(12) of AEPS, amended by the Act of July 17, 2007, P.L. 114, 73 P.S. §§ 1648.2 and 1648.3(e)(12). That amendment is not applicable to the instant petition for review.

In 2005, Pennsylvania Electric Company (Penelec) and Metropolitan Edison Company (Met Ed), both electric distribution companies, sought a declaratory order from the Commission, determining that where a power purchase agreement was executed before the enactment of AEPS, the electric distribution company owned the alternative energy credits.*fn4 Various parties intervened, including ARIPPA.*fn5 The Administrative Law Judge (ALJ) determined that the credits produced by the non-utility generators were owned by the electric distribution companies since those companies owned the electricity once it was generated. The Commission denied the ensuing exceptions and adopted the ALJ's opinion and reasoning, noting, in pertinent part, as follows:

The ALJ focused on the fact that the [alternative energy credits] were created to measure [the electric distribution company's] compliance with [AEPS]. Since the [electric distribution companies] were purchasing qualifying alternative generation under the [power purchase agreements], the ALJ determined that the [electric distribution companies] were also entitled to the [credits] as measurement of the power purchased. The ALJ expressed the concern that a contrary holding would force the [electric distribution companies] to purchase additional [credits] from other sources, or even pay a penalty, when "in fact, they had purchased and were using energy generated by the [non-utility generators]- in actual compliance with [AEPS] but unable to prove it. Commission's Opinion and Order at 6 (entered February 12, 2007) (citations to ALJ opinion omitted); R.R. at 1424a. Thereafter, ARIPPA filed a petition for review with this court.*fn6

I. Preemption

ARIPPA argues that the Public Utility Regulatory Policies Act of 1978 (PURPA), Pub. L. No. 95-617, § 2, 92 Stat. 3119 (codified as amended in scattered sections of 15, 16, and 30 U.S.C.) precludes a state agency from modifying a power purchase agreement and, therefore, the Commission's order, which determines ownership of the credits, violates PURPA. While ARIPPA posits this argument as an issue of preemption,*fn7 other than noting that PURPA precludes state reformation of power purchase agreements, it fails to cite to any authority or engage in any meaningful discussion of the manner in which the federal scheme specifically pervades or dominates the regulation of alternative energy credits. As we noted in Wheeling & Lake Erie Railway Co. v. Pa. Pub. Util. Comm'n, 778 A.2d 785 (Pa. Cmwlth. 2001), a federal statute may be interpreted as preempting state powers "only if such result is the clear and manifest purpose of the Congress." Id. at 791. We may infer preemption in those cases:

(1) where the scheme of the federal regulation is so pervasive that the Congress left no room for the states to supplement it; (2) where the federal statute touches a field, in which the federal interest is so dominant that it must be assumed that the Congress intended to preclude enforcement of the state laws on the same subject; or (3) where the state law conflicts with the federal law, thereby rendering compliance with both federal and state laws an impossibility.

Id. Moreover, the United States Supreme Court has held that Congress has not preempted all state utility law by enacting PURPA. Fed. Energy Regulatory Comm'n v. Mississippi, 456 U.S. 742 (1982). Whether Congress has preempted the regulation and ownership of alternative energy credits is a question of law, subject to our plenary review. See generally Clement & Muller, Inc. v. Tax Review Bd. of City of Phila., 659 A.2d 596 (Pa. Cmwlth. 1995).

PURPA was enacted in late 1978 to address a nationwide energy crisis. Fed. Energy Regulatory Comm'n v. Mississippi, 456 U.S. at 745. PURPA promotes the development of new generating facilities and the conservation of fossil fuels. New York v. Fed. Energy Regulatory Comm'n, 535 U.S. 1 (2002). The Federal Energy Regulatory Commission (FERC) promulgated regulations under PURPA, providing states with leeway to implement PURPA. Pa. Elec. Co. v. Pa. Pub. Util. Comm'n, 544 Pa. 475, 677 A.2d 831 (1996). Accordingly, the Commission has implemented PURPA and associated FERC rules. See 52 Pa. Code §§ 57.31-57.39.

Here, the ALJ and the Commission both relied on American Ref-Fuel Company, 105 FERC ¶ 61,004 (2003), to support the conclusion that the issue of credit ownership is controlled by state law, rather than PURPA. In American Ref-Fuel, owners of waste-to-energy power plants sought a declaratory order that power purchase agreements entered into pursuant to PURPA do not convey renewable energy credits (similar to alternative energy credits) to utility companies absent an express contractual provision to that effect. In concluding that the contracts did not convey the credits absent an express contractual provision, FERC opined that renewable energy credits are created by the states; they "exist outside the confines of PURPA," and, therefore, PURPA does not address ownership of the credits. Id. at 61,007. According to FERC, states have the authority to determine who owns the renewable energy credits. Id. Further, it concluded that, "[w]hile a state may decide that a sale of power at wholesale automatically transfers ownership of the state-created [renewable energy credits], that requirement must find its authority in state law, not PURPA." Id. at 61,007.*fn8

Like the Commission, the United States Court of Appeals for the Second Circuit has also recognized that FERC has determined that state law governs the conveyance of alternative energy credits, and that Congress has not demonstrated an intent to regulate such credits under federal law. See Wheelabrator Lisbon, Inc. v. Conn. Dep't of Pub. Util. Control, 531 F.3d 183 (2d Cir. 2008) (discussing American Ref-Fuel) (Wheelabrator I).

Wheelabrator I is analogous to the instant case. There, an energy generating facility and an electric distribution company entered into an agreement in 1991, prior to the creation of alternative energy credits. Following execution of the agreement, the energy credits became an independently tradable commodity, causing a dispute over ownership of the credits. The Connecticut Department of Public Utility Control (Department) determined that the electric distribution company owned the credits, and the state supreme court affirmed, concluding that the Department had jurisdiction to interpret the agreement and decide the issue. See Wheelabrator Lisbon, Inc. v. Dep't of Pub. Util. Control (Wheelabrator II), 283 Conn. 672, 931 A.2d 159 (2007).

In a related proceeding filed in federal court, Wheelabrator Lisbon, a producer of renewable energy, sought a declaratory order that PURPA preempted the Department's decision. More specifically, Wheelabrator argued that the Department's decision modified the parties' agreement, thereby constituting "utility-type regulation" in violation of PURPA.*fn9 The Second Circuit Court of Appeals concluded that the Department's decision did not modify or require renegotiation of the contract in violation of PURPA; rather, the Court held that the Department had authority to interpret the parties' agreement and determine ownership of the credits. Wheelabrator I, 531 F.3d at 189. In addition, considering American Ref-Fuel, the Court further noted that rather than demonstrate an intent to control regulation of renewable energy credits, FERC has explicitly acknowledged that state law governs the conveyance of such credits. Id. at 189-90.

Similarly, in In re Ownership of Renewable Energy Certificates, 913 A.2d 825 (N.J. Super. Ct. App. Div. 2007), the New Jersey Superior Court, Appellate Division, addressed an analogous issue under New Jersey's alternative energy credit scheme. There, following American Ref-Fuel, the court determined that ...

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