Court Opinion

ID: 6712136
Source: CourtListenerOpinion
Date Created: 2022-07-20 22:38:22.755056+00
Date Added: 2024-06-11T08:40:10.106651
License: Public Domain

Justice Mitchell
dissenting in part.
It is my belief that when the Virginia State Corporation Commission (VSCC) set the price that North Carolina Power (NC Power) must pay Ultra Cogen Systems (Ultra Cogen) for wholesale power, the VSCC was implementing federal law and entering an order affecting wholesale power in interstate commerce. Accordingly, I conclude that when the North Carolina Utilites Commission (NCUC), while setting North Carolina retail rates, refused to allow NC Power to recover the $1.39 million that the VSCC had ordered NC Power to pay Ultra Cogen, it unlawfully interfered with the VSCC’s implementation of federal law. Therefore, I dissent from the decision of the majority to the extent that it affirms the NCUC’s refusal to allow NC Power to recover the $1.39 million of costs it actually incurred by complying *425with the VSCC’s order requiring it to purchase power from Ultra Cogen.
Under procedures established by federal law, Ultra Cogen applied to the VSCC for an order requiring NC Power to purchase wholesale power from Ultra Cogen and setting the price NC Power would pay for that power. Congress has concluded that wholesale power transactions affect interstate commerce and shall be regulated by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act. As a cogenerator qualifying facility selling wholesale power, Ultra Cogen’s sales of wholesale power are controlled by the Federal Public Utility Regulatory Policies Act of 1978 (PURPA). 16 U.S.C. § 828a-3 (1985). By enacting PURPA, Congress has delegated to the states, under mandatory guidelines established by the FERC, authority over wholesale transactions involving cogenerators, such as the transaction between Ultra Cogen and NC Power at issue in the present case. As a result, when VSCC set the price NC Power must pay Ultra Cogen for the wholesale power at issue here, the VSCC was implementing federal law and making a determination affecting wholesale power in interstate commerce. The VSCC was making a determination which, but for the provisions of PURPA, would have been made exclusively by FERC; that determination was the functional and legal equivalent of an order by the FERC setting the price. For that reason, when the NCUC refused to allow NC Power to recover the $1.39 million in annual capacity costs it had actually incurred as a result of the VSCC order, the NCUC unlawfully interfered with the VSCC’s implementation of federal law. In my view, the NCUC’s actions were preempted by federal law and must be reversed by this Court.
The Supremacy Clause of the Constitution of the United States subordinates the legislative and administrative acts of the individual states to those of the United States.
Pre-emption occurs when Congress, in enacting a Federal statute, expresses a clear intent to pre-empt state law when there is outright or actual conflict between Federal and state law, where compliance with both Federal and state law is in effect physically impossible, where there is implicit in Federal law a barrier to state regulation, where Congress has legislated comprehensively, thus occupying an entire field of regulation and leaving no room for the states to supplement Federal law, or where the state law stands as an obstacle to the accomplishment and execution of the *426full objectives of Congress. Pre-emption may result not only from action taken by Congress itself; a Federal agency acting within the scope of its congressionally delegated authority may pre-empt state regulation.
Louisiana Public Service Comm. v. Federal Communications Comm., 476 U.S. 355, 368-69, 90 L. Ed. 2d 369, 381-82 (1986) (citations omitted). I believe that the doctrine of preemption embodied in the Supremacy Clause precludes the order entered by the NCUC and affirmed by the majority of this Court in the present case.
PURPA was adopted in 1978 as part of the National Energy Act. Federal Energy Regulatory Comm. v. Mississippi, 456 U.S. 743, 745, 72 L. Ed. 2d 532, 537-38 (1982). PURPA represented a response to rapidly fluctuating conditions, including an anticipation of impending shortages of essential non-renewable forms of energy. Id. It was intended to advance a national policy of energy conservation. Id. Section 210 of Title II of PURPA dealing with cogeneration was part of a broad federal statute that also set standards for retail rates for electric utilities. Id. Section 210 was intended to promote the development of qualified cogeneration facilities in order to reduce the demand for traditional fossil fuels. Id. at 750, 72 L. Ed. 2d at 541.
