Court Opinion

ID: 6985172
Source: CourtListenerOpinion
Date Created: 2022-07-24 02:56:37.725759+00
Date Added: 2024-06-11T16:09:24.651285
License: Public Domain

EMILIO M. GARZA, Circuit Judge,
specially concurring:
The majority opinion reflects a wholesale endorsement of both the result reached by the Federal Energy Regulatory Commission (“FERC”) and the methodology used to reach that result. I agree with the former, but not with the latter. Accordingly, I concur in the result reached by the majority, but write separately because the method by which FERC disposed of this case could, if repeated, produce results clearly in conflict with the language and intent of the Public Utility Regulatory Policies Act of 1978 (“PURPA”), 16 U.S.C. § 823a et seq.
PURPA was passed in response to the 1970s oil crisis and the corresponding fear of excessive American reliance on foreign oil. As part of PURPA’s contribution to a diverse set of incentives passed simultaneously,1 Congress chose to encourage co-generation because the increased energy efficiency from cogeneration would presumptively result in decreased reliance on foreign fossil fuels. See generally American Paper Inst. v. American Elec. Power Serv., 461 U.S. 402, 415-16, 103 S.Ct. 1921, 1923, 76 L.Ed.2d 22 (1983); FERC v. Mississippi, 456 U.S. 742, 745, 102 S.Ct. 2126, 2129, 72 L.Ed.2d 532 (1982). Properly constructed cogeneration facilities were desirable because while excess energy was inevitably produced as a by-product to electricity, if that excess energy was used rather than wasted, the efficiency of electricity production plants would improve. See Liquid Carbonic Ind. Corp. v. FERC, 29 F.3d 697, 699 (D.C.Cir.1994) (“[T]he *249production of electricity frequently results in the production of thermal energy as a byproduct; by using small amounts of additional fuel, cogenerators can produce large amounts of thermal energy.... The additional thermal energy can be used instead of discarded as waste.”); TEC Cogeneration, Inc. v. Florida Power & Light, 76 F.3d 1560, 1564 n. 2 (11th Cir.1996) (“Cogeneration can be an efficient use of fuel because a cogeneration facility (unlike some more traditional power plants) can utilize thermal energy that might otherwise be a wasted by-product in the production of electricity.”); Independent Energy Producers Ass’n v. California Public Utilities Comm’n, 36 F.3d 848, 849 n. 2 (9th Cir.1994) (“Because cogeneration reuses waste heat to produce additional energy, it is a particularly efficient method of generating electric energy.”). The construction of qualifying cogeneration facilities (“QFs”) was not the end Congress sought, but rather one of many means to produce the end of greater energy efficiency in electricity production. See, e.g., Richard Cudahy, PURPA: The Intersection of Competition and Regulatory Policy, 16 Energy L.J. 419, 421 (1995) (“PURPA encouraged energy conservation and energy efficiency through measures such as cogen-eration.”) (emphasis added).
The language Congress provided to effectuate this desire for energy efficiency through cogeneration was clear and concise. Only those facilities which produced both
(I) electric energy, and
(ii) steam or forms of useful energy (such as heat) which are used for industrial, commercial, heating, or cooling purposes
were deemed “cogeneration facilities” worthy of benefits. 16 U.S.C. § 796(18)(A) (emphasis added). This language clearly expressed the congressional purpose: a power production facility was only of the type Congress wanted to promote if it produced both electricity and another form of “useful” thermal energy.
With this general restriction in mind, Congress gave FERC the responsibility to issue rules “as it determines necessary to encourage cogeneration.” 16 U.S.C. § 824a-3. Congress broadly outlined which specific “cogeneration facilities” would qualify for benefits. First, “qualifying cogeneration facilities” must meet specific FERC “technical” regulations, to be determined, “respecting minimum size, fuel use, and fuel efficiency.” 16 U.S.C. § 796(18)(B). Second, QFs must meet “ownership” restrictions, not being “owned ... by a person not primarily engaged in the generation or sale of electric power.” Id. Those facilities which meet the qualifying criteria receive tremendous financial benefits.2
FERC regulations have since delineated both the technical and ownership requirements for facilities to be termed QFs. The technical restrictions integrate the Congressional definition of “cogeneration” and further define “useful thermal energy” as, inter alia, thermal energy “[t]hat is made available to an industrial or commercial process.” 18 C.F.R. § 292.202(h)(1). Accordingly, under FERC regulations, facilities must produce both electricity and *250thermal energy “made available to an industrial or commercial process” to satisfy FERC’s QF technical requirements.3
Since FERC was authorized to administer PURPA, we give its interpretation of the statute Chevron deference. See WRT Energy Corp. v. FERC, 107 F.3d 314, 318 (5th Cir.1997) (citing Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)). Accordingly, if PURPA speaks clearly on the precise issue in question, that plain meaning must govern; however, if PURPA’s application to a particular issue is ambiguous, FERC’s interpretation will be upheld so long as it is a “permissible construction” of the statute. See id.; American Airlines, Inc. v. Dep’t of Transp., 202 F.3d 788 (5th Cir.2000). Though this deference is significant, “courts are not obliged to stand aside and rubberstamp their affirmance of administrative decisions that they deem inconsistent with the statutory mandate or that frustrate the congressional policy underlying a statute.” Texas Power & Light Co. v. FCC, 784 F.2d 1265, 1269 (5th Cir.1986) (citing NLRB v. Brown, 380 U.S. 278, 291, 85 S.Ct. 980, 988, 13 L.Ed.2d 839, 858 (1965)).
