Source: https://www.legalcrystal.com/case/105478/amer-paper-instit-vs-aep-svc-corp
Timestamp: 2017-06-25 21:04:25
Document Index: 278456299

Matched Legal Cases: ['§ 210', '§ 210', '§ 210', '§ 210', '§ 210', '§ 210', '§ 210', '§ 824', '§ 210', '§ 824', '§ 210', '§ 824', '§ 292', '§ 210', '§ 292', '§ 292', '§ 824', '§ 210', '§ 210', '§ 706', '§ 210', '§ 210', '§ 824', '§ 210', '§ 210', '§ 824', '§ 210', '§ 796', '§ 210', '§ 210', '§ 210', '§ 210', '§ 210', '§ 210', '§ 210', '§ 210', '§ 8251', '§ 824', '§ 210', '§ 202', '§ 824', '§ 201', '§ 824', '§ 210', '§ 211', '§ 210']

Amer Paper Instit Vs Aep Svc Corp - Citation 105478 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Amer. Paper Instit. Vs. Aep Svc. Corp. - Court Judgment	LegalCrystal Citationlegalcrystal.com/105478CourtUS Supreme CourtDecided OnMay-16-1983Case Number461 U.S. 402AppellantAmer. Paper Instit.RespondentAep Svc. Corp.Excerpt:
section 210 of the public utility regulatory policies act of 1978 (purpa) was designed to encourage the development of cogeneration facilities and small power production facilities and to reduce the demand for fossil fuels. section 210(a) directs the federal energy regulatory commission (ferc) to prescribe rules requiring electric utilities..... Judgment:
Section 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA) was designed to encourage the development of cogeneration facilities and small power production facilities and to reduce the demand for fossil fuels. Section 210(a) directs the Federal Energy Regulatory Commission (FERC) to prescribe rules requiring electric utilities to deal with qualifying cogeneration and small power facilities. With respect to utilities' purchases of electricity from such facilities, § 210(b) provides that rates set by FERC "shall be just and reasonable to the electric consumers of the electric utility and in the public interest," shall not discriminate against qualified cogeneration and small power facilities, and shall not exceed "the incremental cost to the electric utility of alternative electric energy." Following rulemaking proceedings, FERC promulgated a rule requiring utilities to purchase electric energy from a qualifying facility at a rate equal to the utility's "full avoided cost,"
the cost to the utility which, but for the purchase from the qualifying facility, would be incurred by the utility in generating the electricity itself or purchasing the electricity from another source. FERC also promulgated a rule requiring utilities to make such physical interconnections with cogenerators and small power producers as are necessary to effect purchases or sales of electricity authorized by PURPA. Upon review, the Court of Appeals vacated both rules, holding that FERC had not adequately explained its adoption of the full-avoided-cost rule, and that it exceeded its statutory authority in promulgating the interconnection rule, in view of § 210(e)(3) of PURPA, which provides that "[n]o qualifying small power production facility or qualifying cogeneration facility may be exempted under this subsection from" specified provisions of the Federal Power Act (FPA) which require FERC to afford an opportunity for a hearing before ordering an interconnection.
§ 210(b). Such rule plainly satisfies the requirement of § 210(b) that the rate not discriminate against qualifying cogeneration and small power production facilities. FERC also adequately explained why the rate is "just and reasonable to the electric consumers of the electric utility and in the public interest." Both the statutory language and the legislative history confirm that Congress did not intend to impose traditional ratemaking concepts on sales by qualifying facilities to utilities. And although FERC recognized that the rule would not directly provide any rate savings to consumers, it reasonably deemed it more important at this time that the rule would provide a significant incentive for the development of cogeneration and small power production, and that ratepayers and the Nation as a whole will benefit from the decreased reliance on scarce fossil fuels and the more efficient use of energy. Pp.
461 U. S. 412
2. Nor did FERC exceed its authority in promulgating the interconnection rule. The authority granted by § 210(a) to promulgate such rules as are necessary to require utilities to deal with qualifying facilities plainly encompasses the power to promulgate rules requiring utilities to make physical connections with such facilities, and FERC reasonably interpreted § 210(e)(3) as forbidding it to exempt qualifying facilities from being the "target" of interconnection applications by other facilities under the FPA, but not as forbidding it to grant qualifying facilities the right to obtain interconnections under PURPA without applying for an order under the FPA. Such interpretation is supported by the purposes of PURPA and the statutory scheme created by both Acts. Pp.
