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NiMo sues FERC, NYPSC in Federal court over QF deals
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Fighting the Last Wars FERC Nixes West Penn Challenge to QF Contracts
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hceFederal Energy Regulatory ommission has issued another rebuke to an investorowned utility looking to break what it claimed was an uneconomic power purchase contract under the Public Utility Regulatory Policies Act. In a order issued in early May (ER95-30), FERC rejected a petition from West Penn Power Co. of Greensburg, Pa., to void a contract with a waste coal generator in Washington C o u n ~ Just prior to FERC's ruling, Air Products and Chemicals of Allentown, Pa., had sued West Penn in federal court for refusing to honor its contract with the 80 MW "qualifying facility" (Electricity Daily, May 8). West Penn is a wholly owned subsidiary of Allegheny Power System. West Penn had contended that FERC should void the contract because the cost of the power exceeds the utility's current avoided cost, although it did not exceed the avoided cost at the time the contract was negotiated in 1986. Citing its recent decision in a case involving New York State Electric and Gas Corp., FERC rejected West Penn's request, noting, in tart language, that West Penn had "refused to accept the judgments of the Pennsylvania courts and the Pennsylvania [Public Utility] Commission, as left standing by the United States Supreme Court."
July 1995
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West Penn also said FERC could overturn the contract because the project to bum bituminous gob, or waste coal, has not been fully financed and built. Not a chance, said FERC. Such an approach would mean that "QF developers would be forced to pursue a 'moving target' in attempting to arrange financing." FERC added that the situation utilities face where QF rates in contracts exceed current avoided costs is similar to what utilities
face when they find that previously negotiated fuel contracts are no longer attractive. "In the latter situation," said FERC, "we have encouraged utilities to buy out (or buy down) higher-priced fuel contracts in order to substitute lower-priced fuel currently available and we have allowed the recovery of prudently incurred buy-out/buy-down costs." Utilities should do the same with QF contracts, said the commission, noting in clarifying language that "if utilities are prudent in buying out or buying down existing power purchase agree-
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ments, whether or not with QFs, this commission will permit the recovery in wholesale rates of a pro share of the buy-out or buydown costs."
NiMo Sues FERC, NYPSC in Federal Court over QF Deals iagara Mohawk Power Corp. turned up the heat in the sizzling war between investorowned utilities and independent power producers in New York State on May 11, with a lawsuit against both the Federal Energy Regulatory Commission and the New York Public Service Commission. The suit asserts that "mandated, above-market electricity purchases from unregulated generators [under the Public Utility Regulatory Policies Act] are costing Niagara Mohawk customers more than $1 million a da)a" Surprisingly, NiMo's suit was filed in the U.S. District Court for the Northern District of New York rather than the U.S. Court of Appeals, where suits challenging FERC actions are usually brought. New York independent power representatives scored the suit as "forum shopping" and a meritless ploy to drain money from them. "We believe the FERC's decision in the Connecticut Light & Power case should apply to both the Orange and Rockland Utilities and New York State Electric & Gas Corp. cases and to all contracts," said NiMo spokeswoman Kerry Bums. "Since its inception, the New York six cent law has been in violation of federal law."
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A NiMo statement asserted that New York state law took the mandatory purchase requirement of the Public Utility Regulatory Policies Act "a major step further" than permitted by federal law in requiring utilities to pay a minim u m of six cents a kilowatt-hour for purchased power. William E. Davis, NiMo chairman and chief executive officer, said NiMo customers would pay an estimated $560 million above avoided cost in 1995 alone for electricity from unregulated generators. n February NiMo had asked FERC to take another look at New York's six cent law in a case involving O&R. In asking for review of the O&R decision, it noted that the N e w York legislature had not repealed the six cent law so as to render it moot, as FERC believed, but amended it to exclude future contracts. Ironicall~ on the same day it tossed out the O&R challenge, FERC ruled in the CL&P case that states may not require utility purchases of power from QFs at a price that exceeds avoided cost (Elec. Daily, Jan. 12). But later, in a case involving NYSEG in which NiMo was also an intervenor, FERC restated its strong opposition to striking down existing contracts based on the six cent law, with commission Chair Betsy Moler saying that to do so would "cause chaos" in financial markets (Elec. Daily, April 13). FERC said the QF contracts were reasonable when entered into and noted the inconsistency of the utilities' position on pur-
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chased power with their demands for recovery of "stranded costs" for their own above-market generation. Aaron Breidenbaugh, of the Independent Power Producers of New York, said of the suit, "The utility can do all the forum shopping it wants--no court is going to end 15 years of settled law and, in the process, destroy an industry that has committed more than $16 billion and provided 30,000 jobs in N e w York. If NiMo wants to 'put an end to irreparable dam-
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age to its ratepayers' it should write off and close the two Nine Mile Point nuclear plants that together are costing its ratepayers $450 million more than they are worth each year."