FERC considers whether a facility produces “useful” thermal energy and is, therefore, worthy of QF status, at two distinct occasions. First, at the initial certification stage, which occurs well before the facility is built, FERC considers whether a proposed facility would meet its technical and ownership guidelines.4 In this context, FERC has established a presumption that if coproduced thermal energy is used in an established technology or will produce a common product, it will not consider whether the co-product’s production is useful. Rather, because the “common product” could theoretically be sold in the marketplace, FERC considers the co-product presumptively “useful” and certifies the facility.5 See Electrodyne Research Corp., 32 FERC ¶ 61,102 (1985) (“There is no hard and fast test for establishing the usefulness of a thermal energy output. However, the test is an economic test. Thus, common industrial or commercial applications are presumptively useful, regardless of the user’s status.”). The policy rationale behind this- — that intensive intrusion into the use of the proposed facility’s excess thermal energy could discourage the construction of co-generation facilities — is, even though in some cases arguably at odds with the statutory mandate, compelling. See Arroyo Energy, L.P., 62 FERC ¶ 61,257 (“When an applicant submits a cogeneration proposal which uses thermal energy in an established technology or produces a common product, the commission does not perform an economic analysis. A contrary approach would act to discourage the de*251velopment of the cogeneration industry.”).6 I agree with the majority that, in this context, FERC’s construction of the statutory term “useful” is a permissible one.
FERC has a second opportunity to determine whether cogeneration plants meet QF criteria in the context of a petition to revoke QF certification. These petitions, which can be brought at any time after a facility has been certified as a QF, are often brought years after certification by parties who are disadvantaged by the fact that the particular facility has gained QF certification.7 See, e.g., Pennsylvania Power & Light Company v. Schuylkill Energy Resources, Inc., 83 FERC ¶ 61,188 (1998) (addressing claim of a utility forced to overpay for electricity based on the fact that facility had been certified as a QF). When these petitions claim lack of compliance with FERC’s technical requirements, FERC occasionally hears evidence to determine whether a facility is complying. For example, FERC will examine whether a facility has met the technical requirement that the thermal output of the facility be no less than 5% of the facility’s total energy output. If a petitioner (whatever its motives) proves lack of compliance on this ground, FERC will revoke the facility’s certification. See id. However, if a petition (like the one in the case at bar) is based not on the lack of 5% coproduction but rather on the lack of real-world “usefulness,” FERC refuses to hear evidence, again relying on the irrebuttable presumption that if the thermal energy is used in a common process, it is ipso facto “useful.”
In this case, the majority is correct in rejecting Brazos’s claim that any “usefulness” from cogeneration in the Tenaska facility is “flushed down the sewer.” The evidence shows that the thermal energy produced by the Tenaska facility is used to distill water which is sold to the city or directed into Buffalo Creek to attract customers to an adjacent industrial park. Accordingly, the thermal energy produced by Tenaska is “useful” in any sense of the word, and we defer to FERC’s interpretation.8
However, Brazos’s allegations, when considered relative to FERC’s treatment of petitions to revoke QF certification, beg the question: what if Tenaska’s cogenerat-ed energy was used to distill water which was promptly flushed down the sewer? Clearly, nothing “useful” would result from the cogeneration, but since the cogenerat-ed energy was “used in a common process,” FERC would rely on its presumption of usefulness and the facility would retain QF certification. I fully agree with *252the majority’s statement that “PURPA and its implementing regulations require only that the thermal energy be useful; they do not demand that the sale of every end-product be profitable.” However, under FERC’s procedural rationale, the Commission cannot ever be sure that the thermal energy is “useful” in the everyday sense of the word.9 In some cases, FERC’s failure to even address claims that a facility’s thermal energy is not “useful” could contravene both the language and the intent of PURPA. See Liquid Carbonic, 29 F.3d at 706 (“Congress intended PURPA to encourage the development of cogeneration facilities [but][t]he encouragement of the goal must, but its nature, limit entry to those who actually further the goal by producing useful energy....”).
FERC’s irrebuttable presumption of usefulness is justified in the context of petitions for initial certification, upon which financing to build such facilities often depends. As the majority notes, in this context “[providing for evidentiary hearings before the Commission ... would seriously impede the very development of cogeneration ... that Congress sought to facilitate.” However, FERC and the majority exaggerate the possibility that an evidentiary hearing years after a facility has been in operation to determine whether the facility truly produces “useful” thermal energy would impede the initial development of the facility. Any hesitancy that this potential future evidentiary hearing might produce is mitigated, if not eliminated, by the fact that FERC already performs evidentiary investigations into other issues of technical compliance (for example, into the 5% mandate). The alternative to allowing post-certification evidentiary hearings on “usefulness,” which currently exists, allows facilities to retain QF benefits even if they are not (in fact, even if they never were) the type of facilities to which Congress wanted to afford such benefits. In many cases, this is a clear departure from the statutory mandate, and therefore an impermissible construction of PURPA.
Tenaska has proven that the energy it produces as a co-product to electricity is “useful” in producing distilled water which benefits the community at large, and thus that the benefits afforded it as a QF are justified. Accordingly, I concur in the decision allowing Tenaska’s Cleburne facility to retain QF status. However, I cannot agree with the majority’s endorsement of the procedure by which FERC summarily dismissed this case. Congress wanted to encourage the production of cogeneration facilities because, in developing alternative sources of “useful” energy while producing electricity, they improved the energy efficiency of electricity generation facilities in particular and the nation in general. By establishing an irrebutable presumption that prevents it from ever examining whether a facility’s co-produced energy is ever “useful,” FERC has opened the door to facilities who meet FERC’s technical *253requirements but defy the language and spirit of PURPA.10

