Kimberly-Clark Corporation v. Department of Public Utility Control et al. (2010)

MEMORANDUM OF DECISION

This is an administrative appeal by Kimberly-Clark Corporation (Kimberly-Clark) from a February 11, 2010 final decision of the Department of Public Utility Control (DPUC), relating to provisions of P.A. 05-01, June Special Session (“An act concerning energy independence”) and P.A. 07-242 (“An act concerning electricity and energy efficiency”), now codified as General Statutes §§ 16-243q, 16-243t.

The record in the administrative appeal shows as follows.   Kimberly-Clark operates a combined heat and power system (CHP) at its mill in New Milford.   The legislature defined a “CHP” at § 16-1(a)(42) as a system combining both electric power and thermal energy to result in an “aggregate reduction of electricity use.”

The legislation now codified as §§ 16-243q, 16-243t has the goal of promoting efficient and environmentally responsible energy sources.   One component of the new legislation in § 16-243q(a) was the imposition of Renewable Portfolio Standards (“RPS”) that required electric distribution companies and electric suppliers to demonstrate that a percentage of their total output or service is obtained from Class III sources.   Class III sources are defined to include, among other things, a CHP with an operating efficiency of no less than fifty percent and part of customer-side distributed resources developed at commercial and industrial facilities after April 1, 2007.   See § 16-1(a)(44).

The legislation provided that the electric distribution companies and electric suppliers were to increase the percentage of their total output or service from Class III sources over several years.   At the time of the final decision, § 16-243q(a) required as follows:  “On and after January 1, 2010, not less than four percent of the total, output of any such supplier or such standard service of an electric distribution company shall, on demonstration satisfactory to the Department of Public Utility Control, be obtained from Class III sources.”   Section 243q(b) provides for a penalty when such a supplier or company “is deficient in meeting such percentage standards.”  Sections 16-243q(c) and 16-243t(a) provide that one means to satisfy the RPS requirement was to purchase Class III Renewable Energy Credits (“RECs”) that have been allocated to a CHP with the approval of DPUC. A Class III REC “shall not be less than one cent per kilowatt hour” (or the equivalent of $10 per megawatt hour).   See § 16-243t(a).

The DPUC, pursuant to § 16-243q(e), conducted a contested proceeding to address (1) the manner in which qualifying activities are certified, tracked and reported;  (2) the manner in which Class III RECs are created, accounted for and transferred;  (3) verification of the accuracy of RECs;  (4) verification that resources or RECs have not been used to satisfy other portfolio or similar standard;  (5) the manner in which RECs may best be allocated to maximize the impact of the trading program;  and (6) the setting of alternative compliance payments at a level that encourages development of conservation and customer-side distributed resources.   The DPUC conducted such proceedings as a contested case in Dkt. No. 05-07-19, “Proceeding to develop a new distributed resources Portfolio Standard (Class III),” Interim Decision dated February 16, 2006, Final Decision dated June 28, 2006.¹

On January 23, 2009, pursuant to General Statutes § 4-181a(b), the DPUC reopened the docket to reexamine certain issues under the Class III REC program, again as a contested case.   Kimberly-Clark participated in the reopened proceedings as an intervenor.   The defendants, office of consumer counsel (0CC) and Connecticut Light and Power Company (CL & P) participated as parties.   The DPUC issued a final decision on February 11, 2010.   As is relevant to this appeal, the DPUC made the following rulings:  (1) the $10 per megawatt hour minimum value established by § 16-243t(a) applied when a Class III REC is sold or otherwise transacted;  (2) the DPUC lacks the authority to increase the statutory RPS percentage requirements as sought by Kimberly-Clark;  and (3) CHP facilities (as is Kimberly-Clark) are required to demonstrate compliance with the operating efficiency standards to be eligible for RECs on a quarterly basis.  (Return of Record, ROR, Final Decision, Item XII, No. 1, pp. 21-26).   This appeal followed.²

Kimberly-Clark, quoting from Director, Retirement and Benefits Services Division, Office of the Comptroller v. Freedom of Information Commission, 256 Conn. 764, 771-72, 775 A.2d 981 (2001), at page 9 of its brief, argues that the following UAPA standard of review is applicable in this case:  “Because this case forces us to examine a question of law, namely, the construction and interpretation of [statutes] as well as the standard to be applied, our review is de novo.”

