Case Name: COVANTA MAINE, LLC v. PUBLIC UTILITIES COMMISSION
Court: Maine Supreme Judicial Court
Jurisdiction: Maine
Decision Date: 2012-06-05
Citations: 44 A.3d 960
Docket Number: 
Parties: COVANTA MAINE, LLC v. PUBLIC UTILITIES COMMISSION.
Judges: Panel: SAUFLEY, C.J., and ALEXANDER, LEVY, SILVER, MEAD, GORMAN, and JABAR, JJ.
Reporter: West's Atlantic Reporter, Third Series
Volume: 44
Pages: 960–969

Head Matter:
2012 ME 74
COVANTA MAINE, LLC v. PUBLIC UTILITIES COMMISSION.
Supreme Judicial Court of Maine.
Argued: Sept. 15, 2011.
Decided: June 5, 2012.
Patrick J. Scully, Esq. (orally), Bernstein, Shur, Sawyer & Nelson, Portland, for appellant Covanta Maine, LLC.
Leslie E. Raber, Esq., Jordan D. McCol-man, Esq. (orally), Mitchell M. Tannen-baum, Esq., and Joanne B. Steneck, Esq., Maine Public Utilities Commission, for ap-pellee Public Utilities Commission.
Panel: SAUFLEY, C.J., and ALEXANDER, LEVY, SILVER, MEAD, GORMAN, and JABAR, JJ.
Majority: SAUFLEY, C.J., and SILVER, MEAD, GORMAN, and JABAR, JJ.
Dissent: ALEXANDER and LEVY, JJ.

Opinion:
JABAR, J.
[¶ 1] Covanta Maine, LLC (Covanta), a subsidiary of Covanta Energy, appeals from orders of the Public Utilities Commission (Commission) denying Covanta's requests for certification of two of its facilities as Class I new renewable resources pursuant to 35-A M.R.S. § 3210 (2010) and 9 C.M.R. 65 407 311-1 to -2 § 3 (2008). Covanta argues that the Commission erred by basing its conclusion that the facilities were not refurbished on the ratio of Covanta's expenditures in the facilities to the value of those facilities, and it therefore asserts that the Commission improperly denied certification of its two facilities. For the reasons set forth in this opinion, we agree that the Commission improperly denied certification.
I. BACKGROUND
[¶ 2] In 2007 the Legislature enacted the Act to Stimulate Demand for Renewable Energy, P.L.2007, ch. 403, codified at 35-A M.R.S. § 3210, requiring competitive electricity providers to obtain a percentage of their electricity offered at retail to Maine's consumers from "new" renewable capacity resources. 35-A M.R.S. § 3210(3-A). The statutory portfolio standards require each competitive electricity provider to increase the amount of new renewable capacity resources in its portfolio by one percent every year. Id. § 3210(3-A)(A). Specifically, the Act requires that in 2008, new renewable capacity resources make up at least 1% of the electricity provider's portfolio and that by 2017, new renewable capacity resources make up at least 10% of its portfolio. Id. § 3210(3-A)(A)(1), (10). Generally, new renewable capacity resources are facilities that began service, were added to an existing facility, resumed operation, or were refurbished after September 1, 2005. 35-A M.R.S. § 3210(2)(B-4). The statute states, in relevant part:
B-4. "New" as applied to any renewable capacity resource means a renewable capacity resource that:
(1) Has an in-service date after September 1, 2005;
(2) Was added to an existing facility after September 1, 2005;
(3) For at least 2 years was not operated or was not recognized by the New England independent system operator as a capacity resource and, after September 1, 2005, resumed operation or was recognized by the New England independent system operator as a capacity resource; or
(4) Was refurbished after September 1, 2005 and is operating beyond its previous useful life or is employing an alternative technology that significantly increases the efficiency of the generation process.
35-A M.R.S. § 3210(2)(B^4).
