Court Opinion

ID: 9552127
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:05:02.015812+00
Date Added: 2024-06-11T15:25:40.420705
License: Public Domain

Justice SCOTT
dissenting:
This ease requires that we decide whether the Public Utilities Commission (PUC) acted within its authority when, by order, it excused the Public Service Company of Colorado (PSCo) from its, obligation to purchase electricity under a contract with Phoenix Power Partners, LP (Phoenix). Under the contract, as amended or substituted in 1993, PSCo agreed to a locked-in price and undertook a business risk that market prices would be lower at the time of delivery and, conversely, stood to benefit if prices were to rise. At the same time, of course, the contract represented a, promise upon which Phoenix relied in incurring substantial costs pursuant to federal policies intended to create new sources of energy to fuel our nation’s energy independence. It was within this context that the PUC issued its order rejecting the contract between Phoenix and PSCo, ending Phoenix’s “grandfathered” contract rights under the PUC’s earlier moratorium order.
*368In my view, because we are reviewing an order of the PUC, we must “determine whether the Commission has regularly pursued its authority ... and whether the decision of the Commission is just and reasonable and whether its conclusions are in accordance with the evidence.” § 40-6-115(3), 11 C.R.S. (1997). Pursuant to our statutory charge, I view our role as requiring a different mode of analysis than the approach employed by the majority. Accordingly, I respectfully dissent from the majority’s conclusion that the 1993 Amendment to the contract between Phoenix and PSCo were so drastic that “the 1993 Amendment is not entitled to the grandfathered status of the 1988 Agreement,” maj. op. at 366, so as to uphold the PUC’s decision. I am unable to conclude by its order that “the PUC made a just and reasonable determination that the 1993 Amendment created a new contract,” id., so I respectfully dissent.
I understood the question before us to be whether the PUC applied the correct analytic framework — namely, the law of contracts— and set forth a just and reasonable basis for its conclusion that Phoenix was no longer entitled to the benefit of the grandfather rules under the PUC’s earlier Moratorium Decision. As I read that decision and the PUC’s own Rule 4.503, the PUC is authorized to “relieved PSCo of its obligation to purchase QF power where proposed contracts create safety, capacity or reliability problems,” maj. op. at 367. The order before us, however, fails to set forth a safety, capacity, or reliability basis for the PUC’s decision.
Contrary to the majority, I do not think this case “first presents a question of contract law,” and that “[w]e look then to Colorado contract law to answer the question.” Id. at 364. Instead, I believe this case turns on administrative law principles and, consequently, I believe the PUC was obliged to explain why it decided that under the 1993 Amendment Phoenix cannot “ ‘compel Public Service to purchase all capacity and energy offered to it by [Phoenix]’ nor [must] the PUC ... set a 1993 avoided cost purchase price for Phoenix outside the established bidding process.” Id. at 368.
Thus, I would reverse the ruling of the district court and remand with instructions that it return the matter to the PUC for further proceedings in which the PUC could have the opportunity to set forth the basis for its decision in light of the goals of its grandfather policy or under some other reasoned framework. I believe that even if the PUC was correct to apply contract doctrine to this dispute, it was nonetheless required to explain why the 1993 Amendments were so material as to go to the essence of the bargain between Phoenix and PSCo so as to excuse PSCo from performing under the 1988 and 1993 Amendments.
I.
A reviewing court generally must defer to the judgment of an administrative agency, such as the PUC, where the agency’s decision is supported by substantial evidence, at least when the decision in question is within the agency’s field of expertise. See Silverado Communication Corp. v. Public Utils. Comm’n, 893 P.2d 1316, 1319 (Colo.1995). However, the court must satisfy itself that the agency has examined the relevant facts and articulated a reasoned basis for its conclusions. See Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866-67, 77 L.Ed.2d 443 (1983); Simms v. National Highway Traffic Safety Admin., 45 F.3d 999, 1002 (6th Cir.1995); see also Silverado Communication, 893 P.2d at 1319 (agency decisions must be reasonable as well as supported by evidence).
Without an explanation of the rationale underlying the agency’s decision, a reviewing court is unable to fulfill its duty to evaluate whether the decision is the product of reasoned decisionmaking and is just and reasonable. See Simms, 45 F.3d at 1004 (agency’s decision will be upheld only if the reviewing court can discern a reasoned path from the facts before the agency to the decision it reached); Greater Boston Television Corp. v. Federal Communications Comm’n, 444 F.2d 841, 851 (D.C.Cir.1970) (need for meaningful judicial review “calls for insistence that the agency articulate with reasonable clarity its reasons for decision”); Hoyl v. Babbitt, 927 F.Supp. 1411 (D.Colo.1996) (duty of court *369reviewing agency action is to ascertain whether agency examined relevant data and articulated rational connection between facts found and decision made).
For this reason, the oft-cited maxim that an agency’s decision will be upheld if it is supported by substantial evidence in the record is somewhat misleading. Judges must not substitute their own views for the judgment of expert administrative decisionmak-ers, and an agency decision is therefore to be affirmed even if an appellate court would reach a different conclusion based on the evidence in the record. However, the agency must explain how it reached its decision in order for the judiciary to determine whether the decision — and the process used to reach it — is valid. See Ute Elec. Ass’n, Inc. v. Public Utils. Comm’n, 760 P.2d 627, 648 (Colo.1988) (“in the absence of sufficient investigation into pertinent considerations, the order is arbitrary, capricious, and invalid”); see also City of Montrose v. Public Utils. Comm’n, 197 Colo. 119, 123, 590 P.2d 502, 505-06 (1979).
While I suspect that the PUC might well be able to justify its decision, the Commission has not yet demonstrated that it has taken a “hard look” at the relevant factors. In support of its conclusion in this case, the PUC points to numerous changes in the contract between Phoenix and PSCo and argues that under general principles of contract law, a new agreement was formed as a result. However, the PUC fails to explain why the 1993 Amendments were material to the economic relationship or bargain between Phoenix and PSCo. Nor does the PUC indicate why the changes in the 1993 Amendments should be analyzed not based on factors set forth in its Moratorium Decision — safety, capacity or reliability problems — but by the same standards used by courts in resolving contract disputes between private parties.