The court disagrees.   Kimberly-Clark has correctly set forth a standard of review normally applicable to UAPA appeals.   In the context of a DPUC administrative appeal, the Supreme Court has framed the standard differently:  “Because this is a question of statutory interpretation that previously has not been subject to judicial scrutiny, our review ordinarily would be plenary.   Nevertheless, in light of the extremely complex and technical regulatory and policy considerations implicated by this issue, we are not persuaded that we may substitute our judgment for that of the department.   Rather, this is precisely the type of situation that calls for agency expertise.”  (Internal quotation marks omitted.)  Wheelabrator Lisbon, Inc. v. Dept. of Public Utility Control, 283 Conn. 672, 692, 931 A.2d 159 (2007), citing MacDermid, Inc. v. Dept. of Environmental Protection, 257 Conn. 128, 139, 778 A.2d 7 (2001).

Kimberly-Clark argues that Wheelabrator may be distinguished because the statutory contentions it makes in this appeal are not “extremely complex.”   But the standard of review approved in Wheelabrator arose in the interpretation of DPUC statutes relating to RECs. Id., 690.   Moreover, the Wheelabrator standard was the culmination of several prior cases in the Supreme Court reaching the same conclusion.   See the references cited by the Wheelabrator court at 692:  “[S]ee also Christopher R. v. Commissioner of Mental Retardation, 277 Conn. 594, 611, 893 A.2d 431 (2006) (‘we generally defer to an agency with expertise in matters requiring such a technical ․ determination’);  cf.  Office of Consumer Counsel v. Dept. of Public Utility Control, 279 Conn. 584, 593, 905 A.2d 1 (2006) (‘In the specialized context of a rate case, the court may not substitute its own balance of the regulatory considerations for that of the agency, and must assure itself that the [department] has given reasoned considerations to the factors expressed in § 16-19e[a] ․ This broad grant of regulatory authority carries with it the necessarily equally broad discretion, to be exercised within legal limits').”

The Supreme Court also approved in Wheelabrator reliance on an agency's position where, as here, the DPUC had issued regulations based on the statute in question.  “Deference is particularly appropriate because the department's interpretation of § 16-243a was informed by its interpretation of its own regulations.   See MacDermid, Inc. v. Dept. of Environmental Protection, supra, 257 Conn. 138-39 (principle that courts defer to agency's interpretation of statutes ‘applies with even greater force to an agency's interpretation of its own duly adopted regulations' ”).

The Wheelabrator court accordingly limited its “review to a determination of whether the department gave reasoned consideration to all the relevant factors or whether it abused its discretion.”  Id. This is the standard of review also employed by the court in this appeal.

Kimberly-Clark's first contention is that the DPUC misconstrued § 16-243t(a).   Kimberly-Clark's position starts with the fact, agreed upon by all parties to this appeal, that there is presently an oversupply of RECs assigned to Kimberly-Clark and other CHPs. Section 16-243t(a) states that “a Class III credit [here, a REC] shall not be less than one cent per kilowatt hour [$10 per megawatt].”   The DPUC concluded in its decision that “the floor was established in order to set a minimum transaction price.”  (ROR, Item XII, No. 1, p.25) (emphasis added).   In other words, the one-cent value applies to RECs that are actually sold or transacted.

