# Opposition Brief — Jersey Central Power & Light Co. v. Freehold Cogeneration Associates > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1869%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1995 - **Citation:** 516 U.S. 815 ## Text JUL § 1995 ; : lo Nos. 941977, 94-1905... ae | ~~ inetd IN THE Hupreme Court of the United Htates OCTOBER TERM, 1994 JERSEY CENTRAL POWER & LIGHT COMPANY, Petitioner, Vv. FREEHOLD COGENERATION ASSOCIATES, L.P., Respondent. THE NEW JERSEY DIVISION OF THE RATEPAYER ADVOCATE, Petitioner, Vv. FREEHOLD COGENERATION ASSOCIATES, L.P., Respondent. ON PETITIONS FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT RESPONDENT'S BRIEF IN OPPOSITION TO PETITIONS FOR A WRIT OF CERTIORARI ROBERT F. SHAPIRO Counsel of Record LYNN N. HARGIS MARTIN W. GITLIN Chadbourne & Parke 1101 Vermont Avenue, N.W. Washington, D.C. 20005 (202) 289-3000 Attorneys for Respondent Freehold July 5, 1995 Cogeneration Associates, L.P. a) A \ QUESTION PRESENTED Whether Section 210(e) of the Public Utility Regulatory Policies Act of 1978 ("PURPA") and the Federal Energy Regulatory Commission's implementing regulations, which exempt qualifying cogeneration facilities from state rate regulation, preempt the New Jersey regulatory agency from modifying the rates of a qualifying cogeneration facility in a long-term contract where those rates were "locked-in" and approved by the agency under another provision of PURPA in orders that were not challenged and that have become final and nonappealable. RULE 29.1 LIST Respondent Freehold Cogeneration Associates, L.P. ("Freehold") is a limited partnership. Constellation Energy, Inc., through wholly-owned subsidiaries, owns a | percent general partnership interest and a 49 percent limited partnership interest in Freehold. Constellation Energy, Inc. is a wholly-owned subsidiary of Constellation Holdings, Inc., which, in turn, is a wholly-owned subsidiary of Baltimore Gas & Electric Company, a publicly traded company. The other general partner in Freehold is APS Freehold, Inc., with a 1 percent general partnership interest. APS Freehold, Inc. is a privately held corporation. The remaining limited partnership interest in Freehold (49 percent) is held by APS Associates, L.P. APS Associates, L.P. comprises Advanced Power Systems, Inc., a privately held corporation owning a 98 percent general partnership interest, and Interstate Business Corporation and Wilson Securities Corporation, each a privately held corporation owning a | percent limited partnership interest. TABLE OF CONTENTS QUESTION PRESENTED RULE 29.1 LIST TABLE OF AUTHORITIES STATEMENT OF THE CASE I. Nature of the Case II. The Statutory and Regulatory Scheme A. Federal Power Act. B. Section 210 of PURPA The FERC's Rules Under Section 210(a) (Purchase at Avoided Cost) Section 210(e) and the FERC's Rules Thereunder (Exemption from Utility Regulation) fedsens Implementation of the FERC's TABLE OF CONTENTS (cont'd) TTT. — Peachupnt TOU esssissssitinivsaveintbaetnspscies 9 IV. The Decision Below....ccccccccsctecsecesccccescsececece 12 . Neither The New Jersey Board of Regulatory Commissioners, the Appellee Below, Nor the Federal Energy Regulatory Commission, the Agency Whose Rules Are Being Applied, Are Challenging the Third Circusit's TRON ocicsscsscstcsisciadiiniineiatiennes 3 II. The Third Circuit's Holding is Fully Consistent With the Other High Appellate Court Decisions That Have Addressed Attempts to Revisit An Approved QF Contract............. 15 Ill. The Third Circuit's Decision is - Consistent With Recent Decisions By the FERC Interpreting PURPA and Its Regulatigett.......sccccccesscesoesssovnrssabatannes 17 -iv- TABLE OF CONTENTS (cont'd) Page Jersey Central's Allegations of a Large Disparity Between Avoided Costs and the Rates That It Will Pay Under the PPA Are Wholly Unsubstantiated and Are Irrelevant FERC's Implementing Regulations Are No Longer Subject To Challenge........... 21 Freehold Presented a Valid Claim That It is Exempt From Rate : Regulation Under Section 210(€)..............+++ 23 A. As an Action Under Section 210(e) of PURPA, Jurisdiction Over This Matter Properly Resided with the Federal B. The BRC Impermissibly Sought to Regulate Freehold's Rates After They Had Been Locked-In and Approved...............+ 25 The "Regulatory Out" Clause of the PPA Does Not Confer on the BRC Power to TABLE OF CONTENTS (cont'd) Page VIII. The Division of The Ratepayer Advocate's Claim That the BRC's Approval of the PPA Was Ultra Vires Is Baseless And, In Any Event, Untimely Raised................0sssssseeees 28 LATIN, .cvsescrsctsvessssnsiinseinieiuiieaiainimitbliteeein 29 APPENDICES TABLE OF CONTENTS TABLE OF AUTHORITIES Page COURT CASES: Am. Elec. Power Serv. Corp. v. Fed. Energy Reg. Comm'n, 675 F.2d 1226 (D.C. Cir. 1982), rev'd on other grounds sub nom., Am. Paper Inst. v. Am. Elec. Power Serv. Corp., AGI U.S. 4GZ (19C3) esccceccccasescccssossssesvecscceecesceses 8, 22 Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., AGT TI BE AOD C1963) neceecececccccarscsscccccsoccssssesseeseses 7, 21 Bristol Energy Corp. v. N.H. Public Utils. Comm'n, 13 F.3d 471 (ist Cir. 1994)..........cccecccccccccecsoesssesenss 24 Duignan v. United States, ZIG UB. TOS CIB ET )asceccccciesisevinsasnisciserinncececcosnsccheots 28 Fed. Energy Reg. Comm'n v. Miss., 456 U.S. T42 (1962) nxceseseeccossiccecsccsccccerseseeseeses 4,9, 20 Fed. Power Comm'n v. S. Cal. Edison Co., 376 U.S. 20S (19G4).nc.cerecccceercsecsscesecroccseccsccrsccsecsseses 3 Indep. Energy Producers Ass'n v. Cal. Pub. Utils. Comm'n, 36 F.3d 848 (9th Cir. 1984)...........cccceseeeeees 13, 15, 25 TABLE OF AUTHORITIES (cont'd) Page Jersey Central Power & Light Co. v. Fed. Power Comm'n, FID UD. GE CEC i cceececcrnpriccuicicnctssersinvenasinscuseseenpenee 2 Pub. Utils. Comm'n v. Attleboro Steam & Elec. Co., ZFS CS, BS CEFR ep scecerensirinsinnecisitensiitnietitaiionsbascisiiaaaias 3 Shaw v. Delta Airlines, AGS US. FE Ga ais cscencscncqiinishsiictiianinthinnsvaniacninen 24 Smith Cogeneration Management, Inc. v. Corp. Comm., 963: P.2d 1227 (ORER. 19935) ..cccosecinreoscasseventniesen 13, 16 United States v. Nixon, AES US. GES CIF) acecceceveritisiinccnunsilinttiiamnascitvets 21 United States v. Pub. Utils. Comm'n of Cal., bo gS Ge. 14 |. < | See ern 3,9 ADMINISTRATIVE CASES: Conn. Light & Power Co., 71 Fed. Energy Reg. Comm'n Rep. (CCH) F-G1 GSS 06 CETTE CFI cers secccccanevetsemcianisiisincnsaians 15 Metro. Edison Co./Penn. Elec. Co., Docket No. ER95-41-000 (approved by vote of the FERC on June 28, 1995).............ssssseeees 17 TABLE OF AUTHORITIES (cont'd) Page New York State Elec. & Gas Corp., 71 Fed. Energy Reg. Comm'n Rep. (CCH) | 61,027 (1995).............cccccccecscscecscsreressesessceseees 8, 17, 22 West Penn Power Co., 71 Fed. Energy Reg. Comm'n Rep. (CCH) F 61,153 (1995)...........cccocscsrsssesssscesecssecesesesesors 8, 17, 19 STATUTES: Federal Power Act of 1935, I iisvotaiciciihiaicciaatvieincebnesoneneanastsnsinisincensoetion 3 Public Utility Regulatory Policies Act of 1978, Pub.L.No. 95-617, G2 Gee BEET CG a assisccsccesscscecncasssssccccscsesoscsoses passim 16 U.S.C. § 824a-3(a) (1988).......cccccesesercereeseneeseneeees 5,24 16 U.S.C. § 824a-3(b) (1988)........cscccsssserereesssecsecnssenseesers 5 16 U.S.C. § 824a-3(€) (1988)........ccscssercesesssercererescessereesees 6 16 U.S.C. § 824a-3(f) (1988)..........cereccereecercererseseesenes 6, 24 1G US.) § BIAa- BL) (BSEG) nanan eneceseneesoresi 6, 24 16 U.S.C. § 824a-3(h)(2)(B) (1988).......cscssecerereeseereseseesees 7 16 U.S.C. § 2633€a) (1988)...........c.ceccssssecserereecerenssserseserssee 6 TABLE OF AUTHORITIES (cont'd) Page REGULATIONS: Small Power Prod. and Cogeneration Facilities, Order No. 69, 45 Fed. Reg. 12214 (Feb. 5, 1980), aff'd in part and vacated in part, Am. Elec. Power Serv. Corp. v. Fed. Energy Reg. Comm'n, 675 F.2d 1226 (D.C. Cir. 1982), rev'd in part, Am. Paper Inst. v. Am. Elec. Power Serv. Corp., 461 U.S. 402 (1983).............. passim 18 CPR. S ZZ. Ci ietencataterttirnnshenctesiisttiicecesess 7 18 C.F. § 2OZ. SOG NZ) CH issiccrecitecieseinstsscescissceseses 7 18 CPR. SZ SOC I Ce icteric te tobeiraeitinctvicks. 8 18 CER. § ZOZ SOG IZ) C1GOG cnciccscsscecsnnvckcasoviectonisarnvecss 7 18 CPR. § ZOA GE CGI i ricsseccssnaceitalablsiebiedicticinen 9 1S CPR. § FOSS CGO 0 rscsensstcesicataccadibaii eetlaaatitetnns 9 18 CER, § 292.6026) (1996 ssserossaisccccidscssiutierciatsneteceas 23 TABLE OF AUTHORITIES (cont'd) Page OTHER AUTHORITIES: H.R. Conf. Rep. No. 1750, 95th Cong. 2d. Sess. (Oct. 10, 1978) reprinted in 1978 U.S.C.C.A.N. (92 Stat.) 783 1-32.........ccscscrcereeerees Nos. 94-1977, 94-1995 IN THE Hupreme Court of the United Htates OCTOBER TERM, 1994 JERSEY CENTRAL POWER & LIGHT COMPANY, Petitioner, v - FREEHOLD COGENERATION ASSOCIATES, L.P., Respondent. THE NEW JERSEY DIVISION OF THE RATEPAYER ADVOCATE, Petitioner, Vv. FREEHOLD COGENERATION ASSOCIATES, L.P., Respondent. ON PETITIONS FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT RESPONDENT'S BRIEF IN OPPOSITION TO PETITIONS FOR A WRIT OF CERTIORARI STATEMENT OF THE CASE L NATURE OF THE CASE Respondent Freehold Cogeneration Associates, L.P. ("Freehold") is a “qualifying cogeneration facility" ("qualifying facility” or "QF") under the Public Utility Regulatory Policies Act of 1978, Pub.L.No. 95-617, 92 Stat. 3117 (1978) ("PURPA"). Pursuant to one section of PURPA, the Federal Energy Regulatory Commission ("FERC") issued rules, to be implemented by the states, that established, inter alia, the rates that utilities must pay for the purchase of electricity from qualifying facilities. Pursuant to another section of PURPA, the FERC issued rules that are self-effectuating, i.e., not to be implemented by the states, exempting QFs from all state laws and regulations respecting rates and financial and organizational regulation of utilities. In 1992, the New Jersey Board of Regulatory Commissioners ("BRC") implemented the FERC rules by approving the rates contained in a long-term power purchase agreement ("PPA") between Freehold and Jersey Central Power & Light Company ("Jersey Central") for the life of the PPA. The BRC's order was never challenged and is final . and nonappealable. Freehold contended, and the United States Court of Appeals for the Third Circuit held in the "Freehold" decision below,! that, once the rates in the PPA were determined by the BRC to be just and reasonable and prudently incurred for the life of the PPA in a final and nonappealable order, the BRC's implementation under PURPA ceased. Consequently, its requirement in 1994 that Freehold renegotiate those rates or submit to a hearing that would lead to a modification of the rates or withdrawal of the BRC's prior approval is preempted by PURPA and the FERC's implementing regulations. Those regulations specifically allow qualifying facilities to lock-in the rates for l Freehold Cogeneration Associates, L.P. v. Board of Regulatory Commissioners of the State of New Jersey, 44 F.3d 1178 (3rd. Cir. 1995). (Pet. App. A-1 - A-29). the life of the contract and exempt qualifying facilities from rate regulation by the states. The Third Circuit's decision below is consistent with PURPA and the FERC's implementing regulations and with the two high appellate court decisions that have addressed the issue of a state's right to revisit the rates in a QF contract once they have been established. There is no compelling reason to hear this case. IL THE STATUTORY AND REGULATORY SCHEME A. Federal Power Act In 1935, the Congress enacted Part II of the Federal Power Act ("FPA"), 16 U.S.C. §§ 824-824k (1988), which delegated to the Federal Power Commission (now the FERC) the exclusive authority to regulate the rates for the transmission and sale at wholesale of electric energy in interstate commerce. United States v. Pub. Utils. Comm'n of Cal., 345 U.S. 295 (1953). The legislation was a "direct result" of this Court's holding in Pub. Utils. Comm'n v. Attleboro Steam & Elec. Co., 273 U.S. 83 (1927) that the states lacked authority to regulate the rates for interstate sales of electricity for resale. United States v. Pub. Utils. Comm'n of Cal., supra, 345 U.S. at 311. See Jersey Central Power & Light Co. v. Fed. Power Comm'n, 319 U.S. 61, 67- 68 (1943); Fed. Power Comm'n v. Southern California Edison Co., 376 U.S. 205, 215-216 (1964). B. PURPA In 1978 Congress passed PURPA as part of comprehensive national energy legislation to address the nation's energy crisis. See Fed. Energy Reg. Comm'n v. Miss., 456 U.S. 742, 745-6 (1982). To make the nation more energy independent, the Congress determined that certain types of electricity production facilities were to be encouraged because they provide important benefits to society. Jd. at 745-6, 750. Those facilities include small power production facilities that use renewable energy sources such as solar, wind, biomass and water, and cogeneration facilities that use fuel more efficiently by sequentially producing from that fuel both electricity and useful thermal energy (usually in the form of steam) for manufacturing or heating purposes. /d. at 750, n.11. PURPA represents a marked, albeit limited, departure from. the traditional regulatory scheme, under which the FERC exercises exclusive jurisdiction over wholesale rates in interstate commerce. Under PURPA, the contract rates for a utility’s wholesale purchases from QFs are determined according to regulations promulgated by the FERC, but implemented by state utility commissions. ‘. Section 210 of PURPA The QF provisions of PURPA reflect Congress’ determination that there were two chief impediments to encouraging such non-utility energy producers: (1) utilities were reluctant to buy power from them; and (2) such power producers themselves were reluctant to shoulder the burdens of traditional utility regulation. Jd. at 750-51. To overcome these impediments, Congress, in enacting Section 210 of PURPA ("Section 210"), provided a framework for federal and state implementation of utility purchase obligations and ratemaking principles, exemption from federal and state utility regulation, and certain judicial review mechanisms. 