461 U. S. 418
This case concerns two rules promulgated by the Federal Energy Regulatory Commission (FERC) pursuant to § 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA), 92 Stat. 3144, as amended, 16 U.S.C. § 824a-3 (1976 ed., Supp. V). The first rule requires electric utilities to purchase electric energy from cogenerators and small power producers at a rate equal to the purchasing utility's full avoided cost,
the cost the utility would have incurred had it generated the electricity itself or purchased the electricity from another source. The second rule requires utilities to make such interconnections with cogenerators and small power producers as are necessary to effect purchases or sales of electricity authorized by PURPA. The Court of Appeals held that FERC had not adequately explained its adoption of the full-avoided-cost rule, and that it exceeded its statutory authority in promulgating the interconnection rule. 219 U.S.App.D.C. 1, 675 F.2d 1226 (1982). We reverse.
Section 210 of PURPA was designed to encourage the development of cogeneration and small power production facilities. [
FERC v. Mississippi,
456 U. S. 742
456 U. S. 750
(1982) (footnote omitted), "Congress believed that increased use of these sources of energy would reduce the demand for traditional fossil fuels," and it recognized that electric utilities had traditionally been "reluctant to purchase power from, and to sell power to, the nontraditional facilities." Accordingly, Congress directed FERC to prescribe, within one year of the statute's enactment, rules requiring electric utilities to deal with qualifying cogeneration and small power production facilities. PURPA § 210(a), 16 U.S.C. § 824a-3(a) (1976 ed., Supp. V). With respect to the purchase of electricity from cogeneration and small power production facilities, Congress provided that the rate to be set by the Commission
PURPA § 210(d), 16 U.S.C. § 824a-3(d)(1976 ed., Supp. V).
18 CFR § 292.101(b)(6) (1982) (the term full "avoided costs" used in the regulations is the equivalent of the term "incremental cost of alternative electric energy" used in § 210(d) of PURPA). In its order accompanying the promulgation of this rule, FERC explained its decision to set the rate at full avoided cost, rather than at a level that would result in direct rate savings for utility customers by permitting a utility to obtain energy at a cost less than the cost to the utility of producing the energy itself or purchasing it from an alternative source. 45 Fed.Reg. 12214 (1980). The Commission emphasized the need to provide incentives for the development of cogeneration and small power production:
at 12222. The Commission noted that
at 12222-12223.
The second regulation at issue here, 18 CFR § 292.303 (1982), provides that electric utilities shall purchase electricity made available by qualifying facilities, sell electricity to qualifying facilities upon request, and, most important for present purposes, "make such interconnections with any qualifying facility as may be necessary to accomplish purchases or sales under this subpart." § 292.303(c)(1). An interconnection is a physical connection that allows electricity to flow from one entity to another. [
Section 212 of the FPA, 16 U.S.C. § 824k (1976 ed., Supp. V), provides that an order approving an interconnection under § 210 may be issued only if the Commission determines that the interconnection is not likely to result in a reasonably ascertainable uncompensated loss for any electric utility, cogenerator, or small power producer, impose an undue burden on any such facility, unreasonably impair the reliability of any electric utility, or impair the ability of any electric utility to supply adequate service to its customers. [
the achievement of that purpose.
Following the filing of several petitions for rehearing, the Commission issued an order adhering to both the full-avoided-cost rule and the interconnection rule.
at 33958.
The Court of Appeals concluded that FERC had not adequately demonstrated that the full-avoided-cost rule was consistent with the mandate of § 210(b) of PURPA that the Commission prescribe rates for purchases of electric energy from qualifying facilities that are "
just and reasonable to the electric consumers of the electric utility'" and "`in the public interest.'"
at 7, 675 F.2d at 1232.
at 8, 675 F.2d at 1233. [
] The court stressed that
at 9, 675 F.2d at 1234. While acknowledging that an approach requiring calculation of each cogenerator's costs on a case-by-case basis "would indeed veer toward the public utilities-style rate setting that Congress wanted to avoid," the Court of Appeals emphasized that FERC should have given additional consideration to a percentage-of-avoided-cost approach, whereby FERC would either set a percentage itself or establish a range within which each state regulatory commission could fix a precise percentage.
on authority in PURPA section 210(e)(3) . . . must control over the relatively general grant of authority in FPA section 212(e)."
at 15, 675 F.2d at 1240 (emphasis in original). The court concluded that the Commission must provide notice to interested parties and afford an opportunity for an evidentiary
Following the denial of petitions for rehearing and rehearing en banc, [
] petitions for certiorari were filed by both FERC and American Paper Institute, Inc., the national trade association of the pulp, paper, and paperboard industry, which accounts for a large share of the cogeneration of electric power in the United States today. We granted both petitions. 459 U.S. 904 (1982).