Phoenix argues that instead of attempting to decide whether the contract is “new” or merely an amended version of the earlier agreement, the test of eligibility for grandfather protection should be whether the amended deal is consistent with the purpose and language of the moratorium order. The moratorium was adopted in order to deal with the problem of excess capacity, and the PUC grandfathered certain QF deals under negotiation at the time the moratorium was imposed provided that they did not aggravate the capacity problem. The PUC went on to approve a number of amendments to other grandfathered contracts, and Phoenix contends that because the same capacity would be provided under the amendments it proposed in 1993 as under its earlier arrangement with PSCo, the 1993 Amendments should likewise be approved.
In my view, the PUC’s decision is not responsive to the reasoning offered by Phoenix. Like the ALJ, the PUC merely pointed to the number and variety of changes to the original deal between Phoenix and PSCo and noted that the power to be provided would be more expensive than under the bidding rules. The only other factor cited by the ALJ or PUC to justify rejection of the proposed changes was the large difference between the locked-in 1987 rate and the market rate in 1993. The ALJ candidly acknowledged that he found it “impossible to ignore the fact that the electricity proposed to be sold will be more expensive than any other firm ... electricity available in Colorado and several surrounding states.”
The fact is, though, that the ALJ and the PUC were required to ignore the difference between the locked-in rate and the current market price of electricity. PURPA and the implementing regulations promulgated by FERC entitle the developer of a qualified facility to sell power at locked-in rates established at the project’s inception. See 18 C.F.R. § 292.304(d)(2) (1997); Freehold Cogeneration Assoc. v. Board of Regulatory Comm’rs, 44 F.3d 1178, 1191-93 (3d Cir.1995); Independent Energy Producers, Inc. v. California Public Utils. Comm’n, 36 F.3d 848, 858 (9th Cir.1994). Likewise, the PUC rules adopted to carry out its obligations under PURPA expressly assure the right of a supplier to “lock in” rates for a qualified facility. See 4 C.C.R. § 723-19, Rule 3.5072.
While the ALJ and PUC may disagree with the judgment made by Congress and FERC in adopting a regulatory scheme that allows developers of qualified facilities to force utilities and their ratepayers to buy *370power at prices that may exceed market rates at the time of delivery, they must abide by the policy choice embodied in the statute and rules. Thus, to the extent that the ALJ and the PUC relied on the increasingly large spread between the 1987 avoided cost rate and the market price for electricity as a reason to reject the 1993 Amendments, their decisionmaking was premised on a factor they were not authorized to consider.
As for the comparatively large number and degree of changes contemplated by the 1993 Amendments, the PUC simply does not explain why they are material and thus, as a consequence, why the 1993 Agreement is no longer enforceable under the PUC’s Moratorium Decision. Phoenix argues that the only aspect of the deal that could be considered material to the legitimate regulatory interests of the PUC is capacity, which was not altered. To this argument the PUC offers no cogent response.1
While I do not think the PUC was bound to adopt the approach advanced by Phoenix, it must explain why contract rules should apply to the exclusion of a functional test designed to assess the amended arrangement in light of the policy goals identified by the PUC in establishing the bidding rules and accompanying grandfather provisions.
II.
Even if the PUC were to conclude that contract rules should be applied to evaluate the significance of amendments to a grandfathered contract — and I believe it might reach such a conclusion based on sound reasoning — its decision that the amended terms constitute a new contract cannot be reviewed in a vacuum. The materiality of a contract term must be assessed in context. Cf. Restatement (Second) of Contracts § 241 (standards for assessing materiality of breach); Pittsburgh Nat’l Bank v. Abdnor, 898 F.2d 334, 338 (3d Cir.1990) (materiality of breach turns on multi-factor test requiring examination of expectations of parties at the time original contract was formed).
Thus, while a change in technology, geographic location, and price might be material in one context, they might not be important in another. For example, the technology employed to generate energy might be irrelevant from the point of view of a residential utility customer who simply wants to make sure the porch lights turn on when the appropriate switch is flipped. On the other hand, the technology used might be crucial to a construction company negotiating changes in a contract to help Phoenix build the facility, because construction of a water-powered plant might require a very different set of skills and materials than a natural gas-fired cogeneration plant.
The essence of the bargain between Phoenix and PSCo arguably remained the same under the proposed 1993 Amendments as it was under the PUC-approved 1991 amendments, namely, the agreement for Phoenix to sell 43.5 megawatts of QF capacity to PSCo over a fifteen-year period. Indeed, neither the 1987 contract nor the amended version proposed in 1993 appears to attach much significance to the location of the project or the technology to be used. While the original version includes an attachment that describes the project as a hydroelectric facility near Montrose, nowhere does it require the use of any particular technology or placement in any particular location. In fact, the 1987 contract requires only that the power be generated by a “qualifying facility.”
The changes proposed in 1993 would substitute an alternative description of the facility’s location and technology, but like the 1987 version of the contract, the 1993 Amendments contain no provision that appears to create any right or obligation based on technology or geography. The changes in location and technology may or may not have been material, but their importance is by no means obvious. The significance of any particular contractual term must be assessed in *371the context of the expectations of the parties,2 and the record does not reflect how the availability of 43.5 megawatts generated by a hydroelectric facility near Montrose was different, from the point of view of PSCo or ratepayers, than the availability of the same amount of electricity from a cogeneration facility in Greeley.3
III.
We are obliged to defer to the PUC’s expert judgment concerning the significance of the changes in the power contract between Phoenix and PSCo, but unless the PUC is required to explain the reasons for its decision in sufficient detail to allow for meaningful judicial review, I fear we have given the PUC far more than the deference due to an administrative agency. Moreover, to the extent that the PUC made legal determinations concerning the implications of the 1993 Amendments under contract law, I am not convinced that these determinations were correct under Colorado contract law. In any event, I think it incorrect to analyze this controversy as a contract case rather than a dispute that calls for judicial review of the decisionmaking process of an administrative agency. Therefore, I respectfully dissent.

