Submitted: February 5, 2019
from West Virginia Public Service Commission Case No.
D. Johns, Esq. Appalachian Mountain Advocates
Charlottesville, Virginia J. Michael Becher, Esq. Appalachian
Mountain Advocates Charleston, West Virginia Counsel for the
Jessica M. Lane, Esq. J. Joseph Watkins, Esq. Charleston,
West Virginia Counsel for the Public Service Commission.
R. Rodecker, Esq. John R. McGhee, Esq. Kay Casto & Chaney
PLLC John McCuskey, Esq. Shuman McCuskey & Slicer PLLC
Charleston, West Virginia Counsel for American Bituminous
Power Partners, L.P.
BY THE COURT
"'The principle is well established by the decisions
of this Court that an order of the public service commission
based upon its finding of facts will not be disturbed unless
such finding is contrary to the evidence, or is without
evidence to support it, or is arbitrary, or results from a
misapplication of legal principles.' United Fuel Gas
Company v. Public Service Commission, 143 W.Va. 33 (99
S.E.2d 1)." Syl. Pt. 5, Boggs v. Pub. Serv.
Comm'n, 154 W.Va. 146, 174 S.E.2d 331 (1970).
"The detailed standard for our review of an order of the
Public Service Commission contained in Syllabus Point 2 of
Monongahela Power Co. v. Public Service Commission,
166 W.Va. 423, 276 S.E.2d 179 (1981), may be summarized as
follows: (1) whether the Commission exceeded its statutory
jurisdiction and powers; (2) whether there is adequate
evidence to support the Commission's findings; and, (3)
whether the substantive result of the Commission's order
is proper." Syl. Pt. 1, Cent. W.Va. Refuse, Inc. v.
Pub. Serv. Comm'n of W.Va., 190 W.Va. 416, 438
S.E.2d 596 (1993).
Under West Virginia Code of State Rules § 150-3-12.6
(2018), also known as Rule 12.6 of the Public Service
Commission's "Rules for the Government of Electric
Utilities," before a traditional electric utility may
pass on to its retail customers the rates it is paying to a
qualifying facility because of an electric energy purchase
agreement, the Commission may require the utility to show the
rates are just and reasonable to the utility's customers,
in the public interest, and do not exceed the utility's
avoided costs. This is permitted regardless of whether the
agreement with the qualifying facility was reached
voluntarily or was compelled by the Commission.
appeal from the Public Service Commission ("the
PSC"), we are asked to examine the PSC's
interpretation and application of regulations it adopted to
give effect to the federal Public Utility Regulatory Policies
Act, also called "PURPA." In two orders that are
under appeal, the PSC interpreted its PURPA-based regulations
as applying to a voluntary agreement between a small power
plant and a traditional electric utility, and applied the
regulations to find that the agreement, with modification,
was just and reasonable to the electric utility's
no error in the PSC's decision and affirm.
Factual and Procedural Background
American Bituminous Power Partners, L.P. ("AmBit"),
operates a small electricity-generating plant in Grant Town,
West Virginia. A large traditional electric utility,
Monongahela Power Company ("Mon Power"), buys the
electricity generated by AmBit. Mon Power feeds the
electricity produced by this small plant into its
transmission lines and distributes that electricity (along
with electricity from its own power plants and other sources)
to its retail customers in West Virginia.
appeal concerns the fee or rate that Mon Power pays to AmBit
to buy AmBit's electricity. In 2017, the companies agreed
to increase substantially the fee on the condition that the
PSC allow Mon Power to pass the entire fee on to its retail
customers. As we explain in detail later, AmBit and Mon Power
sought approval of a fee based on an avoided capacity cost of
$40.00 per megawatt-hour. In two orders entered in 2018, the
PSC approved a lesser fee, one based on an avoided capacity
cost of $34.25 per megawatt-hour, and said that Mon Power
could pass the lesser fee on to its customers. Without the
PSC's approval, the avoided capacity cost would have been
$27.00 per megawatt-hour pursuant to a 2006 PSC order.
