Opinion
No. 50 / 02-1113
Filed July 21, 2004
Appeal from the Iowa District Court for Hamilton County, Ronald H. Schechtman, Judge.
Electric cooperative appeals from interlocutory ruling by district court concerning the coop's disputes with customers operating wind-driven electric generators. AFFIRMED.
John A. Gerken and Thomas W. Polking of Wilcox, Polking, Gerken, Schwarzkopf Copeland, P.C., Jefferson, for appellant.
Wallace L. Taylor, Cedar Rapids, for appellees Windway Technologies, Inc. and Welch Motels, Inc.
Gregory and Beverly Swecker, Dana, pro se.
Christopher R. Cook, Arlington, Virginia, for amicus curiae Solar Energy Industries Association.
The plaintiffs Gregory and Beverly Swecker are farmers in Hamilton County and plaintiff, Welch Motels, Inc., operates a motel in an adjoining county. Both the Sweckers and Welch own wind-driven generators purchased by them from the plaintiff, Windway Technologies, Inc. Sweckers and Welch are also customers of the defendant, Midland Power Cooperative, a rural electric cooperative serving approximately 6800 members. The plaintiffs have various complaints against Midland, but in this interlocutory appeal, we consider only two: (1) in determining the charges for electricity supplied by Midland to the plaintiffs and from the plaintiffs to Midland is "net metering" required as the district court ruled, and (2) did the court err in requiring periodic reports from Midland in order to make any necessary adjustments in the amounts to be paid by cogenerating facilities such as the plaintiffs to Midland We affirm the district court on both issues.
I. Facts, Prior Proceedings, and the Federal Law.
The Sweckers and Welch purchased their wind generators to reduce their energy expense and hopefully to sell excess energy to Midland, as provided by a federal statute, the Public Utility Regulatory Policies Act (PURPA). See 16 U.S.C. § 824a-3. Customers buying from and selling to the utility are known as cogenerators or alternative energy producers (AEPs). PURPA requires an electric utility such as Midland to furnish backup energy to a cogenerator. 18 C.F.R. § 292.303(b) (1998). Under the act, the utility company may charge a cogenerator rates for energy purchased by the cogenerator that are "just and reasonable," and it "shall not discriminate against the qualifying cogenerator." 18 U.S.C. § 824a-3(c)(1), (2). The federal rules also require an electric utility to "purchase, in accordance with § 292.304, any energy and capacity which is made available from a qualifying facility." 18 C.F.R. § 292.303(a). The utility may pay to the qualifying facility no more than the utility's "avoided cost" for any excess energy produced by the AEP. 18 C.F.R. § 292.304(a)(2).
PURPA requires that states adopt rules implementing the federal regulations for rate-regulated utilities. See 16 U.S.C. § 2621. Nonrate-regulated electric utilities, such as Midland, are required to implement the federal rules on their own. See id. The Iowa Utilities Board has promulgated a rule that requires rate-regulated electric utilities to use one meter to measure "the net amount of electricity sold or purchased" to or from a qualifying AEP, a method known as "net metering." See Iowa Admin. Code 199-15.11(5). Midland has adopted an electric tariff under which it seeks to measure the sale and purchase of power separately, billing each transaction (sale and purchase) at the applicable rate and netting the billed charges, a method it labels "net billing." See Iowa Code § 476.47(2)( b) (requiring utilities that are not rate regulated to file tariffs for alternate energy purchase programs).
The plaintiffs originally filed this suit in federal court, alleging, in part, that Midland's tariff setting the rate at which it would purchase energy from cogenerators violated PURPA. The federal court remanded the case to state court on the ground that federal courts lack subject matter jurisdiction of a suit involving a nonrate-regulated utility such as Midland In the Iowa district court, the plaintiffs demanded a jury trial, but the parties agreed to bifurcate the trial and submit some of the issues to the court, saving the balance of the issues for a jury trial. A bench trial was held on the plaintiffs' claim that Midland's tariff violated PURPA, and the district court held (1) the parties are required to use net metering, and (2) Midland must make periodic reports from which its avoided cost may be determined. Midland sought an interlocutory appeal, which we granted.