Midwest Wants to Stop Costly QF Deals in Future idwest Power Systems has joined the growing parade of utilities that are trying to avoid high-cost purchased power contracts entered into under the auspices of the Public Utility Regulatory Policies Act and a parallel state law. On June 1, Midwest peti-
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tioned the Federal Energy Regulatory Commission for a declaratory order to protect it and its electricity customers from an Iowa law it said "would force them to buy electricity at a price that is more than double the current market rate" and asked FERC to find that the Iowa "alternate energy production law" and related regulations are not in compliance with federal law. In its petition, the Des Moinesbased holding company said Iowa law requires it to pay six cents per kilowatt-hour for electricity generated by alternate energy producers, while it claims that federal law ties the price to the market price of electricity, which is substantially less. "The mandatory Iowa price is more than twice the cost w e believe the federal law requires us to pay when we buy electricity from alternate energy producers. It is an additional cost paid by our customers," said Lynn Vorbrich, Midwest executive vice president and chief operating officer. The petition cited the favorable FERC decision in the Connecticut Light & Power case. But following the CL&P decision, FERC refused to consider petitions from utilities in New York and Pennsylvania which asked the commission to invalidate existing contracts with QFs. Midwest, which currently buys electricity from three alternate energy producers, says it is not asking FERC to invalidate any existing contracts. Rather, its petition asks FERC to find the Iowa law invalid and
The ElectricityJournal
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Fighting the Last Wars FERC Nixes West Penn Challenge to QF Contracts
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hceFederal Energy Regulatory ommission has issued another rebuke to an investorowned utility looking to break what it claimed was an uneconomic power purchase contract under the Public Utility Regulatory Policies Act. In a order issued in early May (ER95-30), FERC rejected a petition from West Penn Power Co. of Greensburg, Pa., to void a contract with a waste coal generator in Washington C o u n ~ Just prior to FERC's ruling, Air Products and Chemicals of Allentown, Pa., had sued West Penn in federal court for refusing to honor its contract with the 80 MW "qualifying facility" (Electricity Daily, May 8). West Penn is a wholly owned subsidiary of Allegheny Power System. West Penn had contended that FERC should void the contract because the cost of the power exceeds the utility's current avoided cost, although it did not exceed the avoided cost at the time the contract was negotiated in 1986. Citing its recent decision in a case involving New York State Electric and Gas Corp., FERC rejected West Penn's request, noting, in tart language, that West Penn had "refused to accept the judgments of the Pennsylvania courts and the Pennsylvania [Public Utility] Commission, as left standing by the United States Supreme Court."
July 1995
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West Penn also said FERC could overturn the contract because the project to bum bituminous gob, or waste coal, has not been fully financed and built. Not a chance, said FERC. Such an approach would mean that "QF developers would be forced to pursue a 'moving target' in attempting to arrange financing." FERC added that the situation utilities face where QF rates in contracts exceed current avoided costs is similar to what utilities
face when they find that previously negotiated fuel contracts are no longer attractive. "In the latter situation," said FERC, "we have encouraged utilities to buy out (or buy down) higher-priced fuel contracts in order to substitute lower-priced fuel currently available and we have allowed the recovery of prudently incurred buy-out/buy-down costs." Utilities should do the same with QF contracts, said the commission, noting in clarifying language that "if utilities are prudent in buying out or buying down existing power purchase agree-
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C
U
S
ments, whether or not with QFs, this commission will permit the recovery in wholesale rates of a pro share of the buy-out or buydown costs."