The first question before us is whether FERC's action in promulgating the full-avoided-cost rule was "arbitrary, capricious, [or] an abuse of discretion." 5 U.S.C. § 706(2)(A). [
We cannot answer this question simply by noting that the full-avoided-cost rule is within the range of permissible rates that Congress established in § 210(b) of PURPA. The Commission plainly has the authority to adopt a full-avoided-cost rule, for PURPA sets full avoided cost as the maximum rate that the Commission may prescribe. Whether the Commission properly exercised that authority is a separate issue. To decide whether the Commission's action was "arbitrary, capricious, [or] an abuse of discretion," we must determine whether the agency adequately considered the factors relevant to choosing a rate that will best serve the purposes of the statute, and whether the agency committed "a clear error of judgment."
FERC's explanation of its reasons for promulgating the full-avoided-cost rule must be examined in light of the criteria set forth in § 210(b) of PURPA, 16 U.S.C. § 824a-3(b) (1976 ed., Supp. V), which provides that the purchase rate established by the Commission must be "just and reasonable to the electric consumers of the electric utility and in the public interest," and must not discriminate against qualifying facilities. [
] Since the full-avoided-cost rule plainly satisfies the nondiscrimination requirement, we need only consider whether FERC adequately explained why the rule is "just and reasonable to the electric consumers of the electric utility and in the public interest."
We cannot accept respondents' suggestion, Brief for Respondent Electric Utilities 9, and n. 4, that the "just and reasonable" language in § 210(b) was intended to require that the purchase rate be set "
at the lowest possible reasonable rate
consistent with the maintenance of adequate service in the public interest.'"
(1959), quoting the original version of the Natural Gas Act. Simply on the basis of the statutory language, we would be reluctant to infer that Congress intended the terms "`just and reasonable,'" which are frequently associated with cost-of-service utility ratemaking,
see, e.g., NAACP v. FPC,
425 U. S. 662
"It is not the intention of the conferees that cogenerators and small power producers become subject . . . to the type of examination that is traditionally given to electric utility rate applications to determine what is the just and reasonable rate that they should receive for their electric power. The conferees recognize that cogenerators and small power producers are different from electric utilities, not being guaranteed a rate of return on their activities generally or on the activities
the sale of power to the utility and whose risk in proceeding forward in the cogeneration or small power production enterprise is not guaranteed to be recoverable."
In contrast, a subsequent passage in the Conference Report explicitly states that the "just and reasonable" language of § 210(c), 16 U.S.C. § 824a-3(c) (1976 ed., Supp. V), which concerns sales by utilities to qualifying facilities, "is intended to refer to traditional utility ratemaking concepts." H.R. Conf Rep. No. 95-1750,
The Commission did not ignore the interest of electric utility consumers "in receiving electric energy at equitable rates." H.R.Conf.Rep. No. 95-1750,
at 97. [
] The Commission recognized that the full-avoided-cost rule would not directly provide any rate savings to electric utility consumers, but deemed it more important that the rule could "provide a significant incentive for a higher growth rate" of cogeneration and small power production, and that
"these ratepayers and the nation as a whole will benefit from the decreased reliance on scarce fossil fuels, such as oil and gas, and the more efficient use of energy. [
at a fixed percentage of avoided cost would discourage production of electric energy by qualifying facilities whose marginal costs exceeded the rate that a purchasing utility would be required to pay under this approach, whereas those same facilities would retain an incentive to produce energy under the full-avoided-cost rule so long as their marginal costs did not exceed the full avoided cost of the purchasing utility.