. Although the moratorium order reserved the PUC's right to review any grandfathered contract reached under its terms, the PUC approved several other contracts that also included subsequent amendments. The PUC acknowledges as much, but asserts that- it has never approved amendments requiring so many changes with such drastic differences, e.g., in technology and geographic location. Again, though, the PUC must explain why these changes are important in the context of its regulatory policies or the expectations of the parties to the contract.

. At this stage, PSCo takes the position that the PUC’s decision should be upheld and that it should be released from any obligation to perform under the 1993 amendments. At the time the 1993 changes were submitted to the PUC, however, PSCo had no objection to approval of the amendments. In this context, the expectations of the parties must be assessed in terms of what PSCo and Phoenix reasonably would have considered material at the time the 1988 contract was made in order to determine whether the 1993 amendments altered the original bargain in any fundamental way.

. The majority analyzes the changes resulting from the 1993 Amendment in contract terms and attempts to decide whether they were so significant as to constitute a "novation." I take issue with this terminology, because a novation requires the substitution of one or more parties to the original contract, not the substitution of a new performance. See Restatement (Second) of Contracts § 280 (1979) (“A novation is a substituted contract that includes as a party one who was neither the obligor nor the obligee of the original contract.’’). Our decision in Moffat County State Bank v. Told, 800 P.2d 1320 (Colo.1990), cited by the majority in its novation discussion, is not to the contrary, because in that case the change in parties was not in dispute. Moffat County State Bank merely analyzed the other elements of a novation. Whatever the terminology, I do not think that the PUC has shown that the 1993 changes were material or altered the benefit of the bargain PSCo entered into with Phoenix, so I would remand for further proceedings on this issue.