[¶ 3] The Commission modified its rules to conform with the statute, including adding a provision that requires generators to pre-certify facilities as new renewable resources. 9 C.M.R. 56 407 311-2 § 3(B)(4) (2008). This provision allows the Commission to resolve whether a facility satisfies one of the vintage requirements of section 3210(2)(B-4) on a case-by-case basis. See Order Adopting Rule and Statement of Actual and Policy Basis, No. 2007-391, Order at 6 (Me.P.U.C. Oct. 22, 2007). Per the requirements set forth in the Commission's rules, on June 10, 2010, Covanta submitted an application for certification of its West Enfield biomass plant as a Maine Class I new renewable resource. See 9 C.M.R. 65 407 311-2 § 3(B)(4) (2008). Two weeks later, on June 24, 2010, Covanta submitted an application seeking the same certification for its biomass plant in Jonesboro. Both applications asserted that the facilities' resource type was "biomass generator" and their vintage category was "refurbished" pursuant to section 3210(2)(B-4)(4). See 9 C.M.R. 65 407 311-2 § 3(B)(1)(g), (3)(d) (2008).
[¶ 4] Specific to the issue of refurbishment, Covanta explained that each facility was operating beyond its twenty-year useful life due to investments made after September 1, 2005. The Jonesboro and West Enfield plants were first-of-a-kind circulating fluidized bed combustion biomass-fired plants that, according to Co-vanta, were redesigned and improved to "maximize combustion efficiency and extend the boiler's useful life beyond 20 years." Since September 1, 2005, Covan-ta, together with the facilities' previous owners, has expended $3,969,515 on its West Enfield facility and $6,097,522 on its Jonesboro facility for "design changes, material upgrades[,] and capital expenditures." After receiving a protective order from the Commission, Covanta submitted a list of these expenditures, identifying the kind of refurbishment project, the previous useful life of each item, the age of the item at the time of the expenditure, the item's estimated new useful life, and the total cost of each expenditure.
[¶ 5] In October 2010 the Commission requested information on the accounting and tax treatment of the listed expenditures, specifically inquiring whether the items were capitalized or expensed. Although the record does not include tax returns for Covanta, Ridgewood, or In-deck, the record does contain a document submitted to the Commission by Covanta indicating the manner in which the expenditures were treated on Covanta's tax returns and Indeck's financial records. This document indicated that for the years 2009 and 2010, the years that Covanta owned the facilities, about 51.1% of the expenditures at the West Enfield facility and 78.5% of the expenditures at the Jonesboro facility were capitalized on Covanta's tax returns. The document also summarized the information contained in the accounting records submitted to the Securities and Exchange Commission by Indeck relating to expenditures for the years 2006 and 2007, the years that Indeck owned the facilities. These records indicate that the value of Indeck's non-current assets increased by $2,139,000 in 2006 and by $602,000 in 2007.
[¶ 6] In November 2010, after reviewing Covanta's applications and the confidential list of major refurbishment projects, the Commission issued orders denying certification to both the West Enfield and Jonesboro facilities on the basis that these facilities did not satisfy the vintage requirement. The Commission determined that, although the facilities were built in 1986 and are operating beyond their previous useful lives, neither facility had been refurbished within the meaning of section 3210(2)(B— 4) (4).
[¶ 7] The Commission stated, in making its determination that the facilities were not refurbished, that "it is appropriate to consider whether investments in the facility were routine maintenance items or refurbishment investments." The Commission made this determination in two ways. First, the Commission examined Covanta's tax treatment of its expenditures and determined that a number of the projects listed by Covanta were expensed rather than capitalized, and therefore concluded that the expensed items were more representative of maintenance-type activi ties rather than refurbishment projects. The only evidence before the Commission relevant to this determination was the documentation from Covanta indicating that, for 2009 and 2010, 51.1% of the expenditures for the West Enfield facility and 78.5% of the expenditures for the Jones-boro facility were capitalized.
[¶ 8] The Commission also compared the total expensed and capitalized expenditures to the facilities' 2008 value. Using this ratio analysis, the Commission concluded that the total expensed and capitalized expenditures for the West Enfield facility were below twenty percent of the facility's 2008 value and that this "relatively low level of expenditures" would not allow the facility to be classified as refurbished pursuant to the statute. Similarly, the Commission concluded that the total expensed and capitalized expenditures for the Jonesboro facility were below twenty-five percent of the facility's 2008 value, and therefore the facility could not be classified as refurbished. The Commission concluded that neither the West Enfield nor the Jonesboro facility, when comparing Covan-ta's total expenditures to the value of each facility, had sufficient capitalized investments to be considered refurbished; therefore, the Commission denied Covan-ta's applications.