Sierra Club disputes the method that the PSC employed to
analyze and approve that fee increase. To understand the
parties' arguments, we must first examine the historical
statutory and regulatory framework behind the construction of
AmBit's Grant Town plant.
Public Utility Regulatory Policies Act of 1978
adoption of the Federal Power Act of 1935, the Federal
government has exercised "the exclusive authority to
regulate 'public utilities' that sell electric power
at wholesale in interstate commerce." Freehold
Cogeneration Assocs., L.P. v. Bd. of Regulatory Comm 'rs
of State of N.J., 44 F.3d 1178, 1182 (3rd
Cir. 1995) (quoting 16 U.S.C. § 824(e)). Then, in the
mid-1970s, the United States faced a "nationwide energy
crisis" caused by foreign oil embargoes and shortages of
natural gas. Fed. Energy Regulatory Comm'n v.
Mississippi, 456 U.S. 742, 745 (1982). Electric
utilities were "plagued with increasing costs and
decreasing efficiency in the use of their generating
capacities" resulting in adverse impacts on consumers
and the national economy. Id. at 745-46. Congress
thereafter embarked on a comprehensive legislative effort
focused on encouraging electric utilities to reduce
consumption of oil and natural gas. Id.
1978, Congress modified the Federal Power Act by passing the
Public Utility Regulatory Policies Act
("PURPA") to encourage the "conservation of
electric energy." 16 U.S.C. § 2601 . Congress
also intended for PURPA to encourage the adoption of
alternative energy sources, including small power production
facilities and cogeneration facilities. A power plant
that meets PURPA definitions is called a "qualifying
facility." The parties agree that AmBit's Grant
Town power plant is a qualifying facility under PURPA.
adopted PURPA, Congress found that traditional electric
utilities (like Mon Power) might be reluctant to buy
electricity from qualifying facilities. In response, Congress
required the Federal Energy Regulatory Commission
("FERC") to promulgate rules designed to impel
traditional electric utilities to connect to and buy from
qualifying facilities. See 16 U.S.C. §
824a-3(a)  ("[T]o encourage cogeneration and small
power production," FERC was to create rules that
"require electric utilities to offer to . . . purchase
electricity from such facilities.").
Congress required FERC to adopt rules aimed at regulating the
fees paid by traditional electric utilities to qualifying
facilities. Congress provided the following guidelines for
the rates that traditional utilities would be required to
[I]n requiring any electric utility to offer to purchase
electric energy from any qualifying cogeneration facility or
qualifying small power production facility, the rates for
(1) shall be just and reasonable to the electric consumers of
the electric utility and in the public interest, and
(2) shall not discriminate against qualifying cogenerators or
qualifying small power producers.
16 U.S.C. § 824a-3(b).
Congress indicated that FERC could not require a traditional
electric utility to pay a qualifying facility a fee that
"exceeds the incremental cost to the electric utility of
alternative electric energy." Id. Congress
defined "incremental cost" in this way:
[T]he term "incremental cost of alternative electric
energy" means, with respect to electric energy purchased
from a qualifying cogenerator or qualifying small power
producer, the cost to the electric utility of the electric
energy which, but for the purchase from such cogenerator or
small power producer, such utility would generate or purchase
from another source.
16 U.S.C.A. § 824a-3(d).
point, we introduce a term of art: "avoided costs."
The meaning of "avoided costs," as well as the
underlying questions of how and when those costs are
measured, are the focus of the parties' arguments. FERC
substituted the term "avoided costs" in place of
the term chosen by Congress ("incremental cost")
when it adopted rules to implement PURPA. Accordingly,
"incremental" and "avoided" costs are
defines "avoided costs" as "the incremental
costs to an electric utility of electric energy or capacity
or both which, but for the purchase from the qualifying
facility or qualifying facilities, such utility would
generate itself or purchase from another source." 18
C.F.R. § 292.101(b)(6) . Despite that definition,
it remains a nebulous term.
