Court Opinion

ID: 4661493
Source: CourtListenerOpinion
Date Created: 2021-02-19 15:07:18.918512+00
Date Added: 2024-06-11T08:02:13.791531
License: Public Domain

RENDERED: FEBRUARY 12, 2021; 10:00 A.M.
                       NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                         Court of Appeals
                            NO. 2020-CA-0678-MR

RIVERSIDE GENERATING                                               APPELLANT
COMPANY, L.L.C.

                APPEAL FROM FRANKLIN CIRCUIT COURT
v.              HONORABLE PHILLIP J. SHEPHERD, JUDGE
                        ACTION NO. 19-CI-00598

KENTUCKY PUBLIC SERVICE                                             APPELLEES
COMMISSION AND KENTUCKY
POWER COMPANY

                                   OPINION
                                  AFFIRMING

                                 ** ** ** ** **

BEFORE: CALDWELL, COMBS, AND L. THOMPSON, JUDGES.

COMBS, JUDGE: This case involves a rate dispute in which Riverside Generating

Company, L.L.C., (Riverside), appeals from an opinion and order of the Franklin

Circuit Court affirming a decision of the Kentucky Public Service Commission

(the Commission) that was entered in favor of Kentucky Power Company

(Kentucky Power). The circuit court concluded: that the findings of the
Commission were supported by substantial evidence; that the retail rate charged to

Riverside by Kentucky Power is in accordance with state law; and that Kentucky

Power did not engage in rate discrimination with respect to Riverside. After our

review, we affirm.

             Kentucky Power is a vertically integrated, regulated utility. It serves

customers in twenty eastern Kentucky counties. Kentucky Power is subject to the

jurisdiction of the Commission, which regulates its rates and services.

             Kentucky Power is a member of PJM Interconnection, LLC (PJM), a

regional transmission organization (RTO) that coordinates the transmission of

wholesale electricity through thirteen states and the District of Columbia. PJM

members collaborate to buy and sell power to each other through an integrated grid

system. These transactions help to ensure grid reliability throughout the region.

PJM is subject to the jurisdiction of the Federal Energy Regulatory Commission

(FERC).

             Riverside is a merchant power-generator based in New Jersey. It is

not a regulated utility. Riverside is a member of PJM and sells power that it

generates on the PJM wholesale market. Five of its natural gas-fired electric

power generators are connected to Kentucky Power’s transmission grid. These

generators are located at 25038 U.S. Highway 23 in Catlettsburg, Kentucky. Three

of the power generators sit on a site referred to as “Zelda”; the other two are on an

                                         -2-
adjacent site referred to as “Foothills.” The neighboring sites share infrastructure,

and all five generators are generally operated from a single control room located on

the Zelda site.

              Riverside generates electricity in its Kentucky facilities for sale on

the wholesale market only when it is profitable to do so – approximately ten

percent of the hours in any year. During the remaining ninety percent of the hours,

Riverside requires electric energy produced outside its generators to power the

auxiliary equipment necessary for its operations (lights, heat, air conditioning,

etc.). This energy is characterized as “station power.”

             Because it is a large, power-generating facility, Riverside takes

Kentucky Power’s service under the provisions of a tariff aimed at non-utility

generators of power -- “Tariff NUG.” Riverside is the only Kentucky Power

customer taking service pursuant to this tariff.

             Tariff NUG does not include rates. Instead, it requires a power-

generating customer to take service at retail rates during periods when it is not

generating energy sufficient to meet its internal requirements. However, Tariff

NUG contains a special provision meant to accommodate power-generating

customers that intend to sell output on the wholesale market and which can self-

supply their own energy requirements through commonly owned, yet remote,

generators. This means of obtaining energy through an affiliated, off-site facility is

                                          -3-
commonly referred to as “remote” self-supply. This provision enables the power-

generating customer to take service for station power under the wholesale

transmission framework established by PJM and governed by its Open Access

Transmission Tariff (OATT) as authorized by the FERC. Power generators can

also “on-site” self-supply by redirecting some of their own energy output for

internal use (“behind-the-meter” production) or “third-party” supply by drawing

power off the grid from unaffiliated providers. Riverside receives the auxiliary

energy that it requires for station power from Kentucky Power -- a third-party

supply arrangement.

             Historically, Riverside has paid retail rates for electric service in

accordance with Kentucky Power’s “Tariff IGS (Industrial General Service)” for

the 90% of the hours that it did not generate energy sufficient to meet its station

power requirements. Kentucky Power’s Tariff IGS rates apply to service that it

supplies to its largest industrial and commercial retail customers.

             On December 13, 2017, Riverside filed a complaint with the

Commission. It contended that its Kentucky generation sites (Zelda and Foothills)

consistently produce significantly more energy than Riverside consumes for its

own operations and that, as a consequence, it is entitled to take service pursuant to

the special terms and conditions provision of Tariff NUG. By self-supplying its

station power needs within PJM’s wholesale transmission framework under the

                                          -4-
OATT rather than pursuant to Kentucky Power’s less favorable, Commission-

approved, Tariff IGS, Riverside argued that it could realize an annual cost savings

of $1.1 million.

