Opinion ID: 1219567
Heading Depth: 2
Heading Rank: 1

Heading: does the final order exceed the commission's jurisdiction, violate the supremacy clause, or violate the commerce clause?

Text: NMIEC presents three issues regarding the scope of the Commission's ability to act. It argues that the Commission exceeded its jurisdiction granted by the New Mexico Public Utility Act, NMSA 1978, Section 62-6-4(B) (Repl.Pamp.1984), by excluding the M-S-R contract from rates. Should we find that the legislature intended to grant the Commission authority to exclude from rates a wholesale purchase, we are then asked to determine whether this conflicts with the Federal Power Act (FPA), 16 U.S.C. Sections 791a-825r (1988), and therefore violates the Supremacy Clause, U.S. Const. art. VI. If the FPA, however, does not apply to the M-S-R transaction, NMIEC presents us with a Commerce Clause issue, asking us to determine whether the final order unconstitutionally burdens interstate commerce in violation of U.S. Const. art. I, section 8, cl. 3. Before we address these issues on their merits, it is helpful to consider exactly what the Commission did. As discussed earlier, it excluded the M-S-R contract from PNM's rates. M-S-R had exercised its option to purchase 28.8 percent of SJ-4 from PNM in 1983; as part of the agreement, PNM bought back 105 MW from M-S-R through 1995. At the hearing, PNM posited that the contract should be excluded from jurisdictional rates, and the Commission agreed, stating: We agree with the testimony of [a City of Albuquerque witness] that [T]he S-R purchase is biggest now, 105 megawatts, precisely when PNM doesn't need the megawatts; and it disappears in 1995, precisely the time when PNM might be starting to need megawatts. This results in a mismatch between PNM's loads and resources. This is sufficient reason by itself to exclude the M-S-R Contract. Additionally, before 1995; the costs of PNM's owned portion of SJ-4 are less than the costs of the M-S-R Contract. Good regulatory policy and the public interest require that if any portion of SJ-4 is to be paid for by PNM's ratepayers, it should be through direct inclusion in rate base of Company-owned resources rather than via the M-S-R purchase. For all the above reasons, the M-S-R contract should be excluded from PNM's jurisdictional rates. Final Order, 101 Pub.Util.Rep. (PUR) 4th at 177 (citations omitted).
The scope of the Commission's authority to regulate sales of capacity to PNM for resale is governed by Section 62-6-4(B), which states in pertinent part that such sales: shall be subject to regulation by the commission but only to the extent necessary to enable the commission to determine that the cost to the utility of such    electricity at the place where the major distribution to the public begins shall be reasonable and that the methods of delivery thereof shall be adequate   . NMIEC asserts that, by denying public access to the capacity, the Commission has attempted to regulate the purchase of electricity at the point of delivery to PNM rather than the cost at the point of distribution to the public. It contends that, because the capacity is not owned by PNM, the Commission's jurisdiction does not extend to its regulation and the Commission made no findings that would warrant an exercise of jurisdiction over the M-S-R contract. Examination of what the Commission actually has done with regard to the M-S-R contract illustrates the flaw in this argument and requires us to uphold the exercise of jurisdiction. The Commission, by excluding the contract, did not attempt to regulate PNM's purchase of electricity-PNM's contract with M-S-R remains undisturbed by the Commission's actions. PNM simply cannot include the capacity in rates. The Commission, in other words, regulated the utility by excluding the contract; it made no attempt to regulate or interfere with the contract to purchase. The general grant of jurisdiction to regulate a utility's rate and service contained in Section 62-6-4(A) provides the statutory authority for this action. The Commission's decision not to allow PNM to include the M-S-R contract in rates did not implicate Section 62-6-4(B)  there simply was no regulation of a sale of wholesale capacity  and we hold that the Commission acted within its jurisdiction.