4 Section 210(a), 16 U.S.C. § 824a-3(a) (1988), directed the FERC to prescribe "such rules as it determines necessary to encourage cogeneration," which would require electric utilities to offer to purchase electric energy from, and sell back-up and other necessary energy to, such qualifying facilities. ; Section 210(b), 16 U.S.C. § 824a-3(b), provides that the regulations promulgated by the FERC under Section 210(a) shall ensure that the rates for the purchase of power from a QF shall be "just and reasonable" to the electric consumers of the purchasing electric utility, and shall not exceed the incremental cost to the electric utility of alternative electric energy. This incremental cost of alternative electric energy is commonly referred to as the electric utility's "avoided cost."2 However, the conference committee report accompanying PURPA made it clear that in referring to the term "just and reasonable": It is not the intention of the conferees that cogenerators and small power producers become subject, by virtue of this language, and the rules promulgated under this section, to the type of examination that is traditionally given to electric utility rate applications to determine what is the just and reasonable rate that they should receive for their 2 Section 210(d) defines the term "incremental cost of alternative electric energy" used in Section 210(b) for purchases from QFs as: "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.” electric power. The conferees recognize that cogenerators and small power producers are different from electric utilities, not being guaranteed a rate of return on their activities generally or on the activities vis-a-vis the sale of power to the utility and whose risk in proceeding forward in the cogeneration or small power production enterprise is not guaranteed to be recoverable. H.R. Conf. Rep. No. 1750, 95th Cong. 2d. Sess. (Oct. 10, 1978) reprinted in 1978 U.S.C.C.A.N. (92 Stat.) 7831-32. The conference report continued: The establishment of utility type regulation over them would act as a significant disincentive to firms interested in cogeneration and small power production. Id. at 7832. In keeping with this clear Congressional purpose, Section 210(e), 16 U.S.C. § 824a-3(e), authorizes the FERC to issue rules to exempt QFs from "state laws and regulations respecting the rates, or respecting the financial and organizational regulation of electric utilities" and from federal utility regulation. Section 210(f), 16 U.S.C. § 824a-3(f), provides for state implementation of the FERC’s rules promulgated under Section 210(a). Section 210(g), 16 U.S.C. § 824a-3(g), specifies that judicial review respecting any proceeding conducted by a state regulatory authority for purposes of implementing any requirement under Section 210(a) can be had pursuant to the same conditions as specified under Section 123 of PURPA, 16 U.S.C. § 2633(a) (i.e., in state court). Section 6 210(h)(2)(B), 16 U.S.C. § 824a-3(h)(2)(B), permits qualifying facilities to petition the FERC to enforce the state’s implementation of the FERC’s rules as mandated by Section 210(f) and, if the FERC does not initiate an enforcement action within 60 days, authorizes the QF to bring an enforcement action in the appropriate United States district court. Sections 210(g) and (h), therefore, by their terms specifically apply to review of the state implementation of the FERC’s rules promulgated under Sections 210(a) and (f). Neither Section 210(g) nor (h) requires that proceedings respecting rules promulgated by FERC pursuant to Section 210(e), authorizing FERC to exempt QFs from certain regulation, be initiated in any particular forum. y 5 The FERC's Rules Under Section 210(a) (Purchase at Avoided Cost) In issuing rules under Section 210(a), the FERC determined that the rate at which a utility would be required to purchase power from QFs would be equal to the utility’s full avoided cost. 18 C.F.R. §§ 292.101(b)(6), 292.304(b)(2) (1994). Upon a challenge to these regulations, this Court held that a rate for QF power equal to the utility's full avoided cost is just and reasonable to the electric consumers of the electric utility and fully in accordance with Sections 210(a) and (b) of PURPA. Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402 (1983). The FERC's rules implementing Section 210(a) provide that if a QF sells electric energy or capacity pursuant to a legally enforceable obligation over a specified term, the rates for such purchases shall, at the option of the QF, be based on the utility's avoided costs as calculated either (1) at the time of the delivery of the power, or (2) at the time the obligation is incurred. 18 C.F.R. § 292.304(d)(2) (1994). The FERC's regulations further provide that, where 7 . the rates are based on avoided costs calculated at the time the obligation is incurred (the so-called "lock-in" right), "the rates for such purchases do not violate [FERC’s regulations or PURPA] if the rates for such purchases differ from avoided costs at the time of delivery." 18 C.F.R. § 292.304(b)(5) (1994). Thus, the FERC explicitly recognized that a utility’s avoided costs might change over time, but that any such change subsequent to the QF's incurring a legally enforceable obligation? to provide power to the utility would not cause that obligation to violate PURPA or the rules promulgated thereunder. See Small Power Prod. and Cogeneration Facilities; Regulations Implementing Section 210 of PURPA, Order No. 69, 45 Fed Reg. 12,214, 12,224 (Feb. 25, 1980) ("The import of this section is to ensure that a qualifying facility which has obtained the certainty of an arrangement is not deprived of the benefits of its commitment as a result of changed circumstances."), aff'd in part and vacated in part, Am. Elec. Power Serv. Corp. v. Fed. Energy Reg. Comm'n, 675 F.2d 1226 (D.C. Cir. 1982), rev’d in part, Am. Paper Inst. v. Am. Elec. Power Serv. Corp., 461 U.S. 402 (1983); West Penn Power Co., 71 Fed. Energy Reg. Comm'n Rep. (CCH) 4 61,153 (1995); New York State Elec. & Gas Co., 71 Fed. Energy Reg. Comm'n Rep. (CCH) ¢ 61,027 (1995). 3 The FERC used the term "legally enforceable obligation” in its rules to encompass obligations that did not rise to the level of an executed contract. As the Commission explained in its preamble to the regulations: “Use of the term ‘legally enforceable obligation’ is intended to prevent a utility from circumventing the requirement that provides capacity credit for an eligible facility merely by refusing to enter into a contract with the qualifying facility." 45 Fed. Reg. at 12,224 (February 25, 1980). 3. Section 210(e) and the FERC's Rules Thereunder (Exemption from Utility Regulation) To remove the second impediment to QF development identified by Congress, the burdens of traditional utility regulation, Section 210(e) authorizes the FERC to promulgate rules to exempt QFs from both federal and state utility regulation if it determines such exemption is necessary to encourage cogeneration and small power production. Pursuant to Section 210(e), the FERC issued rules exempting QFs from most federal utility regulation and from all state laws and regulations regarding rates and the financial and organizational regulation of utilities. 18 C.F.R. §§ 292.601 and 292.602 (1994). Cc. Implementation of the FERC's Rules The provisions for implementing the FERC'’s rules are unusual. Section 210(f) provides that each state regulatory authority must implement the FERC's rules under Section 210(a) for each electric utility for which it has ratemaking authority. Thus, despite the fact that wholesale electricity rates are the exclusive province of the FERC, see United States v. Pub. Utils. Comm'n of Cal., supra, PURPA carved out a limited exception to this rule by requiring the states to implement one portion of the federal regulations under PURPA. See Fed. Energy Reg. Comm'n v. Miss., 456 U.S. at 759-761. iL FACTUAL BACKGROUND ‘ Freehold is constructing a qualifying cogeneration facility in Freehold, New Jersey. In 1989, the BRC issued an order (reproduced at App. A to this Brief) exempting, or "grandfathering,” the Freehold project from the BRC's 1989 competitive bidding procedure for the acquisition of new 9 capacity for New Jersey utilities. As the 1989 order indicated, the new procedure expressly provided that the BRC would determine on a case-by-case basis whether to exempt a particular project, and Freehold was one of a number of projects that it exempted. Jersey Central opposed Freehold's request to be exempted, but did not appeal the BRC's order approving that request. Nor did the New Jersey Division of The Ratepayer Advocate ("DRA") or anyone else appeal. That order is final and nonappealable. The BRC's 1989 order directed Freehold and Jersey Central to negotiate a contract with pricing tied to the benchmark price contained in Jersey Central's 1989 competitive bidding solicitation. After more than 2 years of negotiations, the parties signed the PPA on March 26, 1992. On March 31, 1992, Jersey Central submitted the PPA to the BRC for approval (letter accompanying submittal is reproduced at App. B). In doing so, Jersey Central expressly argued that the contract rates should be protected for the life of the contract: Principles of equity dictate that the Board provide both the purchasing utility and the cogenerator with sufficient assurances that the avoided costs contract rate, once approved by the Board, will not be subject to further scrutiny. In this regard, FERC has indicated that neither the purchasing utility nor the QF are to be deprived of the mutual benefits of entering into a long- term contract based on Board approved avoided cost rates. In order to preserve the benefit of the bargain between the utility and the QF, flow-through of the purchased power costs incurred under this or similar agreements must be assured. In the instant case, both JCP&L and Freehold need to have the certainty that neither this nor future 10 Boards will impair the utility's right to flow-through to and/or fully and timely recover from its ratepayers the contracted for, and Board-approved, purchase price over the full term of the Agreement or exercise jurisdiction over this or similar agreements. App. B-3. The BRC issued an order approving the PPA on July 8, 1992. (Reproduced at App. C). In that order, the BRC stated that "the price is equal to 100% of the applicable avoided cost" (App. C-5), and found that: the rates specified and the costs resulting therefrom [are] reasonable and reasonably and prudently incurred by JCP&L throughout the full term of the Agreement. Therefore the Board and its successors will allow JCP&L to flow-through and/or fully and timely recover the rates specified in the Agreement... Id. (Emphasis added). Neither Jersey Central nor any other party, including the DRA, opposed approval of the PPA. Neither Jersey Central nor any other party sought appellate review of the Board's order approving the PPA. That order is final and nonappealable. The BRC issued an order, dated April 12, 1993 (the "Towner Order"), directing electric utilities in New Jersey to assess their existing contracts with qualifying facilities under PURPA and to bring to its attention any contracts that the utilities believed no longer were economic. Jersey Central informed the BRC that the Freehold PPA might be a candidate for buyout or modification. Freehold then met with the BRC's staff and voluntarily agreed to certain price concessions in exchange for certain nonprice modifications to the PPA. 11 On January 4, 1994, the BRC issued an order pursuant to purported state authority rejecting the voluntary agreement between Freehold and the BRC's staff and directing Freehold and Jersey Central to renegotiate the rates in the PPA or to negotiate a buyout of the PPA. If no agreement was reached within thirty (30) days, the BRC would commence an evidentiary hearing to consider revoking its prior approval of the PPA. (Order reproduced at App. D). When no agreement was reached, the BRC issued an order commencing evidentiary hearings. (Order reproduced at App. E). The hearings continued from March, 1994 through the beginning of January, 1995, when they were halted as a result of the Third Circuit's decision below. The Third Circuit's decision was a direct result of a Complaint filed by Freehold against the BRC and Jersey Central in the United States District Court for the District of New Jersey. The Complaint alleged that the BRC was preempted under PURPA and the FERC's implementing regulations from revisiting the order approving the PPA and the rates contained therein. The district court dismissed the Complaint on jurisdictional grounds. IV. THE DECISION BELOW In a unanimous decision, the Third Circuit reversed the district court, finding that the court not only had jurisdiction, but also that federal law preempted the BRC from revisiting its prior approval of the PPA and its rates: Based on the overall scheme of PURPA and its stated goal, and especially section 210(e) and the implementing rules promulgated by the FERC, we hold that Congress intended to exempt qualified cogenerators from state and federal utility rate regulations. 12 Freehold, 44 F.3d at 1192. (Pet. App. A-24). The court found that once the BRC had completed its implementation of Section 210(a) by its 1992 order approving the PPA, its present attempt to modify the PPA or revoke its prior order constituted "exactly the type of regulation from which Freehold is immune under section 210(e)." Jd. The court went on to explain that its decision was consistent with two recent high appellate court decisions: Indep. Energy Producers Ass'n v. Cal. Pub. Utils. Comm'n, 36 F.3d 848 (9th Cir. 1984) and Smith Cogeneration Management, Inc. v. Corp. Comm'n, 863 P.2d 1227 (Okla. 1993). The court also reviewed the so-called "regulatory- out" clause in the PPA, which it found to be "unambiguous," and determined that: this clause does not purport to confer on the BRC any jurisdiction it would not otherwise have. In particular, it reflects no intent on the part of Freehold to surrender any of the protection from state rate regulation conferred upon it by section 210(e). Freehold, 44 F.3d at 1194 (Pet. App. A-28). Jersey Central, the BRC, and the DRA filed a request for rehearing of the panel and of the Third Circuit en banc, which was denied on March 7, 1995. Two weeks after rehearing was denied, Jersey Central filed a petition with the FERC, asking the FERC to void the PPA notwithstanding the Third Circuit's decision. That petition is still pending. Jersey Central and the DRA filed their petitions for a writ of certiorari with this Court on June 5, 1995. The BRC did not file a petition. 13 REASONS FOR DENYING THE WRIT L NEITHER THE NEW JERSEY BOARD OF REGULATORY COMMISSIONERS, THE APPELLEE BELOW, NOR THE FEDERAL ENERGY REGULATORY COMMISSION, THE AGENCY WHOSE RULES ARE BEING APPLIED, ARE CHALLENGING THE THIRD CIRCUIT'S HOLDING As discussed supra in the Statement of the Case, the issue in this case is whether the actions of the BRC are preempted by PURPA and the implementing regulations promulgated by the FERC. Tellingly, the New Jersey state agency whose actions are at issue here appears to have accepted the decision of the Third Circuit. Conspicuously absent from these proceedings is.a petition by the BRC for a writ of certiorari, an absence that suggests that the BRC can live with the Freehold decision.4 Similarly, the federal government is not troubled by the merits of this case. In response to the Third Circuit's request below to brief the jurisdictional issues and "any of the other issues raised by this appeal that it desires to" (See App. F to this Brief for the text of the court's order), the FERC filed a brief amicus curiae addressing the jurisdictional issues in the case but expressly declined the court's invitation to address the merits. On all the jurisdictional issues, the FERC sided with Freehold, advocating the same position that the court ultimately adopted. (The FERC's amicus brief is 4 On June 26, 1995, the BRC filed Notices of Appearance with this Court in these proceedings in which it specifically stated that it would not be filing a brief in this matter. 