NiMo Sues FERC, NYPSC in Federal Court over QF Deals iagara Mohawk Power Corp. turned up the heat in the sizzling war between investorowned utilities and independent power producers in New York State on May 11, with a lawsuit against both the Federal Energy Regulatory Commission and the New York Public Service Commission. The suit asserts that "mandated, above-market electricity purchases from unregulated generators [under the Public Utility Regulatory Policies Act] are costing Niagara Mohawk customers more than $1 million a da)a" Surprisingly, NiMo's suit was filed in the U.S. District Court for the Northern District of New York rather than the U.S. Court of Appeals, where suits challenging FERC actions are usually brought. New York independent power representatives scored the suit as "forum shopping" and a meritless ploy to drain money from them. "We believe the FERC's decision in the Connecticut Light & Power case should apply to both the Orange and Rockland Utilities and New York State Electric & Gas Corp. cases and to all contracts," said NiMo spokeswoman Kerry Bums. "Since its inception, the New York six cent law has been in violation of federal law."
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A NiMo statement asserted that New York state law took the mandatory purchase requirement of the Public Utility Regulatory Policies Act "a major step further" than permitted by federal law in requiring utilities to pay a minim u m of six cents a kilowatt-hour for purchased power. William E. Davis, NiMo chairman and chief executive officer, said NiMo customers would pay an estimated $560 million above avoided cost in 1995 alone for electricity from unregulated generators. n February NiMo had asked FERC to take another look at New York's six cent law in a case involving O&R. In asking for review of the O&R decision, it noted that the N e w York legislature had not repealed the six cent law so as to render it moot, as FERC believed, but amended it to exclude future contracts. Ironicall~ on the same day it tossed out the O&R challenge, FERC ruled in the CL&P case that states may not require utility purchases of power from QFs at a price that exceeds avoided cost (Elec. Daily, Jan. 12). But later, in a case involving NYSEG in which NiMo was also an intervenor, FERC restated its strong opposition to striking down existing contracts based on the six cent law, with commission Chair Betsy Moler saying that to do so would "cause chaos" in financial markets (Elec. Daily, April 13). FERC said the QF contracts were reasonable when entered into and noted the inconsistency of the utilities' position on pur-
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E
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S
I
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chased power with their demands for recovery of "stranded costs" for their own above-market generation. Aaron Breidenbaugh, of the Independent Power Producers of New York, said of the suit, "The utility can do all the forum shopping it wants--no court is going to end 15 years of settled law and, in the process, destroy an industry that has committed more than $16 billion and provided 30,000 jobs in N e w York. If NiMo wants to 'put an end to irreparable dam-
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age to its ratepayers' it should write off and close the two Nine Mile Point nuclear plants that together are costing its ratepayers $450 million more than they are worth each year."
Midwest Wants to Stop Costly QF Deals in Future idwest Power Systems has joined the growing parade of utilities that are trying to avoid high-cost purchased power contracts entered into under the auspices of the Public Utility Regulatory Policies Act and a parallel state law. On June 1, Midwest peti-
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O
C
U
S
tioned the Federal Energy Regulatory Commission for a declaratory order to protect it and its electricity customers from an Iowa law it said "would force them to buy electricity at a price that is more than double the current market rate" and asked FERC to find that the Iowa "alternate energy production law" and related regulations are not in compliance with federal law. In its petition, the Des Moinesbased holding company said Iowa law requires it to pay six cents per kilowatt-hour for electricity generated by alternate energy producers, while it claims that federal law ties the price to the market price of electricity, which is substantially less. "The mandatory Iowa price is more than twice the cost w e believe the federal law requires us to pay when we buy electricity from alternate energy producers. It is an additional cost paid by our customers," said Lynn Vorbrich, Midwest executive vice president and chief operating officer. The petition cited the favorable FERC decision in the Connecticut Light & Power case. But following the CL&P decision, FERC refused to consider petitions from utilities in New York and Pennsylvania which asked the commission to invalidate existing contracts with QFs. Midwest, which currently buys electricity from three alternate energy producers, says it is not asking FERC to invalidate any existing contracts. Rather, its petition asks FERC to find the Iowa law invalid and
The ElectricityJournal