. President Carter signed PURPA as part of a larger undertaking, called the National Energy Act of 1978 (NEA), which was Congress's response to the President's declaration that the energy crisis was the “moral equivalent of war.” The package included the Energy Tax Act of 1978, Pub.L. 95-618, 92 Stat. 3174 (1978), the National Energy Conservation Policy Act; Pub.L. 95-619, 92 Stat. 3206 (1978), the Powerplant and Industrial Fuel Use Act of 1978, Pub.L. 95-620, 92 Stat. 3289 (1978), and the Natural Gas Policy Act of 1978, Pub.L. 95-621, 92 Stat. 3351 (1978). See FERC v. Mississippi, 456 U.S. 742, 745 n. 2, 102 S.Ct. 2126, 2130 n. 2, 72 L.Ed.2d 532 (1982). Overall, the NEA was designed to promote conservation and increased efficiency in the use of existing resources as well as the production of alternative energy sources. See generally Senate Committee on Energy and Natural Resources, 95th Cong., Energy Initiatives of the 95th Congress 5 (Comm. Print 1979) ("The cornerstone of national energy policy is that the growth of energy demand must be restrained through conservation and improved energy efficiency.”).

. The benefits Congress had in mind to encourage the construction of cogeneration facilities were: (1) mandating that utilities purchase electricity from such QFs at above-market rates, and (2) exempting such facilities from much state regulation. See 16 U.S.C. § 824a-3; 16 U.S.C. § 824(1); see also Southern California Edison Co. v. FERC, 195 F.3d 17, 19 (D.C.Cir.1999) ("Under PURPA, such facilities were exempt from certain regulatory controls, and they were assured a market by providing a right to interconnect with the local public utility and to receive rates, as prescribed by FERC, up to the full avoided cost of the utility.”). These benefits can be tremendous. See, e.g., New Charleston Power I, L.P. v. FERC, 56 F.3d 1430, 1433 (D.C.Cir.1995) ("Southern California Edison estimated that, had it purchased power from a non-QF generating plant during the time petitioners’ facility was out of compliance, it would have saved $7 million per year in purchased power costs.”).

. FERC technical regulations also mandate that at least 5% of QFs’ total energy be devoted to producing their coproduct. See 18 C.F.R. § 292.205(a).

. "[T]he Commission, in acting on an application for certification of qualifying status, essentially renders a declaratory order. That is, the Commission determines, based on the information in the application and the responsive pleadings, whether or not a facility, as described in the application, meets or does not meet the statutory and regulatory requirements for qualifying status set forth in the Public Utility Regulatory Policies Act of 1978 (PURPA) and our implementing regulations.” Kamine/Besicorp Allegany L.P., 63 FERC ¶ 61,320 (1993).