14 reproduced at App. G). More recently, the FERC has cited the Third Circuit's decision with approval. See, e.g., Conn. Light & Power Co., 71 Fed. Energy Reg. Comm'n Rep. (CCH) § 61,035 at 61,152 (1995) (the Third Circuit's Freehold decision "supports our conclusion"). Roth the BRC’s and the FERC's acceptance of the Third Circuit's decision fully justifies this Court's denial of the writ. IL THE THIRD CIRCUIT'S HOLDING IS FULLY CONSISTENT WITH THE OTHER HIGH APPELLATE COURT DECISIONS THAT HAVE ADDRESSED ATTEMPTS TO REVISIT AN APPROVED QF CONTRACT The Court of Appeals’ decision, far from conflicting with the decisions of other appellate courts and the FERC, as suggested by Jersey Central (Pet. at 13), is fully consistent with the two other high appellate court decisions that have addressed whether a state may reconsider the rates paid to a QF under a power purchase contract. In Indep. Energy Producers Ass'n, Inc. v. Cal. Pub. Utils. Comm'n, 36 F.3d 848 (9th Cir. 1994), the United States Court of Appeals for the Ninth Circuit struck down a program under which the California Public Utilities Commission ("CPUC") permitted the utilities to reduce the rates paid to QFs under long-term contracts if the utilities determined that the QFs did not meet certain criteria established by the FERC's regulations implementing PURPA. In reviewing the program, the court observed that: The underlying motivation behind the CPUC program is to lower the rates set in [the utilities'] standard offer contracts because they are higher than the Utilities’ current avoided costs. [T]his differential 15 exists because the standard offer contracts lock the Utilities into paying rates that were calculated on incorrect assumptions about the future cost of fossil fuels. Id., 36 F.3d at 858. As to that "underlying motivation," however, the court found that, notwithstanding the "incorrect assumptions" attendant to the original approval of the contract, PURPA and the FERC's implementing regulations precluded the CPUC and the utilities from unilaterally changing the rates once they had been locked-in by contract: The fact that the prices for fuel, and therefore the Utilities' avoided costs, are lower than estimated, does not give the state and the Utilities the right unilaterally to modify the terms of the standard offer contract. ** * [In promulgating its regulations implementing. PURPA, t]he Commission recognized that, at times, the avoided cost rate provided in the contract might be greater or less than the utility's current avoided costs but that certainty as to rate was important... Id., 36 F.3d at 858 (Citing to the FERC's preamble to its PURPA rules). This is consistent with the holding of the Third Circuit below. See Freehold, 44 F.3d at 1194 (Pet App. A-28 - A-29). Once Freehold and Jersey Central established the rates in the PPA and the BRC's order approving those rates became final and nonappealable, the BRC and Jersey Central were precluded from changing those rates unilaterally. The Third Circuit's holding also is consistent with a recent decision of Oklahoma’s highest court. Smith Cogeneration Management, Inc. v. Corp. Comm'n, 863 P.2d 1227 (Okla. 1993). There the court held that PURPA deprives the state regulatory commission of authority to revisit the avoided cost rates in a QF contract once they have 16 been established. Jd., 863 P.2d at 1241. The court invalidated a state regulatory commission rule that required utilities to include in their contracts with QFs a clause allowing the commission to modify the terms and conditions of the contract during the term of the contract. It found that "[r]econsideration of long-term contracts with established estimated avoided costs imposes utility-type regulation of QFs. PURPA and FERC regulations seek to prevent reconsideration of such contracts." Jd., 863 P.2d at 1240. The court concluded that the "Corporation Commission rules, to the extent which they require qualifying facilities to include a notice provision allowing reconsideration of avoided costs after the contract is agreed upon, are preempted by federal law." Jd., 863 P.2d at 1242. The analysis and conclusion of the Oklahoma court apply equally to the BRC’s attempt to revisit Freehold’s rates nearly two years after approving them in a final and nonappealable order, as the Third Circuit correctly held. See Freehold, 44 F.3d at 1193 (Pet. App. A-25 - A-26). lil. THE THIRD CIRCUIT'S DECISION IS CONSISTENT WITH RECENT DECISIONS BY THE FERC INTERPRETING PURPA AND ITS REGULATIONS The Third Circuit's decision also is fully consistent with the interpretation of PURPA and its regulations advanced by the FERC, the agency charged with implementing and administering the statute. On several recent occasions, the FERC has considered and rejected requests by utilities to declare the rates contained in their power purchase contracts with QFs to be invalid. See, e.g., West Penn Power Co., 71 Fed. Energy Reg. Comm'n Rep. (CCH) ¥ 61,153 (1995); New York State Elec. & Gas Corp., 71 Fed. Energy Reg. Comm'n Rep. (CCH) 4 61,027 (1995) ("NYSEG"); Metro. Edison Co./Penn. Elec. Co., Docket 17 a= ch moore rao ene No. EL95-41-000 (approved by vote of the FERC on June 28, 1995).5 In NYSEG, for example, the utility sought an order from the FERC to relieve it of its obligation to purchase energy from two QFs at rates that had been established in separate power purchase contracts that had been approved by the state commission in final and nonappealable orders. The utility's purported justification for its request was that circumstances had changed since the contracts were executed, resulting in a situation in which the rates contained in the contracts exceeded its then-current avoided cost. The FERC denied the utility's petition, holding that, under its regulations, the contract rates were established (i.e., "locked- in") at the time of contracting. Specifically, the FERC noted that its regulations provide that the rates under a power purchase contract do not violate PURPA if they differ from avoided costs at the time the electricity is delivered. 71 Fed. Energy Reg. ~ Comm'n Rep. at 61,116, citing 18 C.F.R. § 292.304(b)(5) (1994). Those regulations were promulgated in the belief that "in the long run, 'overestimations’ and 'underestimations' will balance out" and that the lock-in of the rates would "ensure that a [QF] which has obtained the certainty of an arrangement is not deprived of the benefits of its commitment as a result of changed circumstances." /d., citing Small Power Prod. and Cogeneration Facilities, 45 Fed. Reg. at 12224 (Feb. 5, 1980). (See App. H to this Brief for text of NYSEG order.) 5 Metropolitan Edison Company and Pennsylvania Electric Company are utility affiliates of Jersey Central and are owned by a common parent, General Public Utilities Corp. 18 This is the same holding as that adopted by the Third Circuit below: once the purchase rates for electricity sold by a OF to a utility have been locked-in and approved, those rates may not be changed unilaterally by the utility or the state commission as a result of changed circumstances. See also West Penn, 71 Fed. Energy Reg. Comm'n Rep. (CCH) at 61,495-96 (rejecting utility's assertion that changed circumstances -- i.e., decreases in its projections of avoided cost from those contained in power purchase contract with the QF -- justified reduction of the rates it paid under that contract, which had been approved by the state commission in a final and nonappealable order). (See App. I to this Brief for the text of the West Penn order.) IV. JERSEY CENTRAL'S ALLEGATIONS OF A LARGE DISPARITY BETWEEN AVOIDED COSTS AND THE RATES THAT IT WILL PAY UNDER THE PPA ARE WHOLLY UNSUBSTANTIATED AND ARE IRRELEVANT IN ANY EVENT Jersey Central argues that this Court should grant the writ because of the "disbenefits” that the PPA allegedly will cause to Jersey Central's ratepayers (Pet. at 8, 13-14). Jersey Central completely fails, however, to offer any support for its claims. Jersey Central argues that at the time the BRC approved the PPA in 1992, the rates specified therein exceeded its avoided cost. When Jersey Central submitted the PPA for BRC approval, however, it never suggested that the rates exceeded its avoided cost. Indeed, it argued that the rates contained in the PPA should be protected for the life of the PPA. See Factual Background, supra, at 9-12. When the BRC approved the PPA, it specifically held that the rates were "equal to 100% of the applicable avoided cost." (App. 19 C-5). No party challenged that determination. Even when the BRC sought to revisit the rates under the PPA, it did so on the basis that estimates of avoided costs had declined since the PPA was approved (see App. D-4, 11, 12, E-2), rather than on any alleged mismatch at the time of contracting. Thus, Jersey Central's claim amounts to little more than a post hoc rationalization that rings hollow here. PURPA was enacted because utilities refused to deal with cogenerators and small power producers. Fed. Energy Reg. Comm'n v. Miss., 456 U.S. at 750-51. Absent PURPA, there would have been no cogeneration contracts. The utilities would have continued their construction on the traditional "cost plus" basis and there would have been no competition for generating capacity. PURPA helped to establish the competitive market for generation by requiring utilities to stop their anticompetitive actions and start acting in the best interests of the nation. In the absence of cogeneration, traditional utility construction would have led to far higher rates for electric consumers.§ 6 Jersey Central's claim (Pet. at 14) that the PPA will result in excessive costs to ratepayers compared to current market alternatives is wildly inaccurate. Under the utility's market test, nearly all of Jersey Central's existing generating capacity would be found to be excessively expensive as well. Moreover, Jersey Central neglects to point out that, absent PURPA, utilities would have continued to build plants like the Three Mile Island II nuclear unit, partly owned by Jersey Central, which has cost ratepayers hundreds of millions of dollars without providing any electricity. Under the PPA, in contrast, Freehold only gets paid if it performs properly. As for the Wall Street Journal article cited by Jersey Central (Pet. at 14), the reporter was demonstrably biased, focusing primarily on exotic technologies that have experienced problems, not on the hundreds of conventional cogeneration plants, like the Freehold project, that have provided and will provide reliable, cost-effective power. Further, to the extent that there have been decreases in avoided costs since the rates under the PPA were locked- in, as Jersey Central has suggested (Pet. at 8), the FERC, in its implementing rules, specifically contemplated that such changes might occur, but found that the potential for such changes was outweighed by the importance of providing the certainty required for financing of QF projects. See Small Power Prod. and Cogeneration Facilities, 45 Fed. Reg. at 12,224; NYSEG, supra. In any event, the relationship between Jersey Central's current avoided cost and the rates under the PPA is irrelevant for purposes of this case. As is discussed in greater detail infra, once the BRC approved the rates in a final and nonappealable order, its implementation of the FERC's avoided cost regulations was at an end. Section 210(e) of PURPA and the FERC's regulations promulgated thereunder at 18 C.F.R. § 292.602(c) (1994) specifically exempt Freehold from state rate regulation. Consequently, the BRC lacks authority to modify the rates in the approved PPA, as the Third Circuit correctly held. Vv. FERC’S IMPLEMENTING REGULATIONS ARE NO LONGER SUBJECT TO CHALLENGE The provisions of Section 210 of PURPA are not self- implementing. Rather, PURPA Section 210 is given effect through the issuance of rules by the FERC. These rules have the "force of law." See United States v. Nixon, 418 U.S. 683, 694-96 (1974). Thus, Jersey Central's reference to the statutory requirements of PURPA instead of the FERC's implementing regulations (Pet. at 22) is unavailing. The FERC issued its regulations respecting the rates for the purchase of power from QFs, including the right of a QF to the "lock-in" estimates of avoided cost, in 1980. They were affirmed by this Court in 1983. Am. Paper Inst., supra. 21 For 15 years, these rules have been consistently applied and relied upon by an entire industry. It is far too late to challenge them now. Indeed, the United States Court of Appeals for the District of Columbia Circuit, on review of the FERC’s rules implementing PURPA, expressly observed in 1982 that the time to challenge them was when they were promulgated, not years later: Thus, if petitioners fail to pursue their remedies now, they do so at their peril of losing the right ever to challenge the validity of the Commission's regulations. Am. Elec. Power Serv. Corp. v. Fed. Energy Reg. Comm'n, 675 F.2d 1226, 1232 (D.C. Cir. 1982), rev'd on other grounds sub nom., Am. Paper Inst. v. Am. Elec. Power Serv. Corp., 461 U.S. 402 (1983). See also NYSEG, 71 Fed. Energy Reg. Comm'n Rep. (CCH) at 61,116 (App. H-32), ("It is now far too late in the Commission's implementation of PURPA for NYSEG to argue, for the first time, that these particular regulations have legal and policy flaws requiring that we abrogate contracts entered into under these regulations.") (emphasis in original). VL FREEHOLD PRESENTED A VALID CLAIM THAT IT IS EXEMPT FROM RATE REGULATION UNDER SECTION 210(e) A. As an Action Under Section 210(e) of PURPA, Jurisdiction Over This Matter Properly Resided with the Federal Courts The Third Circuit correctly held that the district court had jurisdiction over Freehold's claim and that the jurisdictional bar contained in Section 210(g) applies only to those portions of Section 210 that require utilities to purchase energy from and sell energy to qualifying facilities (Section 210(a)), and to the requirement that state authorities implement the federal rules (Section 210(f)). Freehold did not challenge the BRC’s implementation pursuant to Section 210(f) of the FERC's rules under Section 210(a). Rather, Freehold brought this proceeding under Section 210(e) and the FERC’s rules implementing that section, 18 C.F.R. § 292.602(c) (1994). Indeed, the BRC admits that the challenged order of the BRC was not issued to implement the FERC's rules, but pursuant to purported state law.? See App. D-12, E-6, E-7. In its brief amicus curiae to the Third Circuit, the FERC agreed that Freehold presented a valid claim under Section 210(e), and that the federal court had jurisdiction over that claim. See App. 7 The BRC consistently has cited state law as its authority to hold the hearings to revise or revoke the PPA. (e.g., App. D-12, E-6, 7). Further, in arguing in the district court against the assertion of federal jurisdiction over this matter, the BRC consistently invoked its purported powers under state law, 48:2-40, to "revoke or modify an order made by it." There thus can be no-legitimate dispute that the BRC proceeded under state law to regulate Freehold's rates. 