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Alpine Energy, LLC v. Matanuska Electric Association

Supreme Court of Alaska

March 4, 2016

ALPINE ENERGY, LLC, Appellant,
v.
MATANUSKA ELECTRIC ASSOCIATION and the REGULATORY COMMISSION OF ALASKA, Appellees.

Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Michael Spaan, Judge. Superior Court No. 3AN-13-06239 CI

Robert K. Reiman, Law Offices of Robert K. Reiman, Anchorage, for Appellant.

David J. Mayberry, Crowell & Moring, LLP, Anchorage, for Appellee Matanuska Electric Association, Stuart W. Goering and Emma K. Pokon, Assistant Attorneys General, Anchorage, and Craig W. Richards, Attorney General, Juneau, for Appellee Regulatory Commission of Alaska.

Before: Stowers, Chief Justice, Fabe, and Bolger, Justices. [Winfree and Maassen, Justices, not participating.]

OPINION

BOLGER, JUSTICE.

I. INTRODUCTION

Federal law requires electric utilities to purchase power generated by cogeneration facilities that meet certain standards and provides a method of calculating the purchase rate that the utilities must pay. To qualify for this treatment, a facility must be certified that it meets the standards. It may self-certify, by filing a form describing the project and asserting that it believes it meets the standards, or it may request a formal determination that it meets the standards. The Regulatory Commission of Alaska implements this certification scheme on the state level, but the determination whether a facility qualifies falls within exclusive federal jurisdiction.

The main issue presented in this appeal is whether a self-certification constitutes a federal determination that a facility meets the standards and whether the Commission must defer to this self-certification. We conclude that a self-certification does not constitute a federal determination and that the Commission's broad discretion to implement the federal scheme means it has the power to require a developer to formally certify its projects.

II. FACTS AND PROCEEDINGS

A. Regulatory Background

Congress enacted the Public Utility Regulatory Policies Act (PURPA) in 1978 to increase conservation of energy, make electric utilities more efficient, and encourage equitable rates for electric customers.[1] Section 210 of PURPA[2] seeks to accomplish this by "encourag[ing] the development of cogeneration and small power production facilities."[3] Cogeneration facilities produce electric energy along with some other types of useful energy, such as heat.[4] PURPA encourages development of these facilities by requiring electric utilities to purchase electric energy from and sell electric energy to "qualifying" cogeneration and small power production facilities, [5] and by exempting these qualifying facilities from state and federal regulation as utilities.[6]

PURPA charges the Federal Energy Regulatory Commission (FERC) with implementation, [7] and directs state regulatory authorities to implement FERC's rules in turn.[8] In Alaska, this task falls to the Regulatory Commission of Alaska (the Commission).[9]

Under FERC's regulations implementing PURPA, "qualifying facilities" are facilities that both meet certain efficiency, operating, and use standards, and are certified.[10] Facilities can become certified in two different ways: They may file a notice of self-certification with FERC, asserting that they meet the relevant standards, or they may apply to FERC for certification.[11] If a certified facility is "substantial[ly] alter[ed] or modifi[ed], " it must recertify.[12] Self-certification is free, [13] while formal certification carries a filing fee of $24, 070 for cogeneration facilities.[14] Other parties may challenge a self-certified or formally certified facility's qualifying-facility status;[15] a challenge carries a filing fee of $24, 370.[16]

FERC's regulations implementing PURPA also control the rates that utilities must pay qualifying facilities for energy. Purchase rates must not exceed the utility's "avoided costs, "[17] which are "the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility . . ., such utility would generate itself or purchase from another source."[18] In other words, the utility is obligated to purchase a qualifying facility's energy, but it is not obligated to pay any more for that energy than it would have paid if it obtained the energy from a different source.