Kimberly-Clark contends that the DPUC is mistaken, because a REC's value in § 16-243t(a) should, by its very terms, apply to all RECs, whether unsold and held, expired or traded.   The argument is made that the statutory language is explicit on the “one-cent per kilowatt hour” price.   The DPUC in limiting a REC's value to transactions has, it is argued, brought about an unconstitutional taking.   The DPUC's policy, it is further argued, restricts the viability of RECs, thereby undermining the goal of energy efficiency and causing harm to consumers.   Finally, Kimberly-Clark stresses that the REC program does not function well in the administrative market, and that the DPUC has not resolved whether a CHP may offer a REC about to expire at less than one cent.

On the other hand, DPUC replies, and the court agrees, that there is a rational statutory scheme here.   All RECs sold or transacted or banked ³ continue to have the one-cent per kilowatt hour value for a period of time.   Kimberly-Clark did not appeal the 2006 DPUC decisions that concluded that RECs might expire.   DPUC thus logically concluded in its February 11, 2010 final decision under appeal that an item that has expired has no value.   See Southern New England Telephone Co. v. Dept. of Public Utility Control, 261 Conn. 1, 25, 803 A.2d 879 (2002) (DPUC must interpret statute so that its words are not “superfluous, void or insignificant”).

The DPUC reasonably construed the phrase-a REC shall not be less than one-cent per kilowatt hour-in § 16-243t(a), not to apply to a REC that has expired.   Under the DPUC's construction, approved by the court, the statutory meaning ⁴ is that an expired REC, like any other expired item or service, ceases to have value after the time of its expiration.   See MacKay v. Bristol West Insurance Services, 130 Cal.Rptr.2d 536 (Cal.App.2003).   A REC is analogous to a line of credit-once it expires, it has no value.   See Trans Global Alloy, Ltd. v. First National Bank, 583 So.2d 443, 456 (La.1991).   Kimberly-Clark's interpretation, with its goal of dealing with the over-supply of RECs, cannot be accepted in light of the current statutory language.⁵  The general rule is, of course, that “courts cannot read into the terms of a statute something which manifestly is not there in order to reach what the court [may think] would be a just result.”  State v. Malm, 143 Conn. 462, 467, 123 A.2d 276 (1956).

Kimberly-Clark's second contention is that, in light of the surplus of RECs, the final decision erred in not increasing the RPS percentage mandated for purchase by an electric distribution company under § 16-243q(a).   This statute requires each electric distribution company ․ and each electric supplier” to obtain from a CHP “not less than four percent of the total output” of any such CHP to meet the RPS requirement.   The DPUC final decision refused to mandate that these entities purchase more than four per cent of RECs assigned to a CHP to remedy the current REC oversupply.  “If the goal of the legislature was to allow the Department the discretion to increase the Class III annual required percents, it would have indicated such.   The EDCs and the electric suppliers, at their option, can procure more RECs, but the Department cannot require them to do so.”  (ROR, Item XII, No. 1, p. 26).

Essentially, Kimberly-Clark is arguing that the DPUC should, in light of the oversupply, amend the statutory language to increase the minimum requirements for purchase by the electric distribution companies and suppliers.   As indicated with regard to Kimberly-Clark's first issue, the court cannot force the DPUC to adopt a position that, while having plausible merit, does not track the agency's authority provided by § 16-243q(a).   Indeed in declining to expand the statute beyond its words, the DPUC was adhering to the dictates of our Supreme Court in Connecticut Light and Power Company v. Department of Public Utility Control, 210 Conn. 349, 554 A.2d 1089 (1989).   There, the Supreme Court cautioned that the DPUC, in interpreting § 16-243e, had erred by not following the “clear mandate” of the statute.  Id., 358.   In light of the provisions of § 16-243q(a), the court concludes that the DPUC correctly rejected Kimberly-Clark's contention.⁶

The final issue advanced by Kimberly-Clark with regard to the final decision is that for a CHP to be eligible for a REC program, the CHP's efficiency must be reviewed periodically to demonstrate an operating efficiency level of “no less than fifty percent.”   See General Statutes § 16-1(a)(44).   The DPUC, as the statute was silent, initially provided that this review was to take place annually.   In the February 11, 2010 final decision, the DPUC changed this review to a quarterly one.   Kimberly-Clark argues that the newly-adopted quarterly standard is unfair and penalizes fluctuations in output.