23 G-14. See Shaw v. Delta Airlines, 463 U.S. 85 (1983) ("It is beyond dispute that federal courts have jurisdiction over suits to enjoin state officials from interfering with federal rights..."). In asserting that Section 210(g) of PURPA deprives the federal courts of jurisdiction, Jersey Central mischaracterizes the holding in Bristol Energy Corp. v. N.H. Public Utils. Comm'n, 13 F.3d 471 (1st Cir. 1994). In Bristol “3 Energy, the First Circuit, on review, held that the federal courts have jurisdiction over a Section 210(e) claim: We have considered -- and we reject -- PUC's argument that 16 U.S.C. § 824a-3(g) divests federal courts of jurisdiction. Section 824a-3(g) places limits on federal jurisdiction in proceedings involving rules i j : : rules not at issue in this case.... We conclude that federal question jurisdiction exists in this case, ... because plaintiffs allege a preemption claim and seek to enjoin. state officials from interfering with a federal right, ie., the QF exemption. 13 F.3d at 474 (emphasis supplied). The QF exemption is the Section 210(e) exemption. The jurisdictional issue in the present case is virtually identical to that in the Bristol Energy case. On that issue the First Circuit determined that the limitations on federal jurisdiction imposed by Section 210(g) are inapplicable where, as here, plaintiffs "allege a preemption claim and seek to enjoin state officials from interfering with a federal right, 24 i.e., the QF exemption." Jd.® The Third Circuit reached the same result below. See also Indep. Energy Producers, supra, (district court exercised jurisdiction to hear a claim that the state agency action that permitted modification of approved QF contract rates was preempted by PURPA). B. The BRC Impermissibly Sought to Regulate Freehold's Rates After They Had Been Locked-In and Approved In its January 5, 1994 order directing Jersey Central and Freehold to negotiate a buy-out or reformation of the PPA (App. D) and in its March 7, 1994 order instituting proceedings to reform the rates under the PPA or revoke its earlier approval of the PPA (App.E), the BRC impermissibly attempted to regulate the rates to be paid by Jersey Central to Freehold under the PPA. Indeed, the BRC's express reason for ordering negotiations and commencing the hearing was because of its view that the rates contained in the PPA exceeded the then-current avoided cost of Jersey Central. See App. D-11. Further, both orders were issued under purported authority of the New Jersey regulatory statute. App. D-12, E-7. Nowhere in either order does the Board suggest that its inquiry constitutes continued implementation of PURPA or give any indication that the actions are being pursued under any authority other than state law. Any such state law or regulation that would permit the BRC to modify the rates under the PPA is precisely the type of law or regulation (i.e., those respecting 8 On the merits, the First Circuit addressed the authority to compel disclosure of data under section 712 of the Energy Policy Act of 1992, a statute that is not implicated in this case. 25 "rates") from which QFs such as Freehold specifically are exempted pursuant to Section 210(e) of PURPA and the FERC's regulations. Consequently, as the Third Circuit correctly held, the BRC's attempt to modify the rates under the PPA constituted regulation of Freehold's rates, an activity that expressly is preempted by Section 210(e).9 9 Jersey Central, relying on N.Y. State Conference uf Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 115 S.Ct. 1671, 1682 (1995) and Cippolone v. Liggett Group, Inc., 112 S.Ct. 2608 (1992), argues that the Third Circuit improperly expanded the preemptive effect of PURPA Section 210(e). In fact, neither of these cases supports Jersey Central's claims. Jersey Central cites Blue Cross, a case interpreting the preemptive effect of ERISA, for the proposition that the Third Circuit disregarded the presumption that Congress did not intend to supplant state law. In this case, however, it is beyond cavil that Section 210(e), as implemented by the FERC's regulations, expressly exempts QFs from all "State laws and regulations respecting the rates . . . of electric utilities." Consequently, any such presumption is overcoine by the plain language of the statute. Similarly, Jersey Central cites Cippolone for the proposition that the Third Circuit has expanded the preemptive scope of Section 210(e) beyond its "express" preemption of “utility-type" regulation to matters beyond the reach of that section. In fact, nowhere in the language of Section 210(e) or the FERC's implementing regulations is there any "express" language discussing “utility-type" regulation. Indeed, despite Jersey Central's attempt to limit "utility-type" regulation to some form of the traditional "cost-of-service" rate regulation to which utilities historically have been subject, that term is nowhere defined in the statute or regulations. Rather, the language of Section 210(e) and 18 C.F.R. § 292.602(c)(1) (1994) plainly exempts QFs from all state laws and regulations "respecting" the “rates” of electric utilities. Thus,-to the extent that the BRC attempted, under color of state law, to modify the "rates" contained in the PPA, its action expressly was preempted by PURPA, as the Third Circuit correctly held. 26 VIL THE "REGULATORY OUT" CLAUSE OF THE PPA DOES NOT CONFER ON THE BRC POWER TO ALTER QF RATES The so-called "regulatory out" clause contained in Section 20.2(a) of the PPA,!9 by its plain terms, cannot be read as an affirmative grant of authority to the BRC (or, for that matter, to the FERC or any other agency) to regulate Freehold’s rates in a manner that otherwise would be impermissible under PURPA and the FERC’s regulations, in particular 18 C.F.R. § 292.602(c), exempting qualifying facilities from state laws respecting the rates of electric utilities. The provision does not state that the BRC is the right to modify the contract rates or to deny Jersey Central the right to recover from its ratepayers payments made by Jersey Central under the PPA. The provision merely states that, "in the event that the BRC, the FERC or any legislative, judicial, administrative or other governmental agency having jurisdiction over the parties, the Agreement or the transactions contemplated thereby, should disallow in whole or in part or otherwise impair the full and timely recovery by the Company from its customers...", one of several options shall be implemented. The provision does no more than refer to whatever valid jurisdiction exists independently of the contract-and address the allocation of risks steming from any exercise of that valid jurisdiction. All parties (plus the Third Circuit) agreed that the clause was unambiguous. The Third Circuit correctly held that "this clause does not purport to confer on the BRC any jurisdiction it would not otherwise have." 44 F.3d at 1194. (Pet. App. A-28). As previously explained (see pp. 19-21, 10 Section 20.2(a) of the PPA is quoted in full in the Third Circuit's decision below. 44 F.3d at 1193, n.12 (Pet. App. A-27, n.12). 27 supra), the BRC had no preexisting authority to revisit the QF rates it had approved years before. VOL THE DIVISION OF THE RATEPAYER ADVOCATE'S CLAIM THAT THE BRC'S APPROVAL OF THE PPA WAS ULTRA VIRES IS BASELESS AND, IN ANY EVENT, UNTIMELY RAISED The DRA asserts that the PPA is "void ab initio" because the BRC approved rates that were too high and the BRC's action therefore was "ultra vires". (Pet. at 4). This argument is insubstantial. First, the DRA did not raise its ultra vires argument before the district court. Consequently, as the Third Circuit correctly held, 44 F.3d at 1182, n.3 (Pet. App. A-4, n.3), the DRA failed to preserve the issue on appeal and therefore was barred from raising it before the Third Circuit and likewise is barred from raising it here. See Duignan v. United States, 274 U.S. 195, 200 (1927) ("It is only in exceptional cases coming here from the federal courts that questions not pressed or passed upon below are reviewed.") Secondly, the DRA's claim is belied by the BRC's express statement in its order approving the PPA that the rates were "equal to 100% of the applicable avoided cost." (App. C-5). The DRA did not challenge Jersey Central's petition for approval of the PPA or the BRC's order approving it, which is final and nonappealable. 28 CONCLUSION For the foregoing reasons, the Petitions for a Writ of Certiorari filed by Jersey Central and the DRA should be denied. Respectfully submitted, ROBERT F. SHAPIRO Counsel of Record LYNN N. HARGIS MARTIN W. GITLIN Chadbourne & Parke 1101 Vermont Avenue, N.W. Washington, D.C. 20005 (202) 289-3000 July 5, 1995 29 APPENDIX APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F . APPENDIX G APPENDIX H APPENDIX I APPENDICES TABLE OF CONTENTS New Jersey BRC Decision of July 31, 1989 Jersey Central Letter of March 31, 1992 to New Jersey BRC New Jersey BRC Decision of July 8, 1992 New Jersey BRC Decision of January 5, 1994 New Jersey BRC Decision of March 7, 1994 Order in No. 94-5168, USCA for the Third Circuit, dated April 26, 1994 FERC Brief Amicus Curiae in No. 94- 5168, USCA for the Third Circuit FERC Order in New York State Electric & Gas Corp., Docket No. EL95-28-000, dated April 12, 1995 FERC Order in West Penn Power Company, Docket No. EL95-30-000, dated May 8, 1995 STATE OF NEW JERSEY BOARD OF PUBLIC UTILITIES Two Gateway Center Newark, N.J. 07162 IN THE MATTER OF ) ELECTRIC/LEGAL THE CONSIDERATION ) ORDER REGARDING AND DETERMINATION ) MOTION FOR OF COGENERATION ) RECONSIDERATION AND SMALL POWER ) QE DENIAL OF PRODUCTION STANDARDS ) GRANDFATHER PURSUANT TO THE ) STATUS PUBLIC UTILITY ) REGULATORY POLICIES _) BPU Docket No. ACT OF 1978 ) 8010-687B Carella, Byrne, Bain & Gilfillan, by Arthur T. Vanderbilt, III, Esq., Roseland, New Jersey, and Huber Lawrence and Abell, by Blossom A. Peretz, Esq., New York, New York, for Enserch Development Corporation and Turner Power Corporation Kirsten, Simon, Friedman, Allen, Cherin & Linken, by John K. Enright, Esq., Newark, New Jersey, for Jersey Central Power & Light Company BY THE BOARD: On September 28, 1988, this Board issued two orders in Document No. 8010-687B. The first order adopted a Stipulation of’ Settlement which set forth a revised set of procedures under which New Jersey investor owned electric utilities would select and purchase electric capacity and A-l energy from qualified cogeneration and small power production facilities, independent power producers and large scale conservation projects. Said stipulation provided at page 10: In addition, the provisions of this Settlement Agreement shall not be applicable to proposed APP capacity which may, as determined on a case by case basis, be grandfathered and subject to Board policies and procedures regarding cogeneration and small power production in effect prior to the effective date of this agreement. The second order issued on September 28, 1988, in turn, designated a number of projects to be grandfathered. In reviewing projects that were in development but were without power purchase agreements, the Board considered the following criteria in determining whether grandfathered status should be granted: (1) whether ratepayers would be better off if a particular project was grandfathered, i.e., whether the grandfathering of that project was in the public interest; (2) whether negotiations between a project and a utility have resulted in a firm pricing agreement; and (3) the effect that grandfathering would have on the development of the project. On October 12, 1988, Ebasco Services, Inc. (Ebasco) filed a Motion for Reconsideration requested modification of the Board's September 28, 1988 order by grandfathering the cogeneration project being jointly developed by Enserch Development Corporation (Enserch), an affiliate of Ebasco, and Turner Power Corporation (Turner) at the Nestle Foods Corporation (Nestle) plant in Freehold, New Jersey (the Freehold Project).! This project contemplates a 100 megawatt cogeneration facility to serve the electric and l For purposes of discussion, the name “Enserch” will be used to identify the movants in this matter. A-2 thermal needs of Nestle with any excess electrical energy and capacity produced by the facility to be sold to Jersey Central Power & Light Company (JCP&L). By letter dated November 30, 1988, the Board was advised that Enserch had changed counsel and was requested to "defer action on the Motion for Reconsideration for several weeks to afford (counsel for Enserch) the opportunity to review the filing in this matter and determine if it should be supplemented or amended." Under cover letter dated January 27, 1989, Enserch filed a Supplemental Motion for Reconsideration for the stated purpose of providing the Board ". . . with complete information regarding the history of the Freehold Project, which had not been included in the Motion filed on October 12, 1988, in order to assist the Board in its analysis regarding grandfathering the Freehold Project, so as to demonstrate to the Board that the Freehold Project meets the criteria for grandfathering." JCP&L has opposed the relief requested by Enserch essentially for the reason that, in the opinion of the utility, no firm pricing agreement had been reached between the parties. In addition, Enserch filed a motion dated May 4, 1989, in which it requested the Board to compel JCP&L to continue negotiations in this matter. Subsequent to the filing of the Supplemental Motion for Reconsideration, the parties have held several meetings which were attended by Board staff and have submitted additional information with the Board. In its initial moving papers, Enserch argued that the Board had erred by: (1) failing to provide a "reasoned explanation" for the selection of the grandfathering criteria; (2) selecting "patently unsatisfactory" grandfathering criteria; (3) failing to