             Riverside and Kentucky Power filed testimony and responded to data

requests from the Commission. Following a hearing conducted in September

2018, the parties submitted extensive briefs. In an order entered on May 14, 2019,

the Commission held that Riverside could not satisfy the special terms and

conditions of Tariff NUG (which allow it to remotely self-supply its station power)

because Riverside’s generators at Zelda and Foothills are not remote sites but are

instead separate parts of a single facility. Consequently, Kentucky Power is

authorized by the provisions of Tariff NUG to supply energy at retail rates during

periods when Riverside does not generate energy sufficient to meet its internal

requirements.

            Riverside also contended that regardless of the decision concerning its

ability to remotely self-supply its station power, Tariff NUG should be interpreted

to permit Riverside to offset its monthly energy consumption with its generated

output (an accounting process referred to as “netting”) on a wholesale basis

pursuant to protocols established by PJM and the FERC. The Commission rejected

that contention as having been insufficiently raised for consideration.

                                         -5-
                Riverside filed an action for review in the Franklin Circuit Court on

June 12, 2019. Riverside alleged that the Commission’s findings of fact were not

supported by substantial evidence and that its order was unreasonable and unlawful

because it misapplied the provisions of Tariff NUG. The circuit court rejected

these arguments and affirmed the Commission’s order. This appeal followed.

                “The [Commission] acts as a quasi-judicial agency utilizing its

authority to conduct hearings, render findings of fact and conclusions of law, and

utilizing its expertise in the area and to the merits of rates and service issues.”

Simpson County Water Dist. v. City of Franklin, 872 S.W.2d 460, 465 (Ky. 1994).

It exercises exclusive jurisdiction over the regulation of rates and service of

utilities in the Commonwealth of Kentucky. KRS1 278.040(2). Therefore, judicial

review of an order entered by the Commission is narrowly circumscribed.

                       In all trials, actions or proceedings arising under
                the preceding provisions of this chapter or growing out of
                the commission’s exercise of the authority or powers
                granted to it, the party seeking to set aside any
                determination, requirement, direction or order of the
                commission shall have the burden of proof to show by
                clear and satisfactory evidence that the determination,
                requirement, direction or order is unreasonable or
                unlawful.

KRS 278.430.

1
    Kentucky Revised Statutes.

                                           -6-
       The orders of the Commission “can be found unreasonable only if it is

determined that the evidence presented leaves no room for difference of opinion

among reasonable minds.” Kentucky Indus. Utility Customers, Inc. v. Kentucky

Utilities Co., 983 S.W.2d 493, 499 (Ky. 1998) (citing Energy Regulatory Comm’n

v. Kentucky Power, 605 S.W.2d 46 (Ky. App. 1980)). We review questions of law

de novo. City of Greenup v. Public Service Comm’n, 182 S.W.3d 535, 539 (Ky.

App. 2005).

              On appeal, Riverside argues first that the Commission’s order is not

supported by substantial evidence because its Zelda and Foothills generators are

located on separate sites. Thus, it believes that it qualifies as a matter of law for

special treatment as a remote self-supplier of its station power requirements. We

disagree.

              Tariff NUG was approved by the Commission in 2001. It was

established by Kentucky Power following the FERC’s acceptance of numerous

RTO tariff provisions, including the PJM tariff provision authorizing an

independent, wholesale energy producer to net the station power that it consumed

against its wholesale transactions. These tariff provisions were aimed at leveling

the playing field between vertically integrated utilities and independent wholesale

generators. The special terms and conditions of Tariff NUG provide as follows:

              Customers desiring to provide Startup and Station Power
              from other generation facilities owned by the same

                                          -7-
             individual business entity that are not located on the site
             of the customer’s generator (remote self-supply), shall
             take service under the terms and conditions contained
             within the applicable Open Access Transmission Tariff
             [OATT] as filed with and accepted by the Federal Energy
             Regulatory Commission.

(Emphasis added.)

             On appeal, Riverside bears the burden of showing by clear and

convincing evidence that the Commission’s determination is unreasonable. The

Commission considered evidence tending to show that Riverside’s Zelda and

Foothills sites are both physically and operationally a single generation facility and

not “other generation facilities.” The sites share contiguous real property; a single

mailing address; a single entrance, security gate, and access road; signage; a nine-

mile natural gas pipeline linking to the Tennessee Gas Pipeline station; a single

water line; a single water meter; administrative space and staff; a single

warehouse; a single septic system; and a single retail account with Kentucky

Power. The sites are surrounded by a single chain-link fence and are separated

merely by a fence bisecting the interior of the property.

            The evidence showed that Riverside’s five generators are generally

operated from a single control room. The Commission determined that Riverside’s

Zelda and Foothills sites compose a single generation facility, operating as a unit,

and are not “other” generators supplying power remotely. Riverside cannot show

by clear and convincing evidence that that determination is unreasonable or

                                         -8-
unlawful. Although Riverside takes issue with the definition of “remote self-

supply,” the phrase most certainly does not refer to the generation of power

through generators operating upon contiguous sites at a single facility. While

Riverside may have the ability ultimately to “on-site” self-supply its station power

requirements when it is online and producing energy, it does not generate sufficient

energy “remotely” to meet its station power requirements as provided by the text of

the tariff. The Commission did not clearly err in its determination, and the order

cannot be set aside on this basis.

