Case Title: In re Dept. of Public Service

Citation: 

Docket Number: 4933

State: vermont

Court: Vermont Supreme Court

Date: 1990-04-01T00:00:00Z

Document:
NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 88-266


Petition of Department of Public             Supreme Court
Service for Relief in Regard to
Small Power Production under                 On Appeal From
PSB Rule 4.100                               Public Service Board

                                             April Term, 1990


Richard H. Cowart, Chair

Abell, Kenlan, Schwiebert & Hall, P.C., Rutland, for appellant

Paterson & Walke, P.C., Montpelier, for appellee Green Mountain Power
  Corporation

Robert V. Simpson, Jr., Special Counsel, and James Volz, Director for
  Public Advocacy, Montpelier, for appellee Department of Public Service


PRESENT:  Allen, C.J., Peck, Gibson, Dooley and Morse, JJ.


     DOOLEY, J.   Appellant Ryegate is a small power producer seeking to
overturn a decision of the Public Service Board (PSB) denying it rates set
forth in an executed letter of intent with the Vermont Power Exchange, Inc.
(VPX).  We affirm.
     Ryegate is the successor-in-interest to Decker Energy International,
Inc.  On December 30, 1985, Decker entered into a letter of intent to sell
to VPX power Decker would produce at a facility to be built in Randolph.
The company's plan was tailored to benefit from the federal Public Utility
Regulatory Policies Act of 1978 (PURPA), 16 U.S.C. {{ 2601-2645 (1988),
enacted to combat oil shortages and to encourage alternative forms of energy
production.  See In re Vicon Recovery Systems, 153 Vt. 539, 543, 572 A.2d 1355, 1357 (1990) (discussing objectives of the Act).  The states are
charged with implementing PURPA, under rules promulgated by the Federal
Energy Regulatory Commission (FERC).  In Vermont, implementation of the
statute has been assigned to the Public Service Board.  See 30 V.S.A. {
209(a)(8); In re Vicon, 153 Vt. at 547, 572 A.2d  at 1359.  The PSB's plan
implementing PURPA created a single purchasing agent to contract on behalf
of all Vermont utilities for the purchase of power from qualifying small
power production facilities.  Vt. Pub. Serv. Bd. Rule 4.100, {{ 4.103(A)(8),
4.104(A) (as revised Aug. 28, 1985).  Under authority of the Rule, PSB has
designated VPX to function as the purchasing agent.
     Under Rule 4.100, the Department of Public Service determines rates
utilities pay for power generated by qualifying facilities, subject to the
approval of the PSB.  The rates and rate order at issue in this case were
approved by the Board on November 18, 1985, in Docket No. 4933, providing
for qualifying facilities to sell up to 150 megawatts of power through long-
term contracts of up to thirty years (as late as 2018).  The rates were
calculated on the basis of "avoided cost," which means the "incremental cost
to electric utilities of electric energy or capacity or both, which, but for
the purchase from the qualifying facility, such utilities would generate
themselves or purchase from another source."  Rule 4.100, { 4.103(A)(1); see
18 C.F.R. {{ 292.101(b)(6), 292.304(b)(2) (1990).
     VPX established procedures detailing the general process set forth in
Rule 4.100, and, on June 25, 1984, issued a Producer's Guide for Power Sales
Under Public Service Board Rule 4.100.  The guide states in relevant part:

            As an option, VPX will sign a Letter of Intent with
          producers who are awaiting the necessary Board
          approvals.  This offer will set out deadlines for
          application to the Public Service Board, signing a
          Purchase Agreement with VPX, and project completion.
          The signed Letter will hold a producer's place in the
          first 25 MW decrement of power committed to the agent so
          long as the producer meets the agreed to development
          schedule.
            . . . .

            Producers needing PSB approval for a 248 Certificate
          and/or levelized rates have the option of applying for a
          Letter of Intent.  The letter will state, for the sales
          option selected, a minimum price for the power generated
          by the project and a date for filing Board petitions for
          permits and rate approval, and a project completion
          schedule.  The Letter of Intent will hold the producer's
          place in the decrement.  The Letter of Intent is
          conditioned upon final Board approval of the rate option
          selected and remains valid so long as the producer meets
          the agreed to development schedule.  (Emphasis added.)

