from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, Michael Spaan, Judge. Superior
Court No. 3AN-13-06239 CI.
K. Reiman, Law Offices of Robert K. Reiman, Anchorage, for
J. Mayberry, Crowell & Moring, LLP, Anchorage, for Appellee
Matanuska Electric Association.
W. Goering and Emma K. Pokon, Assistant Attorneys General,
Anchorage, and Craig W. Richards, Attorney General, Juneau,
for Appellee Regulatory Commission of Alaska.
Stowers, Chief Justice, Fabe, and Bolger, Justices. [Winfree
and Maassen, Justices, not participating.].
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.
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.
FACTS AND PROCEEDINGS
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. Section 210 of PURPA seeks to
accomplish this by " encourag[ing] the development of
cogeneration and small power production facilities."
Cogeneration facilities produce electric energy along with
some other types of useful energy, such as
heat. 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, and by exempting these qualifying
facilities from state and federal regulation as
charges the Federal Energy Regulatory Commission (FERC) with
implementation, and directs state regulatory
authorities to implement FERC's rules in
turn. In Alaska, this task falls to the
Regulatory Commission of Alaska (the
FERC's regulations implementing PURPA, " qualifying
facilities" are facilities that both meet certain
efficiency, operating, and use standards, and are
certified. 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. If a certified facility is "
substantial[ly] alter[ed] or modifi[ed]," it must
recertify. Self-certification is
free, while formal certification carries a
filing fee of $24,070 for cogeneration
facilities. Other parties may challenge a
self-certified or formally certified facility's
qualifying-facility status;  a challenge carries a
filing fee of $24,370.
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,"  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."  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.
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."
 These data are not the same as a
purchase rate; rather, they are " the first step in the
determination of such a rate." 
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.
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. 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
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. 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.
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
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
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 --
State Fair and the Department of Corrections. MEA
subsequently agreed to begin negotiations with Alpine for the
purchase of electric energy.
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.
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.
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. 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 customers, and the Goose Creek project would
sell the remainder of its energy to Valley Utilities and
other commercial customers.
same time that it self-recertified, Alpine also informed MEA
that the conditions of the precedent agreements had been met
and requested to begin negotiating power purchase agreements.
Along with its request, Alpine provided MEA with copies of
agreements with potential thermal hosts and with copies of
agreements with broker-dealer FirstSouthwest for debt
placement services. MEA responded that it did not believe the
conditions were met; in particular, it noted that Alpine had
obtained no financing commitments and had not obtained
Commission authorization for either project. On January 9,
2012, MEA informed Alpine that it considered the precedent
agreements terminated because Alpine had failed to meet the
conditions precedent by the deadline.
February 13, 2012, Alpine filed a formal complaint with the
Commission, asserting that MEA had failed to
comply with its obligations under PURPA and its implementing
regulations. Alpine requested relief in the form of (1) an
order for MEA to provide the avoided-cost information
required by 3 AAC 50.790(d), including the data and
methodology used to derive those costs; (2) a declaratory
order that MEA may not refuse to negotiate with Alpine based
on doubts as to the validity of its projects'
qualifying-facility status; (3) an order for MEA to enter
into negotiations to purchase power from Alpine's
facilities; (4) an order for MEA to set the rates for those
purchases based on its avoided costs at the time Alpine
initially requested interconnection; and (5) an order that
those avoided costs should include the costs of the Eklutna
Generation Station, or in the alternative
an order enjoining MEA from incurring any additional expenses
to add capacity.
denied the allegations in the formal complaint and moved to
dismiss. It challenged Alpine's claim that it had met the
terms of the precedent agreements, pointing out that
Alpine's agreements with thermal hosts were expressly
contingent on the negotiation of a power purchase agreement,
and were therefore not binding as required by the precedent
agreements. It also highlighted the highly speculative nature
of both projects' primary thermal host, Mat-Su Produce.
And it pointed out that FirstSouthwest had not agreed to
finance Alpine's projects; instead, it had agreed to act
as a placement agent for any bonds issued by Alpine or its
projects, but left it up to Alpine to actually issue such
bonds or obtain other financing.
MEA argued, the Commission should require Alpine to formally
certify its projects as qualifying facilities before
enforcing rights dependent on their qualifying-facility
status. MEA asserted that Alpine's failure to meet the
precedent agreements, and the facts underlying its failure,
raised legitimate questions about its projects'
qualifying-facility status, which should be resolved by FERC
in the formal certification process. MEA also claimed it had
already provided Alpine with the required avoided-cost
information, and that the Commission's waiver of its
obligation to provide the information required by 3 AAC
50.790(b) was still valid.
Commission dismissed Alpine's claim in part on July 20,
2012. It found no good cause to investigate
Alpine's claim of entitlement to a tariff under 3 AAC
50.790(b) because its earlier waiver of that requirement had
not been rescinded. The Commission also determined that it
did have the authority to require Alpine to obtain formal
certification if there was a legitimate claim that the merits
of a qualifying facility's self-certification were
questionable. It decided that MEA asserted such a legitimate
claim here, and dismissed without prejudice Alpine's
claims that depended on its projects' qualifying-facility
status, instructing Alpine that it could refile its claims
after obtaining formal certification.