In Public Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54 (1927), the Supreme Court established a bright line separating federal and state regulation  state regulation was limited to the retail sale of power, while the regulation of wholesale transactions was reserved exclusively to the federal domain. This bright line was codified in the FPA, 16 U.S.C. Section 824(a). Exempted from regulation, however, were municipalities, such as M-R. See id. § 824(f). NMIEC contends that regulation of the M-S-R contract falls within an area of exclusive federal jurisdiction and that the express exemption from regulation indicates the congressional intent that such contracts should remain unregulated and beyond the reach of state control. We find it unnecessary to determine the legal issue of whether this is an area of exclusive federal jurisdiction, cf. Arkansas Elec. Coop. Corp. v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375, 103 S.Ct. 1905, 76 L.Ed.2d 1 (1983) (allowing state regulation of rural electric cooperatives), because the Commission's activity regulates the retail sale of power. The Commission's actions constituted regulation of PNM and not of M-S-R. Exclusion of the contract in no way affected the municipalities' contract; it only affected PNM's ability to recover the cost of the contract from New Mexico consumers. Accordingly, we do not find that regulation of this type implicates an area of exclusive federal concern. See Rochester Gas & Elec. Corp. v. Public Serv. Comm'n, 754 F.2d 99, 102-05 (2d Cir.1985) (state regulation that does not compel nonjurisdictional activity is not preempted and does not violate supremacy clause).
NMIEC maintains that, having found that this was not an area of regulation reserved solely to the federal government, we must consider the implications of the Commission's regulation on the commerce clause, arguing that the exclusion of the M-S-R contract is economic protectionism in its purest form and therefore exactly the type of activity protected against by the commerce clause. See City of Philadelphia v. New Jersey, 437 U.S. 617, 623, 98 S.Ct. 2531, 2535, 57 L.Ed.2d 475 (1977). Two problems defeat NMIEC's argument. First, it is not clear that the Commission is regulating interstate commerce. It regulates the activities of PNM, an area incontrovertibly within its jurisdiction and sanctioned by the commerce clause. See Panhandle E. Pipe Line Co. v. Public Serv. Comm'n, 332 U.S. 507, 521, 68 S.Ct. 190, 197, 92 L.Ed. 128 (1947). The exclusion of the M-S-R contract does not directly affect M-S-R; it does not implicate its sales, or affect its decisions in a direct way. See Rochester Gas & Elec. Corp., 754 F.2d at 102-03. The effect on interstate commerce thus cannot be outright protectionism or per se violative of the commerce clause  exclusion of the contract is not regulation directly implicating out-of-state interests. Cf. Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032 (1935) (striking down as violative of the commerce clause New York's denial of a vendor license to a dealer procuring out-of-state milk at a price below the New York minimum fixed price). The second problem is that the burden on interstate commerce, if there is a burden, could only be incidental to legitimate regulation of PNM. To determine whether the Commission's actions have impermissibly burdened interstate commerce, we apply the modern commerce clause balancing test articulated in Arkansas Electric Cooperative Corp., 461 U.S. at 393-94, 103 S.Ct. at 1917-18: Where [a] statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970)). NMIEC argues that the regulation is not evenhanded  that the final order explains that M-S-R should be excluded over the San Juan capacity owned by PNM, giving precedent to sources simply by virtue of their local ownership. We disagree. The Commission articulated many legitimate reasons for excluding the contract, the most significant being that the contract provided power at a relatively higher rate at the time when it was least needed. The Commission excluded several sources of capacity, only one of which  the M-S-R contract  was owned by out-of-state interests. Moreover, the regulation directly implicated PNM, not M-S-R, and was part of the Commission's resolution of the legitimate and important concern of the excess capacity problem. The purpose of the regulation was not to exclude out-of-state capacity or to protect in-state generating capacity from out-of-state competition; the focus of the regulation was PNM, and it did not affect directly M-S-R or its marketing position. The contract is still intact, and any harm to M-S-R or any other interest seeking to sell power into New Mexico would be prospective. When the regulation is viewed in the context of its purpose, it is apparent that any prospective burden is highly speculative and ephemeral. This is not regulation nefariously poised to protect local interests from interstate competition. It is regulation that, as soon as the excess capacity problem is resolved, will be without effect, even incidentally, on interstate commerce. In addition to the regulation's rational goal  to deal with excess capacity  and its minimal impact on interstate commerce, we must consider the very important New Mexico interest in regulating utilities. Cf. Maine v. Taylor, 477 U.S. 131, 106 S.Ct. 2440, 91 L.Ed.2d 110 (1986) (overt discrimination against out-of-state interests upheld when balanced against highly significant state interest). Thus, we conclude that exclusion of the M-S-R contract does not violate the commerce clause.