provide a reasoned explanation for its selection of grandfathered qualifying facilities; and (4) failing to A-3 grandfather the Freehold Project based upon the selected criteria set forth in the Board's Order. Enserch further argued that as the September 28, 1988 Decision and Order constituted either a final decision in a contested case or the culmination of a rulemaking proceeding, the Board erred by failing to comply with the procedures set forth in the New Jersey Administrative Procedures Act. N.JL.S.A, 52:14B-1 et seq, While we believe that our decision; herein renders these arguments moot, we pause briefly to respond thereto. As indicated hereinabove, the Stipulation of Settlement provided that the Board would determine, on a case by case basis, which projects, if any, would be grandfathered and, therefore, be subject to the Board policies and procedures theretofore in effect. We believe that the criteria set out by the Board are fair and practical based upon the history of and the circumstances surrounding this proceeding and the affected projects. These criteria reflect the Board's central statutory responsibility to ensure that the ratepayers receive safe, adequate and proper service at just and reasonable rates, and the Board's strong policy concern, as well as its obligations under PURPA and the pertinent regulations promulgated thereunder (e.g., 18 C.F.R. 292.401), to encourage cogeneration. It was the considered opinion of the Board that the status of these projects specifically set out in the Board's Decision and Order of September 28, 1988, and the attending benefit to the public interest inherent there: as sources of reliable and economical electric power, warranted those projects being grandfathered without the need for further review or the submission of addition information. This determination, however, did not prejudice or preclude the opportunity of any other developer, including Enserch, to request through a formal filing, that the Board find that its project should similarly be grandfathered. The Board would note that the adoption of the grandfathering criteria was in direct correlation to the A-4 adoption of the Stipulation of Settlement. Therefore, the Board considers the arguments of Enserch which pertain to alleged violations of the Administrative Procedure Act to be similar to those previously made in a Motion for a Stay and for Reconsideration of the Board's Decision and Order Adopting the Stipulation of Settlement filed by the Clean Coal Developers. In its Order denying said Motion issued on October 19, 1988, the Board stated, in pertinent part: There can be no doubt that the record in the Board's consideration of cogeneration and small power production is extensive. This proceeding was initiated in October 1980, and lengthy hearings were held at the Board wherein a full record was developed. The culmination of this effort was a Board Decision and Order issued on October 14, 1981, wherein procedures and policies affecting the development of cogeneration and small power production in New Jersey were established. The Board further directed that within five years therefrom, a review of cogeneration and small power production would be commenced. Said review was initiated in a timely manner and additional hearings were held before the Board on September 9 and 11, 1987. : It is clear, therefore, that the consideration of cogeneration and small power production policies in New Jersey is and has been a formal ongoing proceeding before the Board under one caption and one docket number. In addition, the consideration of those policies set out in the Decision and Order of October 14, 1981 was necessary in order for the board to ultimately rule on the appropriateness and reasonableness A-5 of modification affecting the development of cogeneration and small power production in New Jersey. Therefore, for substantially the same reasons that we rejected the arguments of the Clean Coal Developers, the Board rejects the claim of Enserch that the Board erred in promulgating its criteria for determining which projects are to be grandfathered. With respect to the application for reconsideration which is now before us, and based upon our review and consideration of all submissions in this matter, it is the opinion of the Board that the development of the Freehold Project could potentially provide long term benefits to the ratepayers of JCP&L. This project could provide JCP&L with an efficient source of energy and capacity that may offset or delay the need for the utility to build additional generation or transmission facilities. Such results would assist JCP&L by allowing it to continue to provide safe, adequate and proper service to its ratepayers in an area that has experienced substantial load growth in the recent past. The Board is of the further opinion that grandfathering, as opposed to the bidding process now in place, appears to be consistent with the timely development of the Freehold Project. | It is the further opinion of the Board that while negotiations had not resulted in a firm pricing agreement, the submissions before us indicate that the parties had reached a pricing agreement in principle, and despite some uncertainties therein, we believe that understanding to be sufficient base upon which to support a determination that grandfathered status should be approved. As stated in our September 28, 1988 order and restated hereinabove, applications from cogeneration and A-6 small power production projects seeking grandfathered status will be reviewed and considered on a case by case basis taking into account the specific facts presented therein. The Board's final decision must balance the ratepayers’ interest in receiving safe, adequate and proper service with their interest in the setting of just and reasonable rates for that service. After full review and consideration, the Board finds that the facts specific to this matter warrant the approval of grandfathered status to the Freehold Project. In taking into account the interests of the parties and the ratepayers and in recognizing the uncertainties in the pricing agreement, the Board also finds that any pricing arrangement and results from further negotiations will be assessed against the current level of JCP&L's forecast of its avoided cost as delineated in its Request for Proposals, which was approved by the Board on May 10, 1989. We believe that such treatment will result in a fair level of costs to be borne by the ratepayers while permitting an opportunity for the timely development of the project and the realization of project benefits to the ratepayers. This pricing approach is consistent with the Board policy in effect prior to the adoption of the Stipulation of Settlement regarding the appropriate payments to be made to those projects that wished to receive the benefits which are inherent in a levelized pricing structure. As indicated hereinabove, the Board recognizes the potential benefits of the Freehold Project, including those related to meeting the capacity needs of JCP&L. In order that these potential benefits may be realized, both parties are encouraged to negotiate to reasonable settlement on the issue of pricing subject to the parameters set out above. The Board will support such negotiations and will be receptive to any resulting agreement that will provide an opportunity for the project to succeed. Accordingly, the Motion for Reconsideration and the Supplemental Motion for Reconsideration are granted to the A-7 ’ ’ 2: ™ extent that grandfathered status, subject to the terms set out hereinabove, is approved for the Enserch Freehold Project. Based upon the foregoing, the Board considers the motion of Enserch to compel JCP&L to continue negotiations to be moot. DATED: July 31, 1989 BOARD OF PUBLIC UTILITIES BY: /s/ CHRISTINE TODD WHITMAN PRESIDENT /s/ GEORGE H. BARBOUR COMMISSIONER ATTEST: /s/ KAREN KENNEDY APPENDIX B JCP&L GPU Jersey Central Power & Light Company Daniel V. Gulino 300 Madison Avenue Attomey Morristown, N.J. 07892 (201) 488-3404 March 31, 1992 Chrys Wilson, Secretary Board of Regulatory Commissioners 44 South Clinton Avenue CN 350 Trenton, New Jersey 08625 Re: Application of Jersey Central Power & Light Company for Approval of the Power Purchase Agreement Between Jersey Central Power & Light C 1 Freehold C say ‘ates LP Dear Ms. Wilson: Pursuant to the Board's Orders dated October 14, 1981 and December 7, 1983 entered in Docket No. 8010-687, entitled "In_the Matter_of the Consideration —and Standards Pursuant to the Public Utility Regulatory Policies Act of 1978” ("PURPA"), Jersey Central Power & Light Company ("JCP&L") submits for filing and approval the Power Purchase Agreement, dated March 24, 1992, (the "Agreement") between JCP&L and Freehold Cogeneration Associates, L.P. ("Freehold"). B-1 JCP&L respectively requests that the Board review the terms of the Agreement, find and determine that the Agreement is in the public interest and in accordance with the law, and that the costs to be incurred by JCP&L with respect thereto are prudently incurred. In support of this application, JCP&L respectfully states: I Freehold is a New Jersey limited partnership whose general partners are Advanced Power Systems, Inc. of St. Charles, Maryland and Constellation Energy, Inc. of Baltimore, an affiliate of Baltimore Gas & Electric Company. Freehold proposes to own, operate and maintain at a site adjacent to the Nestle Beverages Company facility in Freehold, New Jersey, a cogeneration facility having a nameplate capacity of approximately 112 megawatts for the purpose of generating electricity and producing steam! for the Nestle facility. Freehold will own and operate the facility as a PURPA qualifying cogeneration facility ("QF") using natural gas as the primary energy source, but will also have the ability to use a secondary energy source such as oil. Heat will be extracted from the facility and used to produce steam for the adjacent Nestle facility. The Agreement provides that 100 megawatts (92°F) of the capacity and electrical energy of the facility will be sold to and will be under the dispatch control of JCP&L. | The Thermal Sales Agreement between the Seller and Nestle contains confidential and proprietary information. At the request of the parties to that agreement, JCP&L is not submitting a copy of the Thermal Sales Agreement with this application. Moreover, upon the request of the Board, the Seller will submit the Thermal Sales Agreement after receipt of a Protective Order from the Board. B-2 II In its order entitled "Order Regarding Motion for Reconsideration of Denial of Grandfather Status", dated July 31, 1989 (the "Order"), the Board grandfathered the Project from the Stipulation of Settlement (BPU Docket No. 8010- 687B) which requires, among other things, that the State's electric utilities competitively bid all non-utility generation capacity. In its Order, the Board directed "that any pricing arrangement that results from further negotiation will be assessed against the current level of JCP&L's forecast of its avoided costs as delineated in its Request for Proposals, which was approval by the Board on May 10, 1989". Accordingly, pursuant to the Board's Order, the total Project payments are equal to JCP&L's 1989 Avoided Costs. Pursuant to the Agreement, the Variable Energy Payment will be made to Freehold for each kilo-watt hour generated and sold to JCP&L during a scheduled Dispatch Period and associated start-up and shut-down periods. The Variable Energy Rate is established at 2.20¢ per kWH in 1995, and will be escalated 7% per year on each January | commencing with January 1, 1996. Based on these dispatch rates, it is expected that the facility will be economically dispatched for about 7000 hours/year. With an average annual availability of 94%, the capacity factor for the facility should be approximately 75%. The Fixed Payment component of the Project pricing will commence on the Commercial Operation Date and will increase on each anniversary of the Commercial Operation Date by a predetermined amount. Freehold will be entitled to receive the full Fixed Payment only if the annual Contract Availability remains at or above 94%. If the Contract Availability falls below 94%, the Fixed Payment is reduced proportionately. B-3 en Finally, the term of the Agreement is for twenty (20) years commencing on the Commercial Operation Date, which occurs 48 months after the month in which regulatory approval of the Agreements is obtained. Furthermore, the Agreement also provides for a Suspense Account should the Seller elect to front-end load payments. As provided in the Agreement, Freehold must propose the percentage of and number of years during which Fixed Payments are to be front-end loaded. The Agreement, however, limits the front- end loading duration to twenty years and the front-end loading percentage to 65% consistent with JCP&L's prior power purchase agreements. Il State utility commissioners are vested with the esponsibility of assuring that the jurisdictional utilities act in the public interest in their contractual arrangements. This fundamental tenet of regulatory law has given rise to the question of whether this Board or its successor might at some point in the future try to exercise jurisdiction over this Agreement or refuse to permit JCP&L to flow through to, and/or fully and timely recover from its ratepayers the rates specified in the Agreement over the full term thereof. Principles of equity dictate that the Board provides both the purchasing utility and the cogenerator with sufficient assurances that the avoided costs contract rate, once approved by the Board will not be subject to further scrutiny. In this regard, FERC has indicated that neither the purchasing utility not the QF are to be deprived of the mutual benefits of entering into a long-term contract based on Board approved avoided cost rates. In order to preserve the benefit of the bargain between the utility and the QF, flow- through of the purchased power costs incurred under this or similar agreements must be assured. B-4 In the instant case, both JCP&L and Freehold need to have the certainty that neither this nor future Boards will impair the utility's right to flow-through to and/or fully and timely recover from its ratepayers the contracted for, and Board-approved, purchase price over the full term of the Agreement or exercise jurisdiction over this or similar agreements. Based upon the foregoing, JCP&L respectfully requests that the Board: (1) approve the terms of the Agreement; (2) find and determine that the Agreement is in the public interest and in accordance with the law; and (3) find and determine that the costs to be paid by JCP&L under the Agreement are prudently incurred and may appropriately be recovered in rates through the levelized energy adjustment charge or