             Nor can Riverside show that the Commission erred as a matter of law

in its application of the provisions of Tariff NUG. By its express terms, Tariff

NUG applies to customers with generation facilities that intend to “schedule,

deliver and sell the net electric output of the facility at wholesale, and who [sic]

require Commissioning Power, Startup Power and/or Station Power service.” The

tariff provides that customers requiring station power “shall take service under the

generally available demand-metered tariff appropriate for the customer’s Station

Power requirements.” The Commission determined that Riverside’s Zelda and

Foothills sites compose a single generation facility and are not “other,” remote

generators under the special terms and conditions of the tariff. The Commission

properly applied the tariff as written. It concluded that the “generally available

demand-metered tariff” appropriate for Riverside was Tariff IGS, the tariff

                                          -9-
applicable to large industrial and commercial retail customers. With respect to

Riverside’s station power service, the Commission did not err by concluding that

the transaction was nothing more than a typical retail sale of energy to a customer.

Kentucky Power’s provision of station power to a generating facility that is offline

and not generating power clearly constitutes a retail sale because it is an ordinary

sale of energy directly to an end-user of the power supplied. There was no error,

and the Commission’s order cannot be set aside on this basis.

             Next, Riverside argues that the Commission erred as a matter of law

by concluding that Kentucky Power is not required to follow PJM tariff protocol

and FERC standards concerning “netting” of station power. It notes that the

provisions of Tariff IGS make absolutely no reference to “netting” and argues that

where its power generation is net positive when compared to its station power

requirements, no retail sale can occur under federal standards. Riverside claims

that its ability to offset its power consumption against its overwhelming power

generation must be taken into account when being billed for service under PJM

tariff protocol. We disagree.

             Section 201(b) of the Federal Power Act grants the FERC jurisdiction

over the “transmission of electric energy in interstate commerce” and the “sale of

electric energy at wholesale in interstate commerce” as well as “all facilities for

                                         -10-
such transmission or sale[.]” 16 U.S.C.2 § 824(b)(1). States retain jurisdiction

over “any other sale of electric energy” and “facilities used in local distribution” of

electricity. Id. The disagreement between Kentucky Power and Riverside is a

straightforward rate dispute regarding the interpretation and application of retail

rates approved pursuant to the laws of the Commonwealth of Kentucky. Riverside

points to nothing in PJM’s tariff protocol or in FERC’s accepted standards which

would prevent Kentucky Power from charging Riverside retail rates for the retail

service that it provides to its customer pursuant to tariffs expressly approved by the

Commission. Where a generating facility is not online and producing electricity to

supply its station power needs, it is consuming electricity just like any other

customer. Consequently, Kentucky Power’s provision of station power is an

ordinary retail sale subject to the Commonwealth’s jurisdiction and not to FERC

standards or PJM’s tariff protocol. See Calphine v. F.E.R.C., 702 F.3d 41, 47

(D.C. Cir. 2012) (noting that the FERC has specifically held that it lacks

jurisdiction over third-party provision of station power because where station

power is acquired in this manner it is not being sold for wholesale purposes).

                Finally, Riverside argues that the Commission erred by “sanctioning

an unreasonably prejudicial rate.” It contends that the application of Tariff IGS

rates to its consumption of station power energy is unfair because this rate causes it

2
    United States Code.

                                          -11-
to subsidize the capital costs and maintenance expenses of Kentucky Power’s large

industrial customers. However, the rate charged to Riverside under Tariff IGS is

not unfairly prejudicial.

              KRS 278.170(1) proscribes unreasonable discrimination by

prohibiting utilities from granting an “unreasonable preference or advantage” or

maintaining an “unreasonable difference” between classes of service “for doing a

like and contemporaneous service under the same or substantially the same

conditions.” The retail rate billed to Riverside by Kentucky Power is the same rate

billed to its similarly situated industrial and commercial customers and reflects the

costs of providing services -- including power generation and transmission.

Consequently, it cannot be said that Kentucky Power is unreasonably

discriminating against Riverside. The Commission’s order cannot be set aside on

this basis.

              We AFFIRM the well reasoned opinion and order of the Franklin

Circuit Court.

              ALL CONCUR.

                                        -12-
BRIEFS FOR APPELLANT:     BRIEF FOR APPELLEE PUBLIC
                          SERVICE COMMISSION OF
Mark David Goss           KENTUCKY:
David S. Samford
L. Allyson Honaker        Quang Nguyen
Lexington, Kentucky       Cornelius J. Mance
                          Frankfort, Kentucky

                          BRIEF FOR APPELLEE
                          KENTUCKY POWER COMPANY:

                          Mark R. Overstreet
                          Katie M. Glass
                          Frankfort, Kentucky

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