understand "avoided costs" to be all of the costs
that a traditional electric utility would incur to generate
or buy electricity, if the utility did not instead buy the
electricity from the qualifying facility. In other words,
avoided costs are expenses a utility escapes by purchasing
electricity for resale from a qualifying facility instead of
either building and operating a new plant or purchasing
electricity from another wholesale supplier. Viewed in the
context of this case, "avoided costs" roughly
consists of two parts: the long-term capital cost of building
a plant, and the daily fuel and operating costs of the
foregone plant. "By setting a ceiling of incremental [or
avoided] cost on the amount a utility could be forced to pay
for a [qualifying facility's] power, Congress intended to
encourage cogeneration [and small power facilities] without
requiring a utility's ratepayers to subsidize
cogenerators [and small power facilities]." Pub.
Util. Comm `n of Tex. v. Gulf States Utils. Co., 809
S.W.2d 201, 203 (Tex. 1991).
State regulation of PURPA facilities
federal government regulates the sale of electric power at
wholesale in interstate commerce. The States, however,
through agencies like the PSC, regulate the sale of power by
traditional utilities to retail customers. Hence, Congress
directed state regulatory authorities to adopt rules applying
PURPA's requirements to the utilities they regulate, and
to drive those utilities to procure electricity from
qualifying facilities. "Congress intended that state
regulatory authorities be the primary enforcers of
PURPA[.]" Id., 809 S.W.2d at 204. Congress
provided that, within one year of FERC's adoption of a
PURPA rule, "each State regulatory authority shall . . .
implement such rule . . . for each electric utility for which
it has ratemaking authority." 16 U.S.C. 824a-3(f)(1).
after passage of PURPA, the West Virginia Legislature
directed the PSC to "perform those duties expressly
conferred upon a state regulatory authority by the . . .
'Public Utilities Regulatory Policy Act of
1978[.]'" W.Va. Code § 24-2-13 . The PSC
complied with the legislative mandate and incorporated
PURPA's requirements into Rule 12 of its "Rules for
the Government of Electric Utilities." See
generally, W.Va. Code R. § 150-3-12.1 to -12.9.3
. In accordance with PURPA, the PSC's rules require
traditional electric utilities to "purchase . . . any
energy and capacity which is made available from a qualifying
facility[.]" W.Va. Code R. § 150-3-12.4.1. The
rules also require traditional electric utilities to
"make such interconnection with any qualifying facility
as may be necessary to accomplish purchases[.]" W.Va.
Code R. § 150-3-12.4.3.a.
the fees that a traditional electric utility pays to a
qualifying facility to purchase electricity, Rule 12.6.1 of
the PSC's Rules follows FERC's PURPA-based
avoided-cost standard and provides:
12.6.1. Rates for purchases -- Rates for purchases shall:
12.6.1.a. Be just and reasonable to the electric consumer and
in the public interest, and
12.6.1.b. Not discriminate against qualifying cogeneration
and small power production facilities: however, nothing in
this rule shall require an electric utility to pay more than
the avoided costs for purchases[.]
W.Va. Code R. § 150-3-12.6.1. Further, the PSC's
Rules provide that if the rates paid by the traditional
electric utility to the qualifying facility "equal the
avoided costs" of the utility, then the rate
"satisfies the requirements of Rule 12.6.1." W.Va.
Code R. § 150-3-12.6.2.b. Similar to FERC's rules,
our PSC defines "avoided costs" in Rule 12 as
"the incremental costs to an electric utility of
electric energy or capacity or both which, but for the
purchase from the qualifying facility or qualifying
facilities, such utility would generate itself or purchase
from another source." W.Va. Code R. §
summary, under PURPA and the PSC's rules, traditional
electric utilities (like Mon Power) may be compelled to
purchase electricity from nontraditional producers (like
AmBit) that operate qualifying facilities. Under PURPA and
the PSC's Rule 12.6, and in the context of this case, any
fee that the traditional electric utility pays to the
qualifying facility must meet these goals: the fee must be
just and reasonable to the retail customers of the electric
utility; the fee must be in the public interest; and the fee
must not exceed the avoided capital and operating costs to
the electric utility. ...