[¶ 9] Covanta filed a request for reconsideration of the Commission's orders on November 29, 2010. The Commission took no action on the request. Consequently, the request was denied pursuant to Chapter 110 of the Commission's rules, which provides that a petition for reconsideration not granted within twenty days from the date of filing is denied. 9 C.M.R. 65 407 110-33 § 1004 (1999). Covanta appealed the Commission's decision pursuant to 35-A M.R.S. § 1320 (2011) and M.R.App. P. 2.
II. DISCUSSION
[¶ 10] As the party seeking to vacate the Commission's decision, Covanta bears the burden of persuasion on this appeal. Anderson v. Me. Pub. Emps. Ret. Sys., 2009 ME 134, ¶ 3, 985 A.2d 501. "We review decisions made by an administrative agency for errors of law, abuse of discretion, or findings of fact not supported by the record." S.D. Warren Co. v. Bd. of Envtl. Prot., 2005 ME 27, ¶ 4, 868 A.2d 210, aff'd, 547 U.S. 370, 126 S.Ct. 1843, 164 L.Ed.2d 625 (2006).
[¶ 11] The Commission argues that the term "refurbished" is ambiguous and that therefore we should defer to its expertise and to its definition of the term. However, during the proceedings at the agency level there were no discussions, and there was no apparent confusion, as to the meaning of the term. In its decision, the Commission used the term "refurbished" in a manner that belies its claim that the term is ambiguous: "[I]t is appropriate to consider whether investments in the facility were routine maintenance items or refurbishment investments, and whether the facility is 'operating beyond its useful life.' " We agree that this is the proper standard for evaluating the expenditures and we note that it is consistent with the clarification of the term "refurbished" as set out in a legislative amendment to the Act that was enacted after the Commission made the decisions under appeal here.
[¶ 12] The amendment to Title 35-A M.R.S. § 3210(2)(B-4), enacted by P.L.2011, ch. 413, § 1, took effect on September 28, 2011, after this appeal was argued. The Legislature thereby adopted a definition of "to refurbish" as meaning "to make an investment in equipment or facilities, other than for routine maintenance and repair, to renovate, reequip or restore the renewable capacity resource." Although this amendment was not in existence at the time when the Commission considered Covanta's applications, we are free to consider such legislation in ascertaining the meaning of a term when the amendment is meant to clarify prior legislation, not alter it. See Lee v. Massie, 447 A.2d 65, 69 (Me.1982) ("As a general principle of statutory construction, enactments made by a subsequent Legislature may be examined to illuminate the meaning of pri- or legislative terminology that is ambiguous."); Mundy v. Simmons, 424 A.2d 135, 137 (Me.1980) ("[W]hen there is ambiguity in prior legislative terminology, enactments by a subsequent legislature may throw light on the legislative intent underlying previously enacted legislation and may be taken into consideration in dissipating the uncertainty of a foundational statute").
[¶ 13] The meaning of the term "refurbished" as the Commission applied it is consistent with the definition contained in this amendment. However, the Commission ignored its own criterion and denied the applications on the basis of Covanta's "relatively low level of expenditures." The Commission committed an error of law when it imposed upon Covanta the requirement that in order to refurbish its facilities, it must spend an amount that reaches a certain unspecified percentage of the value of each facility.
[¶ 14] The Commission compared Co-vanta's expenditures to another company's expenditures and decided that Covanta's level of expenditures was too low:
However, even the total of both ex-pensed and capitalized expenditures was below 25% of the facility's 2008 value and the amount of just capitalized investments, even by Covanta's estimate, is substantially below that value. In contrast, the level of capitalized investments made by Sappi in its Westbrook biomass facility that was previously certified under the refurbishment vintage criteria was approximately 45% of the facility's value. As such, we cannot find that Covanta's relatively low level of expenditures would allow classifying the entire facility as refurbished, and thus qualifying it as a "new" renewable capacity resource.
(Emphasis added.)
[¶ 15] The Commission did not deny the petition because it concluded that the expenditures were more in the nature of maintenance or repair items than of refurbishment investments; rather, the Commission arbitrarily established a requirement that the expenditures meet some minimum level that equals an unspecified percentage of the total value of the facility.