otherwise. Respectfully Submitted, JERSEY CENTRAL POWER & LIGHT COMPANY ee Daniel V. Gulino Its Attorney 300 Madison Avenue Morristown, New Jersey 07962 B-5 APPENDIX C AGENDA DATE: 6/9/92 STATE OF NEW JERSEY Board of Regulatory Commissioners Two Gateway Center Newark, NJ 07102 APPLICATION OF JERSEY ) CENTRAL POWER & LIGHT ) COMPANY FOR APPROVAL __) OF THE POWER PURCHASE i+) AGREEMENT BETWEEN ) JERSEY CENTRAL POWER ) & LIGHT. COMPANY AND ) DOCKET NO. FREEHOLD COGENERATION _ ) EM9203059 ASSOCIATES, L.P. ) (Service List Attached) BY THE BOARD: By letter dated March 31, 1992, Jersey Central Power & Light Company (JCP&L petitioned the Board of Regulatory Commissioners (Board) for approval of the proposed agreement (Agreement) for the purchase of electric power from Freehold Cogeneration Associates, LF. (Freehold). Freehold is a New Jersey limited partnership whose general partners are Advanced Power Systems, Inc. and Constellation Energy, Inc., an affiliate of Baltimore Gas & Electric Company, which proposes to own, operate and maintain a cogeneration facility (Facility) at the Nestle Beverages Company plant (Nestle) in Freehold, New Jersey. The Facility will be approximately 112 megawatts (MW) in size and will be a Public Utilities Regulatory Policies Act (PURPA) qualifying facility (QF) under Federal Energy Regulatory Commission guidelines. The Agreement provides C-1 pare Bae Grok ag for Freehold to deliver 100 MW to JCP&L and steam and possibly native loan electricity to Nestle. The cs will use natural gas of regulatory approval and continues for 20 years from the commercial operation date, which is anticipated to be 48 months after the date of regulatory approval. The commercial operation date may be extended due to force majeure without penalty, and for up to three years by making payments into a liquidated damages fund. The Freehold/Nestle project is grandfathered under the policies and procedures in effect prior to the current competitive bidding procedures. The Facility was grandfathered in an Order issued on July 31, 1989, in Docket No. 8010-687B. The conditions set forth in the Board's grandfathering Order set a cap on the pricing ‘based on the avoided costs contained in JCP&L's first round of competitive bid Requests for Proposals (RFPs) approved by the Board on June 6, 1989. The terms and conditions in the Agreement are similar to or superior, from a ratepayer perspective, to those contained in the bid contracts and as established in the Stipulation of Settlement (Stipulation) in Docket No. 8010- 687B. Subject to certain technical and contractual limits, JCP&L shall have complete dispatching control of the Facility. | The price in the Agreement is equal to the June 6, 1989 avoided cost. The payment to Freehold is comprised of a variable energy rate of 2.2 cents per kilowatt- hour escalated at 7% per year and a fixed capacity payment which produces a total payment equal to the avoided cost. Since the variable energy rate in this contract has a fixed escalation rate of 7%, the Board believes a comparable fuel contract is essential to protect electric ratepayers from the possibility that the project would not be financially viable in the future if its actual fuel price escalations significantly exceed 7%. A letter of intent between NJNG and Freehold was reviewed by Board Staff and Staff has indicated to the Board that it is satisfied that its C-2 terms and conditions will allow for the project to be viable over its term. There is a suspense account provision which requires Freehold to secure 100% of any levelization incurred by the project. Freehold can choose the levelization it requires for financing, between 0 and 65% for a period of up to 20 years. This account exceeds the ratepayer protection i in the Stipulation of Settlement since the competitive bidding guidelines require security only if - jevelization exceeds 120% of avoided cost for gas projects and the Agreement requires the full amount of the surplus account to be secured with a letter of credit. The expected capacity factor of the facility is 75% with an average availability of 94%. The fixed payment will be reduced if the facility's annual availability factor falls below 94%. To determine the fixed payment the annual availability multiplier is equal to the lesser of one (1.00) and the quotient obtained by dividing the contract availability by ninety-four one-hundredths (.94). This accounts for outages whether maintenance, forced or force majeure. In addition, by letter dated April 13, 1992, Freehold requested that the Board find the Facility, which will supply steam to Nestle and electric energy to JCP&L, is not a public utility subject to the jurisdiction of the Board. The Facility is a qualifying facility (QF) pursuant to Federal Energy Regulatory Commission regulations applicable to cogenerators. The Board has on several occasions previously addressed the issue of whether the sale of steam or electricity from a QF to its thermal host will subject the cogenerator to Board jurisdiction. In its Order in In the Matter of the Petition for Approval of Power Docket NO. EM88111219 (March 31, 1989), where th Board stated as follows: Petitioners have also requested that the Board find that the sale by Chambers to Dupont of steam and a C-3 portion of the electrical output of the facility will not result in Chambers being deemed a public utility subject to the jurisdiction of the Board. Chambers, a third party developer, proposes to develop the cogeneration facility on property owned by Dupont and intends to sell thermal and electrical energy and capacity to Dupont with all excess electrical energy and capacity being sold to Atlantic Electric. In instances such as this, where the developer provides —- thermal and electrical energy and capacity only to the host with all of the excess electrical energy and capacity being sold to a public utility, the Board does not believe that the sale of thermal or electrical energy and capacity to the host should subject the third party developer or its affiliates to the jurisdiction of the Board. Therefore, the Board HEREBY DETERMINES that the sale by Chambers to Dupont of steam and a portion of the electrical output of the facility will not result in Chambers Cogeneration Limited Partnership or any of its individual general or limited partners or their parents or affiliates being deemed a public utility subject to the jurisdiction of the Board. Freehold requested that the same finding be provided for its Facility. The Facility will sell 100 MW of capacity and energy to JCP&L and will supply steam and possibly native load electricity to Nestle. Its sole steam host will be Nestle. Board Staff has reviewed a copy of a site plant for the Facility, showing the boundaries for the Facility site and the Nestle property, the location of the Facility and the location of the Nestle plant. The Facility will be located C-4 on land immediately adjacent to the Nestle plant that is owned by Nestle. The steam lines used to deliver steam to Nestle will not cross a public way. Based upon its review of the location and ownership of the Freehold facilities and their relationship to the industrial host, the Board believes that the proposed Freehold facility meets the standards espoused in the Board's Chambers Order. On that basis the Board concurs that the sale of steam or electricity from the facility by Freehold to Nestle would not subject the developer or its affiliates to the jurisdiction of the Board under present policy. The Board has reviewed the Order grandfathering the Facility and the conditions established therein and finds that the Agreement meets or exceeds the requirements for approval. The price is equal to 100% of the applicable avoided cost and the contract terms and conditions from the Stipulation were met or exceeded. The long term gas contract when signed will provide a stable fuel supply which will assist in assuring ratepayers that the project will be in a position to produce electricity economically for the term of the Agreement. The Board FINDS that the Agreement is consistent with the grandfathering Order. Based on the above, the Board FINDS the Agreement to be fair and reasonable and that it will impart substantial benefits to JCP&L's ratepayers over the life of the project. Accordingly, the Board, having reviewed the Agreement and being satisfied that it is in the public interest and in accordance with applicable law, the aforementioned Board Orders as entered in Docket Nos. 8010-687 and 8010- 687B, and the Stipulation of Settlement, HEREBY the Power Purchase Agreement between Jersey Central Power & Light Company and Freehold Cogeneration Associates, Inc., dated as of March 26, 1992, and as such finds the rates specified therein and the costs resulting therefrom to be reasonable and reasonably and prudently incurred by JCP&L throughout the full term of the Agreement: Therefore, the Board and its successors will allow JCP&L to flow-through and/or fully and timely recover C-5 the rates specified in the Agreement and the costs resulting thereform in the manner set forth in the Board's Order dated September 28, 1988 (Docket No. 8010-687B) and the July 1, 1988 Stipulation of Settlement adopted thereby, and as clarified in the Board's Order dated October 2, 1990 in Docket No. EM88050655. In addition, the Board having reviewed the possible sale of thermal and electric energy by Freehold to Nestle, its industrial host, HEREBY DETERMINES that the sale by Freehold to Nestle of steam and a portion of the electric output of the facility will not result in Freehold or any of its partners, parents or affiliates being deemed a public utility subject to the jurisdiction of the Board. DATED: JULY 8, 1992 BOARD OF REGULATORY COMMISSIONERS BY: /s/ DR. EDWARD H. SALMON CHAIRMAN /s/ JEREMIAH F. O'CONNOR COMMISSIONER /s/ : CARMEN J. ARMENTI COMMISSIONER ATTEST: /s/ IRENE JOHNSON SECRETARY I HEREBY CERTIFY that the within document is a true copy of the original in the files of the Board of Public Utility commissioners /s/ Chrys Wilson Secretary SERVICE LIST Daniel V. Gulino, Attorney Jersey Central Power & Light Co. 300 Madison Avenue Morristown, N.J. 07962 Joseph Bowring New Jersey Secrest of the Public Advocate Division of Rate Counsel 744 Broad Street Newark, N.J. 07102 Robert Chilton, Director Division of Electric Board of Regulatory Commissioners Two Gateway Center Newark, N.J. 071002 Michael Ambrosio, Chief Bureau of Rates & Tariffs Division of Electric Board of Regulatory Commissioners Two Gateway Center Newark, N.J. 071002 Blossom A. Peretz, Esq. Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross One Riverfront Plaza Newark, N.J. 07102-5400 Todd R. Jaffe Market Development Manager Constellation Energy 250 West Pratt Street Baltimore, M.D. 21201-2423 Helen Wallenstein, DAG Deputy Attorney General 1207 Raymond Bivd. Newark, NJ 07109 C-7 I HEREBY CERTIFY that the within document is a true copy of the original in the files of the Board of Public Utility commissioners /s/ Chrys Wilson Secretary APPENDIX D AGENDA DATE: 11/24/93 State of New Jersey Board of Regulatory Commissioners CN 350 Trenton, NJ 08625-0350 APPLICATION OF JERSEY ) CENTRAL POWER & LIGHT ) COMPANY FOR APPROVAL ) OF THE POWER PURCHASE AGREEMENT BETWEEN JERSEY CENTRAL POWER & LIGHT COMPANY AND FREEHOLD COGENERATION ASSOCIATES, L.P. AND VERIFIED PETITION OF FREEHOLD COGENERATION ASSOCIATES, L.P., FOR APPROVAL OF JOINT AGREEMENT BETWEEN BOARD OF REGULATORY COMMISSIONERS STAFF & FREEHOLD COGENERATION ASSOCIATES, L.P. : DOCKET NO. | EM92030359 aa nee en eee Ne ee Ne ee a a ee ee ee ee ee Se” (Service List Attached) BY THE BOARD: By letter dated November 3, 1993, Freehold Cogeneration Associates, L.P., ("FCA") petitioned the Board of Regulatory Commissioners ("Board") for approval of a Joint Agreement between the staff of the Board ("Staff") and FCA recommending certain proposed modifications to the D-1 Docket No. EM92030359 Power Purchase Agreement ("Agreement between Jersey Central Power and Light Company ("JCP&L" or "Company") and FCA previously approved by the Board by Order dated July 8, 1992. FCA is a New Jersey limited partnership whose general partners are Advanced Power Systems, Inc. and Constellation Energy Inc., an affiliate of Baltimore Gas & Electric Company, which proposes to own, operate and maintain a 110 megawatt (MW) cogeneration facility ("Facility") at the Nestle Beverages Company plant ("Nestle") in Freehold, New Jersey. The Facility will be a Public Utilities Regulatory Policies Act ("PURPA") qualifying facility ("QF") under Federal Energy Regulatory Commission guidelines. The Agreement provides for FCA to deliver 100 MW of electric capacity and associated energy to JCP&L, and steam and possibly native load electricity to Nestle. The Facility will use natural gas as a primary fuel with fuel oil as the probable backup fuel. The Facility will be a combined cycle facility using a combustion turbine, a heat recover steam generator and a steam turbine. The Agreement begins on the date of regulatory approval and continues for 20 years from the commercial operation date, which is anticipated to be 48 months after the date of regulatory approval. The commercial operation date _ may be extended due to force majeure events without penalty, and for up to three years by making payments into a liquidated damages fund. Background: In early 1988, pursuant to the then-effective cogeneration policies of the Board of Public Utilities ("BPU"), predecessor agency to the Board, Enserch Development Corporation and its partner, Turner Power D-2 Docket No. EM92030359 Corporation, the original developers of the project, commenced negotiations on a power purchase agreement with JCP&L. During the pendency of those negotiations, the BPU adopted its competitive bidding guidelines (BPU Docket No. 8010-687B, Order dated September 28, 1988). Competitive bidding effectively replacing negotiations as the means of procuring long-term electric capacity and energy power purchase agreements with non-utility generators. Concurrent with the adoption of its competitive bidding guidelines, the Board approved a list of projects that were grandfathered from competitive bidding. (Docket No. 8010-687B, Order dated September 28, 1988) The grandfathered cogeneration projects had all reached an agreement on price with the utility, and were permitted to finalize power purchase agreements without being required to go through a competitive bid process. FCA was not on the original list of projects grandfathered by the BPU. FCA therefore filed a Motion for Reconsideration asking the BPU to reconsider its decision to not grandfather the project. The BPU subsequently issued an Order grandfathering the project or reconsideration. In grandfathering the project from competitive bidding, however, the BPU determined that the project's pricing