PURPA expressly requires the FERC to “prescribe, and from time to time thereafter revise, such rules as it determines necessary to encourage cogeneration and small power production.” 16 U.S.C. § 824a-3(a) (1985). The FERC is specifically required to promulgate rules requiring electric utilities to “sell electric energy to .qualifying cogeneration facilities” and to “purchase electric energy from such facilities.” 16 U.S.C. § 824a-3(a)(l)-(2) (1985).
' In 1980, pursuant to the requirement of Section 210(a) of PURPA, the FERC issued a series of regulations further defining federal cogeneration law and policy. Section 292.303(a) of the regulations imposes a federal obligation on electric utilities to purchase power from qualifying facilities; “each electric utility shall purchase, in accordance with [18 C.F.R. § 292.304], any energy and capacity which is made available from a qualifying facility: (1) directly to the electric utility . . . .” 18 C.F.R. § 292.303(a) (1992). Acting under PURPA, the FERC provided that a rate for such purchases satisfies the just, reasonable, and public interest requirement for PURPA rates if the rate equals the “avoided costs” of a utility. The FERC required that avoided costs must be derived through a mandatory consideration of *427specific factors. These factors include the anticipated reliability of the qualifying facility. 18 C.F.R. § 202.304(b)(2), (b)(4); (e) (1992). The FERC has also provided that such rates may be less than avoided costs “if the State regulatory authority . . . determines that a lower rate is consistent with [the just, reasonable, and public interest requirement] and is sufficient to encourage cogeneration.” 18 C.F.R. § 292.304(b)(3) (1992).
The FERC regulations also contain additional provisions for establishing rates to be paid to qualifying facilities. They provide that the cogenerator shall, at its option, provide energy or capacity “pursuant to a legally enforceable obligation for the delivery of energy or capacity over a specified term.” 18 C.F.R. § 292.304(d)(2) (1992). If the qualifying facility so decides, “the rates for such purchases shall, at the option of the qualifying facility exercised prior to the beginning of the specified term, be based on either: (i) The avoided costs calculated at the time of delivery; or (ii) The avoided costs calculated at the time the obligation is incurred.” Id.
The profound effect of PURPA on state authority is demonstrated by the FERC’s comments to its 1980 regulations. There, the FERC determined that efficient use of fuels allowed cogeneration facilities to “make a significant contribution to the Nation’s effort to conserve its energy resources.” 45 Fed. Reg. 12,215 (1980). The FERC further concluded that Section 210 was designed to remove former obstacles to the growth of cogeneration, one of which was that utilities were not generally required to purchase the power produced by a cogenerator at an appropriate rate. Id. Under Section 210, each electric utility would be required “to offer to purchase available electric energy from cogeneration and small production facilities.” Id.
The FERC also has determined that PURPA requires cooperation between the federal government and the states. Implementation of PURPA is reserved to state regulatory authorities and non-regulated entities. 45 Fed. Reg. 12,216 (1980). In this context, the FERC has determined that “implementation means enforcing the federal obligation on electric utilities to purchase power at avoided cost rates” which expressly requires a determination of “the rate for purchases at a level . . . appropriate to encourage cogeneration.” 45 Fed. Reg. 12,221 (1980). Therefore, “[s]tate laws or regulations which would provide rates lower than the Federal standards would fail to provide the requisite encouragement of these technologies, and must yield to Federal law.” Id. The states’ obligation to follow federal rate law is *428also reflected in the FERC’s determination that when a facility “shows that it requires rates for purchases based on full avoided costs to remain viable, or to increase its output, the State regulatory authority .. . is required to establish such rates.” 45 Fed. Reg. 12,223 (1980).
It was within the context of the foregoing federal statutes and regulations that the VSCC made its determination that NC Power must purchase wholesale power from Ultra Cogen at the prices the VSCC established. No one has questioned the jurisdiction of the VSCC to hear the dispute or to enter its decision. Ultra Cogen went to the VSCC rather than the NCUC because the wholesale sales at issue were to take place in Virginia. Once the VSCC entered its ruling, the obligation of NC Power to purchase wholesale power from Ultra Cogen and the price of that wholesale power were established by federal law. From that point on, neither the NCUC nor any other state agency was free to establish a different price that NC Power must pay Ultra Cogen for the wholesale power, even though it was to be resold in North Carolina. Certainly, NC Power was not required to pay Ultra Cogen different prices for the wholesale power purchased depending on the state in which NC Power resold that power. In my view, the NCUC was without authority to indirectly subvert the VSCC’s decision by refusing to permit NC Power to recover the amounts it had been forced to pay involuntarily to Ultra Cogen for the power in question by virtue of VSCC’s order. Further, I do not share the apparent view of the majority, as expressed in footnote 2 of its opinion, that the failure of NC Power to devote the time and resources necessary to appealing the decision the VSCC had entered over NC Power’s strong objections and contentions somehow amounted to acceptance of that decision by NC Power. NC Power was entitled, in my view, to assume that the NCUC would honor the ruling of the VSCC applying federal law.
