Opinion ID: 402460
Heading Depth: 2
Heading Rank: 2

Heading: Simultaneous Purchase and Sale39

Text: 54 A customer of a utility who needs electric energy for his own industrial purposes may produce it at his own plant or buy it from the local utility. However, if such a customer is unable simultaneously to buy from, and sell power to, the utility, he will generally find it uneconomical to generate energy himself even though he may be able to do so more efficiently than the utility. That is not an unusual situation in view of the fact that a utility's retail rate is generally lower than the utility's incremental cost of producing additional capacity or energy. 40 In such circumstances, the prudent customer will allow the utility to build and operate the more expensive plant and supply customers, even though the utility's plant will cost society more than if the customer built a generating plant. 55 The regulations promulgated by FERC permit a cogenerator, at his option, to indulge in the fiction that the electricity he generates for his own use is simultaneously purchased by a utility and sold back to him. 41 The regulations enable new qualifying small power producers and cogenerators to sell to the utility all of their electric output at the purchasing utility's full avoided cost, and to purchase from the utility any electricity they may need at the traditional retail rate. 56 Petitioners challenge this rule on two plausible grounds. First, they argue that the Commission has misconstrued the statutory terms purchase and sale. That is, they argue that because the rule here requires utilities to treat cogenerators as if they have engaged in a purchase and sale when in fact none might have occurred, it is violative of the plain meaning of section 210(a) of PURPA, under which the rule was promulgated: 57 (The Commission shall) prescribe ... such rules as it determines necessary to encourage cogeneration and small power production which rules require electric utilities to offer to- 58 (1) sell electric energy to qualifying cogeneration facilities and qualifying small power production facilities and 59 (2) purchase electric energy from such facilities. 42 60 Yet it is clear, and petitioners conceded at oral argument, that FERC could have achieved the identical result where the cogenerator in fact engages in an actual sale of all his output to, and an actual purchase of all his input from, the utility. It would be anomalous indeed to treat differently the cogenerator who consumes all the power he generates and one who sells his surplus. Under these circumstances it seems unlikely that Congress intended the narrow definition of purchase and sale which petitioners urge upon us. 61 Moreover, it is arguable that the statute itself impels the simultaneous transaction rule. The statute requires non-discriminatory rates for cogenerators, and it is at least plausible that the Commission could find that not invoking a simultaneous transaction rule would in fact result in cogenerators paying discriminatory rates. That is, in the absence of a simultaneous transaction rule and assuming that there was no physical purchase or sale between the utility and the cogenerator, the person who chose to cogenerate would pay more for his power than the person who chose to buy from a utility. As discussed earlier, 43 this is a result of the structure of utility rates and can happen even if the cogenerator can generate energy more efficiently than the utility, since the cogenerator must pay his cost of cogeneration and the non-cogenerator must pay only the relatively and artificially lower utility retail rates. Moreover, as was explained in the preceding paragraph, in the absence of FERC's rule the cogenerator who consumes all his power would be treated (discriminatorily) differently from one who sells his surplus. Under these circumstances the Commission could properly require that these effects be avoided by adopting, as it did here, a simultaneous transaction rule. 62 Finally, it should be borne in mind that one of the most basic purposes of PURPA was to remove the obstacle to cogeneration involved here: utilities were often unwilling to purchase the electric output at all or at an appropriate rate from cogenerators. 44 Under these circumstances we are inclined to give a great deal of deference to FERC's regulations. 45 63 Petitioners' second complaint is that the Commission did not adequately consider and explain its decision to require utilities to engage in the simultaneous transaction fiction. Petitioners' argument here parallels its challenge to the Commission's adoption of the full avoided cost rule. 64 While we find for petitioners on the latter point, we believe that in the matter of the simultaneous transaction fiction the Commission's consideration and explanation of its decision were adequate. The questions begged by the Commission's scanty findings with respect to its adoption of the full avoided cost rule are not raised in the context of its simultaneous transaction rule. The Commission considered the impact on consumers of its rule and concluded that the utility's customers would benefit whenever a (cogenerator) builds a lower-cost plant than the utility can build, (so) we tentatively recommend that this simultaneous buying and selling be permitted in connection with new facilities. 46 As this passage also indicates, the Commission's simultaneous transaction rule is limited to new qualifying small power producers and cogenerators. 65 That the Commission considered the impact of its rule on all interested parties is reflected in its Notice of Proposed Rulemaking Regarding the Implementation of Section 210 of the Public Utilities Regulatory Policies Act of 1978: 66 As observed in the Staff discussion paper, an efficient use of society's resources requires that when there is a need for additional capacity, and a utility's customer can construct a new plant more cheaply than a utility can, he should be encouraged to do so. A qualifying facility may have previously used a portion of its electric output to supply its own power needs. That it chose to generate its own electric power, rather than purchase such power from an electric utility, indicates that there were sufficient economic incentives to so act. To permit such a facility to sell that portion of its electric output to the utility at the utility's avoided costs and replace that electricity from the electric utility at non-incremental (and presumably lower) rates would increase the purchase power costs of the purchasing utility and thus would increase the rates charged to the utility's other customers. The Commission believes that it is not necessary to the encouragement of cogeneration and small power production that a qualifying facility be permitted to obtain avoided cost-based rates for this portion of its electric output. Accordingly, the Commission proposes that for energy generated by a new facility or by capacity installed after the date of issuance of these rules, a qualifying facility be permitted to sell its output at rates established under the section 210(b) of PURPA pricing mechanism while simultaneously purchasing electric energy from a utility pursuant to its retail rate schedules. 47 67 Thus we find FERC's rule to be consistent with PURPA and to have been adequately justified by the Commission. Accordingly, we uphold the rule.