Niagara Mohawk Power Corp. V. FERC

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I. SUMMARY

Niagara Mohawk Power Corporation (Niagara),1 asserted the rate New York state law set for certain energy purchases conflicted with the federal Public Utilities Regulatory Policies Act (PURPA) which provided a rate ceiling. Niagara alleged the state agency violated PURPA, and the Federal Energy Regulatory Commission (FERC) failed to enforce PURPA. Based on the following, defendant's motions to dismiss Niagara's complaint pursuant to Federal Rules of Civil Procedure 12(b) was granted in their entirety.

II. INTRODUCTION AND BACKGROUND

PURPA was intended by Congress to combat a nationwide energy crisis by promoting long-term economic growth by reducing the nation's reliance on oil and gas and to encourage development of alternative energy sources. Section 210(a) of PURPA required the FERC to "prescribe, and from time to time thereafter revise" rules requiring electric utilities to offer both the sale and purchase of electric energy from qualifying cogeneration facilities (QFs).2 Section 210(b) of PURPA requires the rates that utilities paid for power purchased from QFs be "just and reasonable" to consumers and "not discriminate" against QFs.3 Section 210(e) of PURPA states that QFs are exempt from federal and state regulatory control in connection with rates and financial organizations.4

These requirements were based on Congress' identification of two problems which impeded the development of non-traditional generational facilities: 1) traditional electrical utilities were reluctant to purchase power from, and sell power to non-traditional facilities; and 2) regulation of non-traditional facilities by state and federal utility authorities imposed undue financial burdens on small alternative energy producers.5 IMAGE FORMULA6

Section 210(b) of PURPA states: "[n]o such rule prescribed under subsection (a) of this section [824a-3(b)] shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy."6 The definition of "incremental cost of alternative electric energy" is ". . .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."7 Congress describes the incremental cost in PURPA as "avoided costs" or costs which the utility "avoided" incurring itself by purchasing power from the QF.8 Sections 824a-3(g)-(h) of title 16 describes the judicial review and commission enforcement schemes and provisions in PURPA:

Section 210(g) provides for (1) state court review of state regulatory authorities' orders implementing PURPA; and (2) state court actions to enforce requirements of state regulatory authorities . . . Section 210 (h)(1) provides that for enforcement purposes, rules and regulations promulgated pursuant to PURPA shall be treated like rules promulgated pursuant to the Federal Power Act (FPA), . . . which are enforceable by FERC in federal district court ... The FPA grants FERC the authority to regulate the nationwide development of water and power resources, the transmission of electric energy in interstate commerce, the sale of such energy at wholesale in interstate commerce and the licensing and administration of public utilities .... Section 210(h)(2)(A) of PURPA provides that FERC may bring an enforcement action against a state regulatory agency in district court, and Section 210(h)(2)(B) allows a utility or cogenerator to petition FERC to enforce Section 210(f) which governs state regulatory authorities' responsibilities to implement PURPA rules and regulations .. . . 3(h)(2)(B). If FERC declines to bring such an enforcement action, the utility or cogenerator can commence its own enforcement action against the state regulatory authority in district court ....9

Congress directed that each state regulatory authority apply the rules given by the FERC pertaining to electric utilities' obligation to purchase power from QFs in an effort by congress to apply the doctrine of PURPA to the states. …