Under these circumstances, it was not unreasonable for the Commission to prescribe the maximum rate authorized by PURPA. [
] The Commission's order makes clear that the Commission considered the relevant factors and deemed it most important at this time to provide the maximum incentive for the development of cogeneration and small power production, in light of the Commission's judgment that the entire country will ultimately benefit from the increased development of these technologies and the resulting decrease in the Nation's dependence on fossil fuels. The Commission has a statutory mandate to set a rate that is "in the public interest," and as this Court stated in
NAACP v. FPC,
, "the words
public interest' in a regulatory statute . . . take meaning from the purposes of the regulatory legislation." The basic purpose of § 210 of PURPA was to increase the utilization of cogeneration and small power production facilities and to reduce reliance on fossil fuels.
See FERC v. Mississippi,
456 U.S. at 750. At this early stage
Providing an opportunity for evidentiary hearings before the Commission for every interconnection necessary to complete a purchase or sale under PURPA would seriously impede the very development of cogeneration and small power production that Congress sought to facilitate. Many of the facilities in question are small operations. By definition, a small power production facility has a production capacity of no more than 80 megawatts, 16 U.S.C. § 796(17)(A)(ii) (1976 ed., Supp. V), and cogeneration facilities may also be of modest size. Many owners of qualifying facilities would have little incentive to purchase or sell electric energy if they had to go through an evidentiary hearing before FERC in Washington, D.C. every time they needed to hook up with a utility to consummate a purchase or sale. The average cost to FERC of a contested interconnection proceeding is currently more than $57,000,
FERC Notice of Proposed Rulemaking, Docket RM 82-38-000, Fees Applicable to Electric Utilities, Cogenerators, and Small Power Producers 29-30 (Sept. 1, 1982), and the costs to private parties are doubtless
also substantial. If we were to hold that utilities must be provided an opportunity for a hearing whenever a qualifying facility seeks an interconnection in order to effectuate a purchase or sale under PURPA, we would be "imput[ing] to Congress a purpose to paralyze with one hand what it sought to promote with the other."
Clark v. Uebersee Finanz-Korporation, A.G.,
Cf. E. I. du Pont de Nemours & Co. v. Train,
430 U. S. 132
390 U. S. 777
We agree with the Commission that, in light of the entire statutory scheme, § 210(e)(3) of PURPA may reasonably be interpreted to forbid the Commission to exempt qualifying facilities from being the target of applications under the FPA for orders "requiring . . . [a] physical connection," FPA, § 210(a)(1), but not to forbid the Commission to grant qualifying facilities the right to obtain interconnections without applying for an order under the FPA. The use of the word "exempted" in § 210(e)(3) is consistent with an intent to ensure only that qualifying facilities not be immunized from the requirements that the Commission may impose under §§ 210 and 212 of the FPA. The term "exemption" is ordinarily used to denote relief from a duty or service.
Black's Law Dictionary 513 (5th ed.1979) (to "exempt" is "to relieve, excuse or set free from a duty or service imposed upon the general class to which the individual exempted belongs"). The only duty that §§ 210 and 212 of the FPA directly impose upon any facility is the duty to obey an order "requiring . . . [a] physical connection." Section 212(e) of the FPA expressly states that § 210 of the FPA shall not be construed "as requiring any person to utilize the authority of [§ 210] . . . in lieu of any other authority of law." Significantly, the Commission's interconnection rule does not immunize qualifying facilities from the only requirement that §§ 210 and 212 of the FPA do directly impose on them -- the requirement that they obey an interconnection order issued
under those provisions. Qualifying facilities remain subject to applications by other facilities for orders requiring them to make interconnections. The Commission's rule simply permits qualifying facilities to take certain steps to require other parties, namely, electric utilities, to make interconnections. [
] The Commission's interconnection rule represents
(1965), quoting
Power Reactor Development Co. v. Electrical Workers,
(1961). To uphold it,
See Mourning v. Family Publications Service, Inc.,
411 U. S. 371
-372 (1973). We need only conclude that it is a reasonable interpretation of the relevant provisions. For the reasons stated above, we do conclude that the Commission's interpretation is reasonable, and that the Court of Appeals erred in rejecting that interpretation.
* Together with No. 82-226,
Federal Energy Regulatory Commission v. American Electric Power Service Corp. et al.,
The court proceeded to "outline some additional concerns raised by the full avoided cost rule, which the Commission should address in its subsequent rulemaking."
at 9-11, 675 F.2d at 1234-1236.