Commission did, however, find good cause to investigate
whether MEA was in compliance with the
information-publication requirements of 3 AAC 50.790(d). MEA
had provided only an average of its avoided costs over the
next five years, instead of a year-by-year projection as
required. The Commission also expressed concern that
MEA's avoided-cost calculations did not consider any part
of its recent Eklutna Generation Station project avoidable,
although MEA had committed to the project only after its
communications with Alpine. Finally, the Commission noted
that it was unclear whether MEA actually "
maintained" the information as required, or simply
generated it upon request.
August 23, 2012, MEA filed a Notice of Compliance, informing
the Commission that it had made publicly available all
information required by 3 AAC 50.790(d).
parties both moved for summary judgment on this remaining
issue. Alpine argued that it was entitled to the avoided-cost
information as of May 2008, the time of its initial request
for interconnection. In particular, Alpine focused on the
cost of the Eklutna Generation Station, which MEA had not yet
committed to build when Alpine originally requested
interconnection. If MEA had agreed to purchase energy from
Alpine at that time, Alpine argued, MEA would not have had to
build as much additional capacity. Alpine claimed that the
costs incurred to build that additional capacity were
therefore avoidable, and should be included in the purchase
rates for Alpine's electric energy. Alpine also argued
that 3 AAC 50.790(d) required MEA to provide the data and
methodology underlying its avoided-cost information, and that
MEA had not done so.
MEA's motion for summary judgment, it directed the
Commission to the information it had made available in August
2012, in accordance with its Notice of Compliance. MEA
claimed that this information was in compliance with 3 AAC
50.790(d), and that the regulation did not require it to make
public the underlying data and methodology. It acknowledged,
however, that it had not published this information prior to
August 23, 2012, instead providing it only upon request. It
denied that the Eklutna Generation Station was an avoidable
cost, or that Alpine was entitled to a purchase rate based on
historic avoided costs. It also pointed out that the
Commission had already decided that Alpine must obtain formal
certification for its projects before they were entitled to
any purchase rate, and that the historic
avoided-costs issue was therefore outside of the scope of the
Commission agreed with MEA that the only remaining issue was
whether MEA's publicly available information was
currently in compliance with 3 AAC 50.790(d). It found that
MEA was fully in compliance, and that it did not need to
supply the data and methodology underlying its avoided-cost
calculations. Accordingly, the Commission denied Alpine's
motion for summary judgment, granted MEA's cross-motion
for summary judgment, and closed the docket.
Superior court proceedings
appealed the Commission's decision to the superior court.
Alpine argued that the Commission lacked the power to require
it to formally certify its projects before requiring MEA to
treat the projects as qualifying facilities. Instead, Alpine
claimed, the Commission should have required MEA to provide a
specific tariff for each of Alpine's projects, and to
purchase electric energy from these projects at a rate based
on the avoided costs at the time it filed the Formal
Complaint. Even if the Commission was
authorized to require formal certification, Alpine argued, it
should have held an evidentiary hearing before doing so.
Alpine also reiterated its arguments that the
Commission's regulations require utilities to publish a
general qualifying facility tariff and to provide the data
and methodology underlying their publicly available
superior court affirmed the Commission in full. It found that
the Commission interpreted its own regulations reasonably in
finding it had the authority to require formal certification,
and that it properly exercised such authority here. It found
that no evidentiary hearing was necessary because the
Commission simply determined, based on the facts alleged by
Alpine, that no good cause existed to open an investigation.
And it found that the Commission reasonably interpreted its
regulations to contain no general tariff or
data-and-methodology requirement. Alpine now appeals.
STANDARD OF REVIEW
In an administrative appeal we independently review the
merits of the agency's decision."  We apply
the " reasonable basis" test to the
Commission's decision not to conduct an
investigation. Under the deferential "
reasonable basis" test, we consider whether the
agency's decision was " arbitrary, capricious, or
unreasonable,"  and whether the agency " [took]
a hard look at the salient problems and . . . genuinely
engaged in reasoned decision making." 
We review an agency's interpretation of its own
regulations under the reasonable and not arbitrary
standard"  when the agency's interpretation
" implicate[s] special
agency expertise or the determination of fundamental policies
within the scope of the agency's statutory
function."  This " deferential standard of
review properly recognizes that the agency is best able to
discern its intent in promulgating the regulation at
issue."  " We will affirm the
agency's interpretation under this deferential standard
if the agency's interpretation is a reasonable one."
" [t]he 'substitution of judgment' test is the
appropriate standard for interpreting regulations . . . when
the agency interpretation does not concern administrative
expertise as to either complex subject matter or fundamental
policy."  Questions of statutory
interpretation are also reviewed under the "
substitution of judgment" test unless the agency's
" interpretation of law turns on its technical expertise
or 'the determination of fundamental policies within the
scope of [its] statutory function.'" 
The Commission May Require Alpine To
Formally Certify Its Projects.
Federal law does not prohibit the Commission from ...