should not exceed an avoided cost cap used by JCP&L in its 1989 RFP. (Docket No. 8010-687B, Order dated July 31, 1989) 7 Subsequent to the FCA project being grandfathered, FCA and JCP&L spent over two years negotiating a power purchase agreement. A power purchase agreement was ultimately agreed to and submitted to the Board for approval on March 31, 1992. By written Order dated July 8, 1992, the Agreement was approved by the Board. The pricing in the agreement was equal to the maximum level ordered by the Board in its grandfathering order, which is the price cap used in JCP&L's 1989 RFP. D-3 Docket No. EM92030359 ee Since the Board's original grandfathering Order and subsequent approval of the FCA Agreement, two significant events have occurred. The first is that avoided costs have dropped significantly. Second, Public Service Electric & Gas Company (PSE&G) and Towner Electric I, L.P. ("Towner Electric") negotiated buy-out of a power purchase agreement in late 1992. In the Matter of the Joint Petition of Public Service Electric and Gas Company a Towner Electric I. LP, for Approval of a Second Amendment to Power Purchase and Interconnection Agreement, Decision and Order, Docket No. EM91040844, ("Towner"). The Towner Electric contract pricing exceeded forecasts of PSE&G's avoided costs by over $500 million of a net present value (NPV) basis for the 440 MW project; PSE&G, however, was able to terminate the contract for a buy-out payment of $18.5 _ million. The Towner case brought to the forefront the concept of buying out contracts which are no longer beneficial based upon changed circumstances. The Board in its Order approving the Towne Electric buy-out, directed the other electric utilities under its jurisdiction to: "aSsess existing contracts with particular emphasis on those projects in the earliest stages of development to determine whether or not they remain economic and whether there are any candidates for exploring buy- outs or other remedial measures"; and to report back to the Board staff. Consistent with that order, JCP&L reported to Staff that the FCA Agreement exceeded JCP&L's September 1991 avoided costs by $190 million NPV and that the project was in the early stages of development. JCP&L subsequently initiated buy-out talks with the project. Those overtures were rejected by the project. D-4 Docket No. EM92030359 As a result of the positions taken by JCP&L and FCA, it was clear to Staff that no agreement was going to be mutually reached between FCA and JCP&L. Staff therefore pursued directly with FCA mitigation of the Towner concerns raised by the Board and identified by JCP&L. In recognition of the apparent economic development benefits of the planned cogeneration project for the steam host (Nestle Foods) and the Township of Freehold, as well as the economic activity related to the construction and operation of the cogeneration facility and the substantial benefits for gas ratepayers attendant to the proposed gas supply contract, Staff explored price concessions directly with FCA as an alternative to a project buyout. Staff and FCA ultimately reached an agreement on price concessions intended to meet the concerns raised by the Board in its Towner Order. These concessions were memorialized in a Joint Agreement between Staff and FCA which was filed with the Board on November 3, 1993 for its approval. At its November 10, 1993 agenda meeting, the Board formally set a schedule for written comments on the Joint Agreement as well as on the modified gas service agreement between FCA and New Jersey Natural Gas Company, which was filed on November 23, 1992 (Docket No. GM92111058). Comments and/or replies thereto were received from JCP&L, the Department of the Public Advocate-Division of Rate Counsel ("Rate Counsel"), New Jersey Natural Gas Company ("NJNG"), V.O.L.C.E., and Board Staff. D-5 Docket No. EM92030359 The Joint Agreement: The Joint Agreement contains certain proposed pricing concessions by FCA. The Joint Agreement recommends that the Board in its Decision and Order approving the Joint Agreement, recommended to JCP&L that FCA and JCP&L enter into an amendment to the Agreement whereby FCA will agree to effectively lower its rates and provide other incremental benefits as set forth in the Joint Agreement in exchange for certain non-financial modifications to the Agreement. The proposed pricing concessions included in the Joint Agreement are as follows: . (a) FCA will provide an additional 10 MW to JCP&L with no additional capacity charges and | the energy priced the same as in the Agreement. (b) FCA will lower its variable energy rate from 3.302 cents per kwh to 3.271 cents per kwh effective February 1, 2001. After January 1, 2002, the variable energy rate will escalate at 6% per year as opposed to 7% per.year. (c) The capacity payments to FCA will be reduced by $10 million per year for each of the last three years of the Agreement. (d) FCA agrees not to sell electricity directly to either Nestle or to Interstate Waste Technologies which is developing a sludge to methanol project on an adjacent site. FCA requested that the Board approve the Joint Agreement and find and determine that the Joint Agreement and the modifications to the power purchase agreement address all concerns about possible contract renegotiation D-6 Docket No. EM92030359 and/or buyout of the Agreement raised by the Board in its Towner Order and by JCP&L in its response to that Order. Summary of Comments: FCA argues for approval of the Joint Agreement. FCA states that it was willing to live with the terms of the original Agreement. It did not seek any modifications to the original Agreement. It has offered price concessions in an attempt to meet the Board's concerns raised in the Towner Order, not in exchange for other non-price concessions. FCA values the price concessions at approximately $50 million net present value (NPV). FCA believes the Staff, in negotiating and signing the Joint Agreement, was appropriately exercising its role of insuring that Board's policies are properly implemented. JCP&L opposes approval of the Joint Agreement. As an alternative, JCP&L urges that the Board require FCA to demonstrate that the project is viable under current avoided costs. If FCA fails to so demonstrate, JCP&L believes the Board should require FCA to enter into negotiations with JCP&L for (a) an appropriate buy-out of the project or (b) an amendment to revise the pricing to be consistent with current avoided costs. If no agreement between JCP&L and FCA is reached within 90 days, JCP&L believes the Board should commence a proceeding to determine if the Order approving the power purchase agreement should be modified or revoked, or, in the alternative, to disallow recovery from JCP&L's customers of such portion of the costs thereunder which are found to be substantially in excess of JCP&L's current avoided costs. In April and September of 1993, JCP&L made buy- out offers to FCA. In response to JCP&L's September offer, FCA stated that in settlement discussions with Staff had resulted in considerable progress and it was therefore inappropriate to discuss buy-out with JCP&L. JCP&L D-7 Docket No. EM92030359 alleges that FCA's discussions with Staff removed are incentive on FCA's part to engage in meaningful buy-out or price reduction negotiations with JCP&L. JCP&L argues that its due process rights have been violated because of the expedited comment period established by the Board. JCP&L received the petition for approval of the Joint Agreement on November 5, 1993. On November 9, 1993, JCP&L filed a letter stating that the proposed schedule for consideration of this matter was too ambitious. Further, JCP&L requests hearings on the many factual issues which it alleges require consideration. Finally, JCP&L objects to Staff acting in an advisory capacity in this matter since it is essentially a party to a contested agreement. JCP&L argues that the Board should not modify the terms of a freely negotiated agreement between itself and the project at the request of one party. JCP&L concedes that the Joint Agreement includes some price reductions, but contends that the purported savings are approximately $17 million NPV as opposed to the $50 million NPV estimated by FCA. Additionally, JCP&L strongly opposes the changes to other contract terms requested by FCA in exchange for the pricing concessions. Specifically, JCP&L does not believe the price concessions address the economic concerns raised in the Board's Towner Order. Therefore, it does not believe FCA should be relieved of "regulatory risks" as requested. Also, JCP&L claims that FCA is now asking to modify terms concerning assignment that JCP&L has previously refused to modify. JCP&L contends that the proposed modified price agreement exceeds current avoided costs by approximately $1.1 billion over in term, or $350 million NPV. JCP&L does not believe the Board should take any actions which would enhance the viability of this project or relieve it of its obligations under the Board's Towner Order. D-8 Docket No. EM92030359 Rate Counsel urges the Board to deny the relief requested in the petition and to order the parties to renegotiate based upon current avoided costs. Further, Rate Counsel argues that the Administrative Procedures Act requires that the Board conduct evidentiary hearings prior to making a determination regarding this matter. Rate Counsel concurs with JCP&L that even with the proposed amendments the agreement is uneconomical and will continue to impose an egregiously heavy burden on JCP&L ratepayers. Rate Counsel believes this is contrary to the Board's Towner Order, wherein the Board directed utilities to review their existing contracts to determine whether or not these contracts remain economic and explore measures that could be taken to remedy any uneconomical contract. NJNG believes that the Board should approve both the modified gas service agreement (GSA) and the Joint Agreement between Staff and FCA. In essence, NJNG argues for approval of the Joint Agreement based on its belief that it will provide economic and environmental benefits in addition to the benefits to the customer of NJNG. By letter dated November 15, 1993, V.O.LC.E., an unincorporated association of residents of Freehold Township, submitted comments on the Joint Agreement and to support a Motion to Intervene. V.O.L.C.E. believes FCA is required to receive a Certificate of Need prior to constructing the facility. V.O.I.C.E. disputes many of the alleged benefits identified in FCA's petition and argues that the modified agreement is not in the best interest of ratepayers. By letter dated November 19, 1993, FCA responded in opposition to V.O.I.C.E.'s motion. FCA contends that the V.O.1.C.E. motion: D-9 Docket No. EM92030359 PN a yh Crt ad 6! Soa RISES Coan Oh 8 5 SS ENCORE Ee OMe cae ey Ce ee ope ad x 1) fails to identify what interest, if any the V.O.1.C.E. members have in this proceeding, and 2) fails to identify how those interests are different from those represented by Rate Counsel. FCA also argued that V.O.I.C.E.'s substantive arguments lack merit. FCA refutes V.O.I.C.E.’s argument that the FCA facility is a public utility which must obtain a Certificate of Need prior to constructing its facility. FCA argues that the proposed facility is not a public utility, rather it is a non-utility generator which is exempt from state regulation under federal law (PURPA) and is exempt from the requirement of filing for a Certificate of Need. With regard to the Motion to Intervene, V.O.I.C.E. has not demonstrated a direct interest in this proceeding under N.LA.C, 1;1-16.1(a), nor has it demonstrated whether any such interest is different from that which is represented by Rate Counsel. We concur with FCA that the proposed facility is not a public utility and is therefore exempt from the requirement of filing for a Certificate of Need. Accordingly, the Motion to Intervene of V.O.I.C.E. is HEREBY DENIED. Discussion: Both JCP&L and Rate Counsel indicate in their comments that they were excluded from the negotiations between Staff and FCA. JCP&L, in particular, strongly criticizes the actions of Staff in this matter. Before moving to the substance of the Joint Agreement the Board will briefly address this issue. D-1t0 Docket No. EM92030359 In its response to comments, Staff explains its role in the process from the time of the filing of JCP&L's Towner response through the filing of the petition and Joint Agreement with the Board in early November. It is clear to the Board that Staff acted eritirely in good faith in this matter. Contrary to the accusations of JCP&L, it appears that Staff kept the Company fully informed of the status and content of the discussions. Staff is correct in its assessment that JCP&L has limited unilateral ability to demand contract pricing concessions, to the extent that FCA is meeting all of its contractual commitments. Staff undertook a legitimate attempt to address the concerns raised in the Board's Towner Order and JCP&L's response thereto, and to procure more reasonable rates for JCP&L and its ratepayers. Rather than launching an inappropriate attack on Staff, JCP&L should have lauded the effort by Staff to attempt to reach a negotiated resolution of this issue which would have the effect of reducing rates to its customers. In the strongest possible terms, the Board rejects the unfounded attacks on Staff and other assertions that due process rights were violated. We concur with JCP&L and Rate Counsel however, that while the Joint Agreement provides price concessions by FCA relative to the original Agreement, which somewhat improve the economics of the transaction, the revised pricing terms are still far in excess of current avoided cost forecasts. It is estimated by JCP&L that the original agreement exceeds current avoided costs by $1.215 billion, while the proposed modified agreement exceeds current avoided costs by $1.145 billion (or $370 million and $350 million NPV, respectively). Absent any further modifications, it is apparent to us that JCP&L's customers will most likely be saddled with these excessive costs for the next twenty years, were the project to proceed. D-11 Docket No. EM92030359 As indicated above, the Joint Agreement leaves the pricing in the Power Purchase Agreement significantly above current forecasts of avoided cost. As such, the Board does not believe it represents a reasonable resolution of this matter consistent with the concerns raised in the Board's recent Towner decision. Therefore, the Board REJECTS the Joint Agreement. The Board HEREBY ORDERS JCP&L and FCA to enter into immediate good faith negotiations to develop modifications to the Agreement to bring it more in line with current avoided costs, or, in the alternative for an appropriate buy-out of the Agreement, subject to the Board's approval. If no agreement