II. The Net Metering or Net Billing Issue.
The first issue is whether Midland and its cogenerating customers are to settle their respective charges to each other through net metering, as held by the district court and proposed by the plaintiffs, or by net billing as proposed by Midland Before we resolve this issue, we address the confusion generated by Midland's use of the term "net billing." It appears that the terms "net metering" and "net billing" are used interchangeably to refer to the same method of measuring the power used by a cogenerator over a specified period of time. FERC has used the term "net billing" in the following sense:
Net billing involves only one meter and one net transaction. Under net billing, the [cogenerator] produces power primarily for the owner's needs. However, at times the [cogenerator] generates "excess" power which is supplied to the utility through the single meter. Other times, the [cogenerator] may not generate sufficient power for the owner's needs and [it] draws power from the utility through the single meter. Electricity flows through the meter in both directions and is netted out and one meter reading [is] made at the end of a billing period.
MidAmerican Energy Co., 94 F.E.R.C. ¶ 61,340, at 2 (March 28, 2001) (citation omitted). The term "net metering" describes the same process. See FirstEnergy Corp. v. Pub. Utils. Comm'n, 768 N.E.2d 648, 650 (Ohio 2002) (defining "net metering" as "`measuring the difference in an applicable billing period between the electricity supplied by an electric service provider and the electricity generated by a customer-generator which is fed back to the electric service provider'" (citation omitted)).
Under the approach urged by Midland, two separate measurements would be required — one to measure power flowing from Midland and the other to measure power flowing from the cogenerator. The applicable billing rates would then be separately applied to each measurement and the resulting dollar amounts would be offset against one another. A more appropriate description of Midland's proposed billing system is separate or independent billing, which is the terminology we will use in this opinion.
Midland advocates for separate billing of power usage because this system would allow Midland to collect its full retail rate for energy sold to the cogenerating customer but pay the customer only the amount of Midland's avoided cost for the electricity purchased from the cogenerator. For example, under the net metering or net billing approach, if each party, during a given billing period, provides the same amount of electricity to the other, their respective power usage would offset each other and neither party would pay any money to the other. Using the same example under the separate or independent billing approach, the cogenerating customer would owe Midland more than Midland owed the customer because the customer would pay Midland's retail rate for power provided by Midland, while Midland would only pay the customer at its avoided cost for power provided by the customer, a rate that is considerably less than retail.
The problem with Midland's case for separate billing is that it is inconsistent with the interpretation of PURPA and the federal regulations by FERC and the Iowa Utilities Board. See Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694, 703 (1984) (court should defer to agency's interpretation of statute if it is "based on a permissible construction of the statute" that the agency has been charged with administering). In the MidAmerican Energy case, a rate-regulated utility challenged the Iowa Utilities Board's rule requiring net billing over a billing cycle. The utility argued this requirement was contrary to PURPA because "every flow of power constitutes a sale and . . . must be priced consistent with the requirements of . . . PURPA. . . ." MidAmerican Energy Co., 94 F.E.R.C. at 3. FERC rejected this view and ruled that "no sale occurs when an [AEP] . . . accounts for its dealings with the utility through the practice of netting." Id. Therefore, it concluded, net billing was appropriate under PURPA and the normal billing cycle was a reasonable time period for measuring the net sale or purchase by the cogenerator. Id. at 4.
We think net metering is appropriate for the additional reason that it maximizes the incentive for cogeneration. PURPA "was designed to encourage the development of cogeneration and small power production facilities." Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 404, 103 S.Ct. 1921, 1924, 76 L.Ed.2d 22, 27 (1983) (footnote omitted). In the American Paper case, the Supreme Court held it was not unreasonable for FERC to require utilities to pay alternative generators the full avoided cost, noting this to be a financial advantage that provides incentives to alternative generation facilities:
The Commission's order makes clear that the Commission considered the relevant factors and deemed it most important at this time to provide the maximum incentive for the development of cogeneration and small power production, in light of the Commission's judgment that the entire country will ultimately benefit from the increased development of these technologies and the resulting decrease in the nation's dependence on fossil fuels.
Id. at 417, 103 S.Ct. at 1930, 76 L.Ed.2d at 35.