[¶ 16] The statute does not require any minimum investment threshold, and imposing this requirement on Covanta was an error of law. Any quantitative requirement by the statute occurs only in the second prong of the pertinent section 3210(2)(B — 4)(4) analysis (i.e., whether the equipment or facility is "operating beyond its previous useful life"). If the facility has been refurbished and is "operating beyond its previous useful life," then the refurbishment investments are creating "new" energy and accomplishing the goals of the legislation. If the legislature wanted to place a quantitative requirement on the expenditures — as a percentage of the total value of the facility — it could have done so. Because the Legislature did not include this type of requirement, it was an error of law for the Commission to graft this added requirement onto the Maine statute. Additionally, the Commission's interpretation is in conflict with the policy objective of the Act. The Maine Legislature intended to encourage the preservation of older existing renewable generation facilities by creating an incentive for owners to make the investments necessary to preserve and extend the useful lives of these older facilities. See 35-A M.R.S. § 3210(1).
[¶ 17] We vacate the Commission's decision and remand the matter back to the Commission. On remand, the Commission must evaluate the expenditures by determining whether the expenditures were for the purpose of repair or maintenance, or were refurbishment investments. The Commission must make this determination by examining the nature and character of the expenditures without any quantitative requirement related to the amount spent or the ratio of the expenditures to the total value of the facility.
[¶ 18] Although it is not clear in reading the Commission's decision how much weight it put on the manner in which expenditures were handled for tax purposes, it is something that the Commission may consider. However, how a company's expenditure was taxed is not dispositive in deciding whether an expenditure is a repair or maintenance item or a refurbishment investment. Traditionally, pursuant to the federal tax code, expenditures on repairs or maintenance items are expensed or deducted in full in the year they are incurred, whereas capital expenditures are deducted over a period of years as depreciable assets. However, there are many provisions of the tax code that allow what would otherwise be capital expenditures to be fully deducted in the year that the expenses are incurred. For example, in its "[a]ccelerated cost recovery system," the tax code provides for immediate deduc-tibility for certain capital expenditures made between December 31, 2007, and January 1, 2013. 26 U.S.C.S. § 168(k) (LexisNexis 2012). Likewise, in its provisions allowing for an "[ejection to expense certain depreciable business assets," the tax code permits the immediate deduction of capital expenditures related to certain tangible property used as part of manufacturing, extraction, or production of electrical energy. 26 U.S.C.S. § 179, 1245(a)(3) (LexisNexis 2012 & Supp. Apr. 2012). For these reasons, whether an expenditure is deducted in full in the year it is incurred is not determinative of whether the expenditure is a repair or maintenance item or a refurbishment investment.
[¶ 19] On remand, the Commission must evaluate the expenditures to determine whether they were made for the purpose of repair or maintenance or for investment in equipment or facilities. The Commission must also consider the amendment to section 3210(2)(B-4), and may consider any new evidence offered, including the evidence submitted in Covanta's motion for reconsideration.
The entry is:
Judgment of the Public Utilities Commission is vacated. Remanded for further proceedings regarding the West Enfield and Jonesboro applications consistent with this opinion.
. Title 35-A M.R.S. § 3210 has since been amended. P.L.2011, ch. 314, § 1 (effective June 13, 2011); P.L.2011, ch. 283, § 1 (effective Sept. 28, 2011); P.L.2011, ch. 413, § 1 (effective Sept. 28, 2011) (codified at 35-A M.R.S. § 3210 (2011)). Only P.L.2011, ch. 413, § 1, which added a definition of "refurbish" to the statute, is relevant to this appeal. The remaining sections discussed in this opinion were not affected by the 2011 amendments.
. Covanta purchased both facilities from Ridgewood Maine, LLC, and Indeck Energy Services, Inc., in December 2008.
. There is no dispute between the parties that the second prong of the test — whether each facility is "operating beyond its previous useful life" — has been met.
. For example, Rhode Island requires a "Re-powered Generation Unit" to "demonstrate that 80% of its resulting tax basis of the entire Generation Unit's plant and equipment (but not its property and intangible assets) is derived from capital expenditures made after December 31, 1997." 90-060-015 R.I.Code R. § 3.29(iii) (LexisNexis 2012).