Because potential qualifying facilities and investors need to predict purchase rates to be able to estimate the return on a potential investment, FERC's regulations require utilities to "make available data from which avoided costs may be derived."[19] These data are not the same as a purchase rate; rather, they are "the first step in the determination of such a rate."[20]

B. Facts

In May 2008, Alpine Energy self-certified five proposed cogeneration facilities. Only two of these facilities are at issue in this case: Pioneer Energy #1, later renamed "Goose Creek Energy Project, " and Pioneer Energy #4, later renamed "Pioneer Energy Project." Alpine anticipated selling the thermal energy from Pioneer Energy #1 to local businesses, residences, and greenhouses for the purpose of space heating. It intended to sell the thermal energy from Pioneer Energy #4 to the Alaska State Fair and to various commercial customers and greenhouses, again for the purpose of space heating.

Shortly after filing the notices of self-certification, Alpine requested the local electric utility, Matanuska Energy Association (MEA), to interconnect with its facilities - that is, to physically connect the cogeneration facilities with MEA's utility network to facilitate the purchase of electric energy.[21] Alpine also requested MEA to provide certain avoided-cost information required by the Commission's regulations, and to open good-faith negotiations for the purchase of power from Alpine's facilities.

Under Alaska regulations, a qualifying facility's request for interconnection triggers a 60-day period within which the utility must provide the qualifying facility with a tariff setting out rates for interconnection, purchases, and sales.[22] Accordingly, in its reply to Alpine, MEA requested certain engineering information from Alpine that it stated was necessary to determine the costs of interconnection. MEA also stated that the avoided-cost information Alpine had requested was available in its then-effective tariff, on file with the Commission.

Alpine did not provide the requested engineering information in its response. Instead, Alpine reiterated its request to enter negotiations for the purchase of energy. As a result, MEA filed a petition with the Commission requesting a waiver of the 60-day period. Alpine did not oppose the petition, and the Commission granted the waiver, suspending MEA's obligations under 3 AAC 50.790(b) "until at such time as it voluntarily provides the interconnection to [Alpine] or until in a future order, in response to a filing by [Alpine] or otherwise, we revoke the waiver, whichever first occurs."

Alpine and MEA continued to correspond about negotiating power purchase agreements. The discussions focused on two of the projects that Alpine had initially proposed: Pioneer Energy #4, to be sited at the Alaska State Fair, and the Goose Creek Energy Project (formerly Pioneer Energy #1), intended to provide heat and electric energy for the Goose Creek Correctional Facility.[23]

At the outset, MEA expressed doubts about the qualifying-facility status of Alpine's projects and about Alpine's ability to successfully develop them. MEA specifically mentioned Alpine's history of proposing cogeneration projects without commitments for the purchase of thermal energy. The parties disputed the projects' qualifying-facility status for several months. In May 2009, however, Alpine provided MEA with letters of interest from two potential thermal energy customers, or thermal hosts - the Alaska State Fair and the Department of Corrections. MEA subsequently agreed to begin negotiations with Alpine for the purchase of electric energy.

Alpine sent MEA a draft power purchase agreement for the Goose Creek project in June 2010, but the parties did not negotiate the terms of the agreement. Instead, in August 2010, Alpine and MEA entered into "Precedent Agreements" for the projects at issue here. Under these agreements, negotiations were halted, and Alpine was required to meet certain conditions before negotiations would resume. The agreements required Alpine to obtain binding contractual commitments for the sale of the thermal energy that its proposed projects would produce, receive commitments for all financing necessary to construct and operate the projects, and obtain all permits, authorizations, and rights needed to construct and operate the projects. If Alpine met the conditions by December 31, 2011, the parties agreed to negotiate power purchase agreements. If Alpine did not meet the conditions by that date, the agreements would terminate.

While it was communicating with Alpine, MEA was also planning its own power generation project, the Eklutna Generation Station. It put out a Request for Proposals in October 2009, seeking contractors for the project. And in March 2011, MEA signed a contract committing to the first stage of the project.

In December 2011, Alpine self-recertified the Pioneer and Goose Creek projects, and again requested interconnection from MEA. The recertifications stated that both projects would sell the bulk of their thermal energy to Mat-Su Produce. According to Alpine, Mat-Su Produce was to be an Alpine subsidiary that operated greenhouses.[24]The Pioneer project would sell the remainder of its thermal energy to the Alaska State Fair, the City of Palmer, Matanuska-Susitna Borough Schools, and other commercial ...


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