Midland contends that net metering will reduce its income to the detriment of its other customers who will be required to subsidize customers such as the plaintiffs. Midland does not quantify this alleged loss, and in view of the fact that presently only two of its 6800 customers have wind generators, any "subsidizing" of customers with cogenerator capability would be minute, if any. Midland, of course, will not make a profit from that part of its electricity transmitted to a cogenerator that is not paid for by the customer but merely replaced by the customer's transmission from his own generator to the utility. However, Midland will not sustain a loss because it pays the cogenerator only Midland's avoided cost — what it would have to pay another supplier — on any energy transmitted to the utility in excess of the energy used by the cogenerator from the utility. Even more important, it is clear that requiring net metering will increase the attractiveness of developing alternative generation, and the purpose of PURPA is served because energy produced by alternative generation reduces our dependence on fossil fuels — the main purpose of PURPA.
We agree with the district court that, in the absence of federal or utility board controls over cooperatives such as Midland (which all parties agree is the case), decisions such as this concerning offsetting bills cannot reliably be made without oversight by some objective authority. The Iowa court system, as suggested by the federal court's remand order, apparently gets that job. In this case, the district court correctly analyzed PURPA and its purposes. We therefore affirm on the first issue; net metering shall be used in settling accounts between the utility company and its cogenerating customers.
III. The "Avoided Cost" Information Issue.
An integral part of net billing is the avoided-cost component, i.e., the amount a utility is required to pay to a cogenerator for electricity fed by the cogenerator back into the system. In order to compute avoided cost, it is, of course, necessary to obtain cost data from the utility company. In this case, Midland has refused to furnish the data. The Sweckers sought an order from FERC requiring Midland to furnish the information, but Midland resisted, stating:
[B]ecause the Sweckers' complaint involves a request for determination of Midland's avoided costs, not its implementation of PURPA, the complaint should have properly been brought in a state forum, not before the Commission.
(Emphasis added.)
FERC dismissed the enforcement action, stating that,
[s]ince both of the parties have expressed their desire to pursue this matter in court, we will dismiss this petition, so that the Sweckers may file in an appropriate court.
Gregory Beverly Swecker v. Midland Power Coop., 96 F.E.R.C. ¶ 61,085, at 2 (July 16, 2001).
Pursuant to this suggestion, the Sweckers filed their request for avoided-cost information in the state district court in the present action. The district court ordered Midland to make available its avoided-cost information at least every two years. Now, in an interesting turn, Midland contends the state court does not have jurisdiction to enter this order, even though it had earlier argued to FERC that FERC should defer to a state court. We reject Midland's argument that the district court lacked jurisdiction to enter an order requiring disclosure of avoided-cost data. In the absence of oversight by FERC, which it has declined to exercise, or by the Iowa Utilities Board because Midland is a nonrate-regulated utility, some entity must be in a position to enforce Midland's compliance with PURPA by disclosing avoided-cost data. We agree with the district court that it had jurisdiction to enter such an order and conclude that it properly ordered Midland to make available its avoided-cost information on at least a biannual basis.
AFFIRMED.
All justices concur except Carter, J., who dissents.
I respectfully dissent.
However tempting it might be to treat this unregulated utility in the same manner that regulated utilities are treated under rulings of the Iowa Utilities Board, it is our responsibility to independently determine what this rural electric cooperative must pay for the cogenerated power it is bound by federal law to accept. Federal law is determinative of that question.
Section 210(b) of the Public Utility Regulatory Policies Act, 16 U.S.C. § 824a-3(b), provides:
No such rule prescribed [by the Federal Energy Regulatory Commission (FERC)] . . . shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy.
In a regulation adopted to implement this provision, FERC has required that utilities purchase electricity from qualified cogenerators "at a rate equal to the utility's full avoided cost." 18 C.F.R. § 292.304(b)(2) (1982). The utility's full avoided cost is defined 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." Id. § 292.101(b)(6).
The Supreme Court in American Paper Institute, Inc. v. American Electric Power Service Corp., 461 U.S. 402, 103 S.Ct. 1921, 76 L.Ed.2d 22 (1983), has determined that the term "full avoided costs" as used in the regulations is the equivalent of the term "incremental cost of alternative electric energy, used in § 210(d) of [the Act]." Am. Paper Inst., Inc., 461 U.S. at 406, 103 S.Ct. at 1924, 76 L.Ed.2d at 28. There is no way that net metering which has been approved, and in practical effect required, by the opinion of the court will produce a reimbursement to the cogenerator that is reflective of the utility's full avoided cost. What is accomplished by net metering is automatically reimbursing the cogenerator on the basis of the utility's retail rate for electricity. This is manifestly not the cost to the utility of the electric energy that, but for the purchase from such cogenerator, the utility would generate or purchase from another source.