     Ryegate's predecessor signed a letter of intent with VPX on December
30, 1985.  The letter of intent is an agreement to enter into a long-term
power purchase and sale contract if certain conditions are satisfied.  It
provides that the producer's first 8.855 megawatts of power would be sold at
the "appropriate 30 year rate approved by the Vermont Public Service Board
in docket number 4933."  The rate for the balance of the power does not
involve Docket No. 4933 and is not in issue.  The agreement is conditioned
on the producer applying to the PSB for a certificate of public good within
forty-five days, commencing construction within six months of receiving the
certificate, and completing construction within twenty-four months
thereafter.  It is also conditioned on the PSB determining an applicable
rate and the producer entering into the purchase and sale agreement within
sixty days thereafter.
     The letter of intent was restated and signed by Ryegate and VPX in May
of 1987.  The site of the project was changed from Randolph to Ryegate.
None of the relevant terms were changed.
     PURPA rates were approved in Docket No. 4933 on November 11, 1985.  The
order contains extensive rate schedules, depending upon the length of the
purchase and sale contract (up to 30 years) and the decrement (that is,
block of 25 megawatts) within which the project falls.  The applicable rate
also depends upon the start date of the project.  The schedules provide for
start dates from the summer of 1985 through the winter of 1987-1988.  There
are no rate schedules applicable to projects that started to deliver power
after April 30, 1988.
     On September 24, 1986, the Department petitioned the PSB for a
declaratory ruling that rate options being offered to producers and certain
other VPX practices were illegal.  The catalyst for the Department's action
was that, due to an unexpected fall in world oil prices, the rates approved
in Docket No. 4933 represented significant overestimates of the avoided cost
of energy.  Part of the Department's position was that the VPX letters of
intent did not foreclose the PSB from denying Docket No. 4933 rates to
projects like Ryegate's if they did not start delivering power by April 30,
1988.
     On August 26, 1987, the PSB issued an order concluding that the VPX
letters of intent were not binding obligations given the involuntary nature
of the letters vis-a-vis the utilities and that "[c]ontract analysis,
therefore, is simply inapposite."  It also concluded that "because the
letters are contingent, they are not 'binding obligations' within the
meaning of the FERC regulations."  It ruled, however, that qualifying
facilities that came on line by April 30, 1988 -- the date the relevant
Docket No. 4933 rate schedule was to begin -- should receive the rates.
Although the rate order in Docket No. 4933 had not explicitly declared that
it was limited to qualifying facilities coming on line by April 30, 1988,
the PSB concluded that such a deadline was implied in the temporal
framework of the schedule.  Finally, it concluded that no claims of
equitable entitlement under the letters of intent would follow unless the
"sole substantial purpose" of the letters had been to secure a particular
rate.  Because there were other significant purposes for the letters of
intent, it concluded that they did not create equitable rights.
     Ryegate advances three main theories under which it claims the right to
Docket No. 4933 rates irrespective of when it starts delivering power: (1)
it is entitled to those rates under PURPA; (2) it has an enforceable
contract with VPX for those rates; and (3) it has a vested right to those
rates.  We take these arguments in turn.
                              I. PURPA RIGHTS
     The parties appear to agree that the relevant law in determining
whether Ryegate has a right to Docket No. 4933 rates is contained in
regulations issued by the Federal Energy Regulatory Commission with respect
to "Small Power Production and Cogeneration."  See 18 C.F.R. {{ 292.101-
292.602 (1990).  The operative section of these regulations is { 292.304(d)
which provides:
           Purchases "as available" or pursuant to a legally
         enforceable obligation.  Each qualifying facility shall
         have the option either:
           (1) To provide energy as the qualifying facility
         determines such energy to be available for such
         purchases, in which case the rates for such purchases
         shall be based on the purchasing utility's avoided costs
         calculated at the time of delivery; or
           (2) To provide energy or capacity pursuant to a
         legally enforceable obligation for the delivery of
         energy or capacity over a specified term, in which case
         the rates for such purchases shall, at the option of the
         qualifying facility exercised prior to the beginning of
         the specified term, be based on either:
              (i) The avoided costs calculated at the time of
         delivery; or
              (ii) The avoided costs calculated at the time the
         obligation is incurred.

The two rate options contained in { 292.304(d)(2) correspond to the rate
options available under the VPX letter of intent.  The second option is for
the rates specified in Docket No. 4933.  These rates are available as a
matter of federal law, however, only as of the date Ryegate incurs "a
legally enforceable obligation for the delivery of energy or capacity over a
specified term."  { 292.304(d)(2).  The question under federal law reduces
to whether Ryegate incurred such an obligation when it signed the VPX letter
of intent.
     The obligation specified in the federal regulation is Ryegate's
obligation to deliver energy over a specified term.  See Snow Mountain Pine
Co. v. Maudlin, 84 Or. App. 590, 599,