In Federal Energy Regulatory Commission v. Mississippi, the Supreme Court of the United States recognized the preemptive effect of PURPA and rejected a constitutional challenge to Section 210 of PURPA. The Supreme Court recognized that the statute used “state regulatory machinery to advance federal goals,” and therefore presented unusual preemption issues. Federal Energy Regulatory Comm. v. Mississippi, 456 U.S. at 759, 72 L. Ed. 2d at 546. The Supreme Court expressly stated in this context that “state courts have a unique role in enforcing the body of federal law,” and that “state courts were directed to heed the constitutional command that ‘the policy of the [F]ederal Act is the prevailing policy in every state *429. . . and should be respected accordingly in the courts of the State.’ ” Id. at 760, 72 L. Ed. 2d at 547 (quoting Testa v. Katt, 330 U.S. 386, 392-93, 91 L. Ed. 967, 972 (1947) and Mondou v. New York, N.H. & H.R. Co., 223 U.S. 1, 57, 56 L. Ed. 327, 349 (1912)). The Supreme Court went on to state that:
Any other conclusion would allow the States to disregard both the pre-eminent position held by Federal law throughout the Nation . . . and the congressional determination that the Federal rights granted by PURPA can appropriately be enforced through state adjudicatory machinery. Such an approach, Testa emphasized, “flies in the face of the fact that the States of the Union constitute a nation,” and “disregards the purpose and effect of Article IV of the Constitution.”
Id. at 760-61, 72 L. Ed. 2d at 548 (citations omitted).
In my view, the decision of the NCUC and the opinion of the majority here conflict with the decision of the Supreme Court of the United States in Federal Energy Regulatory Commission v. Mississippi, to the extent that they conclude that the preemption doctrine does not apply and that the order entered by the NCUC was permissible under PURPA. When a state agency purports to carry out the intent of PURPA, it must follow federal law. When the VSCC entered its order requiring NC Power to buy power from Ultra Cogen and setting the price NC Power had to pay for that power, it was enforcing PURPA, the applicable federal law. When the NCUC disregarded the order entered by the VSCC, it prevented the VSCC’s lawful order enforcing the controlling federal law established by PURPA and violated the Supremacy Clause. The NCUC assumed total control over the valuation of costs related to PURPA-mandated purchases of electric power, despite the decision by the VSCC implementing PURPA and despite NC Power’s clear federal obligation to pay Ultra Cogen the amount set by the VSCC for the power NC Power was required to purchase over its strenuous objections from Ultra Cogen. The error of the NCUC in entering its order is emphasized by its statement in denying more than $1.39 million in annual costs, that “we recognize our [federal] obligation to encourage [qualified cogeneration facilities], but that is not the issue here.” I do not believe that the NCUC can so easily avoid the requirements of PURPA by simply asserting that they do not apply. I believe that the exclusion of recovery for purchased capacity costs such as those at issue here is directly related to the *430federal mandate of encouragement of qualifying facilities to produce electric power and conserve the electric resources of this nation.
Because I believe that in determining the amount NC Power must' pay Ultra Cogen under PURPA, the VSCC lawfully applied the federal law preempting the field, I believe that the determination of the VSCC had a preemptive effect equivalent to the preemptive effect of FERC orders establishing wholesale rates. That being the case, the VSCC order was binding on the NCUC under the theory of preemption. See Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 101 L. Ed. 2d 322 (1988) (rates mandated by FERC held preemptive); Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 90 L. Ed. 2d 943 (1986) (same). In my view, the action of the NCUC was preempted by PURPA and by the essentially federal act of the VSCC in establishing the wholesale price that NC Power must pay Ultra Cogen for the power it acquired for resale to its retail consumers. Therefore, I dissent from that part of the decision of the majority holding to the contrary.
Justice Webb joins in this dissenting opinion.