In denying a petition for rehearing, the Court of Appeals emphasized that it had not declared the full-avoided-cost rule inconsistent with PURPA, but had "simply remanded the matter because the Commission had failed to explain
its rationale and process of consideration.'" 219 U.S.App.D.C. at 21, 675 F.2d at 1246, quoting
at 8, 675 F.2d at 1233. A suggestion for rehearing en banc was denied by a vote of 3 to 2, with 6 of the 11 active Circuit Judges not participating.
at 21, 675 F.2d at 1246.
It is not entirely clear.from the Court of Appeals' opinion what standard of review the court applied, but it appears that the court may have erroneously employed the substantial evidence standard. The court criticized FERC for failing "to demonstrate the factual basis,"
at 9, 675 F.2d at 1234, for its finding that sharing the savings from cogeneration with consumers would afford consumers only insubstantial savings, and it cited in a footnote an earlier decision that had employed the substantial evidence test in a case involving informal rulemaking by the Commission under the FPA.
at 9, n. 36, 675 F.2d at 1234, n. 36, citing
Public System v. FERC,
196 U.S.App.D.C. 66, 606 F.2d 973 (1979).
In any event, the Court of Appeals should have applied only the arbitrary-and-capricious standard. Unlike the FPA,
16 U.S.C. § 8251(b), PURPA does not direct reviewing courts to determine whether orders entered thereunder are supported by substantial evidence. In the absence of a specific command in PURPA to employ a particular standard of review, the full-avoided-cost rule must be reviewed solely under the more lenient arbitrary-and-capricious standard prescribed by the Administrative Procedure Act for judicial review of informal rulemaking.
See, e.g., FCC v. National Citizens Committee for Broadcasting,
436 U. S. 803
H.R.Conf.Rep. No. 95-1750, p. 98 (1978) (the purchase rate prescribed by the Commission is to be "the lower of . . . a rate which is just and reasonable to consumers of the utility, in the public interest, and nondiscriminatory, or the incremental cost of alternate electric energy").
We reach this conclusion even though we agree with the Court of Appeals,
that the rule was not adequately explained by the Commission's observation that,
whereas the rule would provide significant incentives for cogenerators and small power producers. 45 Fed.Reg. 12222 (1980). In the context of ratemaking, it is typically the case that any increment in the rate will "make a small dent in the consumer's pocket,"
FPC v. Texaco Inc.,
417 U. S. 380
417 U. S. 399
(1974), while that same increment will have substantial consequences for the parties to whom the rate is paid. FERC's statutory mandate to prescribe a rate that "shall be just and reasonable to the electric consumers of the electric utility," 16 U.S.C. § 824a-3(b)(1) (1976 ed., Supp. V), obviously reflects a congressional determination that potential savings for consumers as a class are important even though rate changes will generally not have great economic significance for any individual consumer.
Cf. FPC v. Texaco Inc., supra,
("Even if the effect of increased small-producer prices would make a small dent in the consumer's pocket, . . . the [Natural Gas] Act makes unlawful all rates which are not just and reasonable, and does not say a little unlawfulness is permitted").
The Commission's interpretation also finds support in the indications in the legislative history of §§ 210 and 212 of the FPA that those provisions were intended to address a different situation. Prior to their enactment the Commission's authority to order interconnections was limited, under § 202(b) of the FPA, 16 U.S.C. § 824a(b), to utilities over which it had regulatory jurisdiction and, except in emergencies, to situations in which a "person engaged in the . . . sale of electric energy" applied for an order directing such a utility to interconnect. Congress was concerned with the refusal of some intrastate utilities to make interconnections with other systems because, had they done so, they would have become part of the interstate system, and thereby become subject to the full range of regulation under the FPA.
124 Cong.Rec. 34763-34764 (1978) (Sen. Metzenbaum);
at 34770 (Sen. Bartlett); 123 Cong.Rec. 31194 (1977) (Sen. Johnston);
at 32397-32398 (colloquy between Sen. Johnston and Sen. Domenici). Sections 210, 211, and 212 of the FPA were enacted to give the Commission authority to order interconnections where they will enhance the reliability of the Nation's electric power systems and optimize the use of its generating capacity. At the same time, Congress provided, in § 201(b)(2) of the FPA, 16 U.S.C. § 824(b)(2) (1976 ed., Supp. V), that compliance with orders to interconnect issued under § 210 or § 211 would not subject an entity to regulation by the Commission under any other provision of the Act. There is nothing in the legislative history of §§ 210-212 to suggest that they were intended to provide the exclusive means of obtaining an interconnection.