.FERC’s determination that all thermal energy "made available to a common industrial or commercial process” is definitively and irre-butably "useful” is questionable. Notably, the statute does not define "useful” by reference to whether energy is used in for "industrial, commercial, heating or cooling” purposes. Rather, the plain terms of the statute mandate that the energy coproduct be forms of "useful energy ... which are used for industrial, commercial, heating, or cooling purposes.” 16 U.S.C. § 796(18)(A). Therefore, to fall within the plain terms of the statute, a facility’s co-product must be both useful and used for industrial, commercial, heating or cooling purposes. Proving the latter does not necessarily, in all circumstances, make the former irrefutably true.

.As the majority correctly notes, FERC has consistently utilized the presumption in pre-certification orders and justified it with this policy rationale. See, e.g., Brooklyn Navy Yard Cogeneration Partners, L.P., 74 FERC ¶ 61,015 (1996); Bayside Cogeneration, L.P., 66 FERC ¶ 61,259, reh’g denied 67 FERC 1161,290 (1994); Kamine/Besicorp Allegany, L.P., 63 FERC 11 61,320 (1993); Arroyo Energy, L.P., 62 FERC ¶ 61,257 (1993); Polk Power Partners, L.P., 61 FERC ¶ 61,300 (1992). Furthermore, both in this case, see Brazos Elec. Power Cooperative v. Tenaska IV Texas Partners, 83 FERC ¶ 61,176 (1998), and in another recent case, see Pennsylvania Power & Light Co. v. Schuylkill Energy Resources, Inc., 83 FERC ¶ 61,188 (1998), FERC utilized the presumption in the context of petitions to revoke certification. See Pennsylvania Power & Light, 83 FERC ¶ 61,188 ("Indeed, the Commission looks at the economic viability of the use of thermal output to assess whether the energy is 'useful' only in very limited circumstances — only when the thermal host is an affiliate of the cogenerator (or the cogener-ator itself), an then only when the technology is previously unproven.”).

. The majority's characterization of Brazos's motives for bringing this suit — that it is seeking a way out of a contract which it freely signed but is no longer to its benefit — is unquestionably accurate. However, this case is no more about money than most civil suits. The issue before FERC and before us — whether Tenaska’s Cleburne facility is a QF — makes Brazos's motivation for bringing the suit irrelevant.

. Webster's Dictionary defines "useful” as, inter alia, "producing or having the power to produce good: serviceable for a beneficial end or object.” See Webster's New Int'l Dictionary 2524 (3rd ed.1993).

. The majority asserts “the Commission, as the arbiter of usefulness,’ has defined the concept in terms of economics” and concludes that "Brazos’ complaint that the distilled water was not 'useful' misses the point. The distillation of water is common, so the steam used to create it is useful.” I disagree. PURPA contemplates that the thermal energy produced by cogenerators is "useful” in the sense that it is used in some beneficial way. Given that it passed PURPA in an effort to increase energy conservation and efficient electricity production, Congress could hardly have intended to promote facilities who co-produced thermal energy, used it in a "common process,” and then completely wasted the product of that process. Because of the tremendous benefits PURPA provides QFs, it is profitable for a electricity generator to "co-generate” in the sense of using its excess thermal energy to, for example, distill water, and then completely waste the distilled water. Even if the final product poured down the sewer, the "cogeneration” was still economically beneficial to the facility because of the tremendous benefits PURPA provides it as a QF. Yet Congress encouraged these facilities precisely so that the end product of their cogeneration would not be wasted. In this manner, FERC's procedural framework threatens to defy the language and spirit of PURPA.

. Brazos refers to Tenaska's Cleburne facility as a "PURPA machine,” i.e. a facility designed to generate PURPA revenues, not to produce a useful co-product. Several commentators have noted the influx of these facilities, which cogenerate merely to gain QF benefits and where the cogeneration is, ultimately, useless. See, e.g., Douglas Gagax & Kenneth Nowotny, Competition and the Electric Utility Industry: An Evaluation, 10 Yale J. on Reg. 63, 77 & n. 36 (1993) ("A ‘PURPA machine’ is a QF which would not exist except by virtue of the requirement that a utility purchase the power it creates. Such QFs are totally in contravention of the idealistic and optimistic purposes of the Public Utility Regulatory Policy Act of 1978.”); Jim Rossi, Redeeming Judicial Review: The Hard Look Doctrine and Federal Regulatory Efforts to Restructure the Electric Utility Industry, 1994 Wisc. L. Rev. 763, 782-83 (1994).