between FCA and JCP&L is reached and submitted to the Board within thirty days of the date of this Order the Board will commence an evidentiary proceeding, pursuant to N.JL.S.A, 48:2-40, to consider what actions, if any, should be taken by the Board, including modification or revocation of its Order approving the Agreement. We would note that information has been introduced into this record which indicates that there would be substantial economical benefits for both Freehold Township and Nestle from the: development of the FCA project. Specifically, Freehold Township would receive over $6 million in direct benefits, including an upgrade to its water and sewer system plus contributions to various civic projects Nestle would receive site lease benefits and energy discounts estimated to be worth $2 million per year. We therefore urge the parties to include in their discussion mechanisms which would preserve the benefits to Nestle and the Township which have been anticipated in reliance upon the development of this project. The substantial magnitude of the apparent economic disbenefit associated with the existing Agreement combined with the fact that the project is in the relatively early stages of development warrants our deep concern and resultant D-12 Docket No. EM92030359 directive to the parties to negotiate modifications to the Agreement or a buy-out, consistent with the Board's regulatory oversight obligations. If the parties work together, we are hopeful that significant savings to ratepayers can be achieved while maintaining the benefits for Freehold Township and Nestle and at the same time allowing FCA to continue with the project with prices more consistent with current avoided costs or, in the alternative, working out an appropriate project termination which leaves all parties whole. Thus, the Board is giving the parties an opportunity to try to craft such an agreement in a manner which is least disadvantageous to all parties. However, the Board is putting JCP&L and FCA on notice that if they cannot reach agreement on either reasonable renegotiated pricing terms more consistent with current avoided costs or a buy-out arrangement within 30 days, the Board is prepared to commence a proceeding to consider whether its previous approval of this Agreement should be modified or otherwise reconsidered or revoked. Finally, the Board does not believe it is appropriate to make a determination concerning the gas service agreement until such time as the issues concerning the power purchase agreement have been resolved. On that basis, the Board will defer action on the gas service agreement until the issues D-13 Docket No. EM92030359 concerning the power purchase agreement have been resolved. DATED: January 5,1994 BOARD OF REGULATORY COMMISSIONERS BY: /s/ DR. EDWARD H. SALMON CHAIRMAN /s/ JEREMIAH F. O'CONNOR COMMISSIONER /s/ CARMEN J. ARMENTI COMMISSIONER ATTEST: /s/ IRENE JOHNSON SECRETARY D-14 Docket No. EM92030359 SERVICE LIST DOCKET NO. EM92030359 DANIEL V. GULINO, ATTORNEY JERSEY CENTRAL POWER & LIGHT CO. MADISON AVENUE MORRISTOWN, N.J. 07962 ROBERT CHILTON, DIRECTOR DIVISION OF ELECTRIC BOARD OF REGULATORY COMMISSIONERS TWO GATEWAY CENTER NEWARK, N.J. 07102 BLOSSOM A. PERETZ, ESQ. ' SILLS, CUMMIS, ZUCKERMAN, RADIN, TISCHMAN, EPSTEIN & GROSS ONE RIVERFRONT PLAZA NEWARK, N.J. 07102-5400 TODD R. JAFFE MARKET DEVELOPMENT MANAGER CONSTELLATION ENERGY 250 WEST PRATT STREET BALTIMORE, MD 21201- 2423 D-15 DR. JOSEPH BOWRING DEPARTMENT OF THE PUBLIC 30 ADVOCATE DIVISION OF RATE COUNSEL 31 CLINTON STREET, 11TH FL. NEWARK, NJ 07101 MICHAEL AMBROSIO, CHIEF BUREAU OF ELECTRIC RATES & TARIFFS - BOARD OF REGULATORY COMMISSION TWO GATEWAY CENTER NEWARK, NJ 07102 HELENE WALLENSTEIN, DAG ' DEPUTY ATTORNEY GENERAL 124 HALSEY STREET NEWARK, N.J. 07101 GERALD W. CONWAY BERLACK, ISRAELS & LIBERMAN 95 MADISON AVENUE MORRISTOWN, NJ 07960 Docket No. EM92030359 APPENDIX E AGENDA DATE: 2/18/94 3/4/94 State of New Jersey Board of Regulatory Commissioners CN 350 Trenton, NJ 08625-0350 APPLICATION OF JERSEY ) CENTRAL POWER & LIGHT ) COMPANY FOR APPROVAL ) ELECTRIC ORDER OF THE POWER PURCHASE ) DENYINGSTAY AGREEMENT BETWEEN ) AND ESTABLISHING JERSEY CENTRAL POWER & ) PROCEDURAL LIGHT COMPANY AND ) SCHEDULE FREEHOLD COGENERATION ) ) AND VERIFIED PETITION OF ) FREEHOLD COGENERATION ) DOCKET NO. ASSOCIATES, L.P., FOR ) EM920930359 APPROVAL OF A JOINT ) AGREEMENT BETWEEN ) BOARD OF REGULATORY ) COMMISSIONERS STAFF & _) FREEHOLD COGENERATION ) ASSOCIATES, L.P. ) (SERVICE LIST ATTACHED) BY THE BOARD: This matter is before us for consideration of further procedures consistent with our January 5, 1994 Order of Denial in the above matter. In that Order, the Board rejected a Joint 4 KO between Freehold Cogeneration Associates, L.P. (Freehold) and the Board's Staff for certain modifications of the Power Purchase Agreement (Agreement E-1 Docket No. EM92030359 ee et ~ “¢4 Ae, Ps yc ee Oe TN Be Si oa BR v % ey eR EAE oP tence Ota tats Loe aE ORE SP NG or PPA) between Freehold and Jersey Central Power and Light Company (JCP&L) because we found that, even with the proposed modifications, the Agreement remains far in excess of current avoided cost forecasts and is not otherwise beneficial to ratepayers. We further ordered that Freehold and JCP&L enter into good faith negotiations to attempt to reach agreement on a modification of the purchase rates contained in the PPA or an appropriate buyout of the Agreement. We further indicated that if these negotiations were not successful within 30 days, the Board would commence a proceeding and hold hearings to consider what, if any, further action we can and should take, including possible reconsideration, modification or revocation of our July 1992 Order in the above matter, wherein we approved the Agreement and granted ratemaking approval of the pass- through of the costs associated with the Agreement to JCP&L's customers. While Freehold and JCP&L did undertake some limited negotiations, they were not able to reach agreement on a modification of the Agreement or a buyout within the 30-day timeframe. The Board was so advised by a letter from JCP&L dated February 3, 1994. In its letter, JCP&L requested that the Board commence a proceeding as set forth in its January 5, 1994 Order and transmit the matter to the Office of Administrative Law (OAL) for hearings. By letter dated February 10, 1994, Freehold responded to JCP&L's letter and, pursuant to N.J.A.C. 14:1- 8.7, requested a stay of the proceedings referred to in the Board's January 5, 1994 Order and the hearing requested by JCP&L in its letter. While Freehold-asserts that the parties should be given more time to negotiate, the basis of its request for a stay is to allow the federal court to rule on its pending complaint and motion for summary judgment in the United States District Court for the District of New Jersey. Freehold's complaint, filed on January 19, 1994, seeks declaratory judgment that the Board's January 5, 1994 Order directing negotiations among the parties and "threatening revocation of its prior regulatory approval" are preempted by the Public Utilities Regulatory Policies Act of 1978 (PURPA), 16 U.S.C.A. Sections 796 and 824a-3 et seq. and the regulations promulgated pursuant thereto by the Federal E-2 Docket No. EM92030359 Energy Regulatory Commission (FERC). Freehold also seeks an order Pinson enjoining enforcement of these provisions of the January 5, 1994 Order. On February 8, 1994, Freehold filed a motion for summary judgment with the federal court, seeking an order granting summary judgment in its favor on the issues raised in its complaint and request for injunctive relief. Freehold has requested that the Board suspend any proceedings on the PPA pursuant to its Order of January 5, 1994 until the question of preemption is definitely resolved. Freehold contends that if the Board proceeds with hearings affecting the PPA while the preemption issue is before the federal court, Freehold will suffer irreparable harm. Freehold contends that the proposed ings will create a "cloud on the terms of the PPA" which will create uncertainty about this project in the financial community. Freehold also cites the burden and expense of defending itself before the Board. By letter dated February 17, 1994, JCP&L responded to Freehold's February 10, 1994 letter and opposed the request for a stay. JCP&L contends that Freehold has not met the legal requirements for a stay, in that it has not demonstrated a likelihood of success on the merits or a showing of irreparable harm to justify a stay. Neither has it demonstrated that the legal right underlying its claim is well settled or that the balance of the equities weighs in its favor. JCP&L urges the Board to deny the request for a stay and to proceed with the contemplated hearings in light of the significant and adverse financial impact on JCP&L and its customers stemming from the PPA. By letter dated February 17, 1994, Rate Counsel also opposed the request for a stay. Discussion The issues before us at this time are whether to grant Freehold's request for a stay of further proceedings before the Board, pending resolution of Freehold's complaint in federal court and, if not, what the scope and schedule of our proceedings should be. E-3 Docket No. EM92030359 RAEN BRT nO RP Pursuant to N.J.A.C. 14:1-8.7(d), a stay will be granted for "good cause shown." The criteria for determining good cause for the granting of emergent relief such as the imposition of a stay pending appeal are well settled. For a stay to be granted, the moving party must show: ®; that the movant will suffer immediate and irreparable harm if a stay is not granted; 2. that there is a reasonable probability that the moving part will succeed on the merits; 3. that the legal right underlying the movant's claim is well settled; and- 4. that the balance of the equities in granting or denying relief weighs in the movant's favor. Crowe v, DeGioia 90 N.J. 125 (1982); Zoning Board the Township of S Service Electric Cable TV. of NL Inc., 198 NuJ. Super. 170 (App. Div. 1985); Doumani v. Casino Control Commission of New Jersey, 614 F. Supp. 1465 (D.N.J. 1985). | A review of Freehold's request for a stay in light of these criteria reveals an inadequate showing to justify the imposition of a stay. Based on our review of the record in this matter, we do not believe that Freehold has satisfied even a single one of the above criteria. First, Freehold has failed to demonstrate that it will suffer any immediate or irreparable harm absent a stay of the Board's Order. Freehold claims that if the Board proceeds with hearings there will be a cloud on the terms of the PPA, which will create uncertainty in the financial community. However, in November 1993, in Re of the Joint Agreement between Freehold and Staff, Freehold asserted that lenders would not make commitments to finance the project until the rate issue was resolved. It is clear to us that uncertainty regarding this project has existed in the financial community for some time because of the uneconomic nature of the project and that the uncertainty will continue to exist until all issues involved in this matter are resolved. E-4 Docket No. EM92030359 Freehold also claims that the federal court will be able to resolve this matter more expeditiously than the Board in order to remove the uncertainty. This is unlikely if we were to retain this matter at the Board and adopt the procedural hearing schedule as set forth below. This schedule would enable the matter to be ready for Board consideration in late April, after development of a full record and evidentiary hearing(s). Freehold had originally proposed an anticipated return date of March 28, 1994 for its motion for summary judgment in federal court. Moreover, any decision rendered by the United States District Court will likely be appealed by the unsuccessful party. Clearly, whether the Board grants a stay or not, uncertainty about the PPA will likely exist for some time, until the entire matter is finally resolved and all appeals are completed. If anything, having the Board retain and hear this matter on the schedule set forth below may well bring the matter to a more expeditious resolution than granting a stay at this time. Second, Freehold has not conclusively demonstrated that it is likely to prevail on the merits in federal court. The issue raised by Freehold's complaint and motion for summary judgment has not been conclusively decided by the courts. As stated in JCP&L's responses in opposition to the request for a stay, Freehold's preemption arguments are far more complex and uncertain than Freehold Asserts. Freehold argues that the Public Utility Regulatory Policies Act of 1978 (PURPA) and federal regulations adopted thereunder by the Federal Energy Regulatory Commissioners, preempt the actions contemplated by the Board citing the recent decision of the Oklahoma Supreme Court in Smith Service Commission of Oklahoma. The Board notes that the Oklahoma decision was decided by a 6-3 vote and that, as pointed out by JCP&L in its January 7, 1994 letter brief, a review of the Oklahoma decision discloses numerous and legal distinctions from the issues facing the Board in this case. Primarily, the cogenerator in the Oklahoma decision did not have a negotiated ides cen agreement with the utility. Moreover, as described above, the FERC regulations provide that an electric utility and a cogenerator can agree to terms and conditions that differ from those in the regulations. The presence of an express clause in the PPA wherein the E-5 Docket No. EM92030359 . =" parties, without any reservations, agreed to certain procedures in the event the Board were to disallow charges associated with the agreement from being passed on to the JCP&L ratepayers, casts doubt on Freehold's claim that it is likely to prevail on the merits. In addition, as JCP&L notes in its letter opposing a stay, there appears to be good cause for the federal court to dismiss Freehold's complaint on abstention and other grounds, including comity, election and exhaustion of remedies. If this occurs, the merits of Freehold's preemption argument will not be reached in federal court until after the Board conducts a proceeding, if at all. The balance of the equities is clearly not in Freehold's favor. If we deny the request for a stay, Freehold will have a full and fair opportunity to raise its preemption argument and other legal and factual arguments against further Board action in a proceeding before the Board. In addition, Freehold's alleged burden and expense in "defending" itself before the Board is not sufficient reason for a stay. For these reasons, Freehold's request for a stay is HEREBY DENIED. In its January 5, 1994 Order, the Board stated that if [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1869%3A2. Public record. Not legal advice.