On the other hand, it is clear that the legislature has left to the DPUC, in this instance, the task of “filling in the blanks” with regard to the timing of its audit.   See Rudy's Limousine Service, Inc. v. Department of Transportation, 78 Conn.App. 80, 89, 826 A.2d 1161 (2003).   In addition, there is no prohibition on an agency choosing one approach and then changing this approach based upon subsequent experience.   This is a factual determination to which deference should be given to the DPUC. See New England Cable TV Association v. Dept. of Public Utility Control, 247 Conn. 95, 117, 717 A.2d 1276 (1998).   Here, the DPUC concluded that a quarterly review would encourage a CHP to be more efficient in the summer months.   See ROR, Final Decision, Item XII, No. 1, p. 23.   The court defers to the conclusion in the DPUC's final decision that allows for the modification from annual to quarterly audits.

The appeal is. therefore dismissed.

Henry S. Cohn, Judge

FOOTNOTES

FN1. Specifically in this Interim decision at page 13, and unchanged in the final decision, the DPUC determined that RECs not purchased by an electric distribution company or electric supplier would expire in the year of their creation.   Kimberly-Clark did not appeal from these decisions.   A DPUC regulation, § 16-245a-1, issued subsequent to these final decisions, allows a CHP to “bank” RECs for two years..  FN1. Specifically in this Interim decision at page 13, and unchanged in the final decision, the DPUC determined that RECs not purchased by an electric distribution company or electric supplier would expire in the year of their creation.   Kimberly-Clark did not appeal from these decisions.   A DPUC regulation, § 16-245a-1, issued subsequent to these final decisions, allows a CHP to “bank” RECs for two years.

FN2. Kimberly-Clark has established that it is aggrieved by the final decision of the DPUC as to satisfy the aggrievement requirement of the Uniform Administrative Procedure Act (UAPA) § 4-183(a)..  FN2. Kimberly-Clark has established that it is aggrieved by the final decision of the DPUC as to satisfy the aggrievement requirement of the Uniform Administrative Procedure Act (UAPA) § 4-183(a).

FN3. As indicated in footnote 1 above, the DPUC has issued a regulation allowing the banking of RECs by a CHP that will preserve the REC for two years..  FN3. As indicated in footnote 1 above, the DPUC has issued a regulation allowing the banking of RECs by a CHP that will preserve the REC for two years.

FN4. “When construing a statute, our fundamental objective is to ascertain and give effect to the apparent intent of the legislature ․ In seeking to determine that meaning, General Statutes § 1-2z directs us first to consider the text of the statute itself and its relationship to other statutes.   If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered.”  (Brackets omitted;  citations omitted.)   Dept. of Public Safety v. Freedom of Information Commission, 298 Conn. 703, 720 (2010).   The statute here is plain and unambiguous..  FN4. “When construing a statute, our fundamental objective is to ascertain and give effect to the apparent intent of the legislature ․ In seeking to determine that meaning, General Statutes § 1-2z directs us first to consider the text of the statute itself and its relationship to other statutes.   If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered.”  (Brackets omitted;  citations omitted.)   Dept. of Public Safety v. Freedom of Information Commission, 298 Conn. 703, 720 (2010).   The statute here is plain and unambiguous.

FN5. With regard to other arguments made by Kimberly-Clark regarding § 16-243t, a taking may be found only where there is a “substantial interference with private property which destroys or nullifies its value.”   See Tamm v. Burns, 222 Conn. 280, 284, 610 A.2d 590 (1992).   In light of the court's interpretation, a taking cannot be found.   The court also defers to the DPUC final decision on policy questions, such as setting the value for RECs that are transacted..  FN5. With regard to other arguments made by Kimberly-Clark regarding § 16-243t, a taking may be found only where there is a “substantial interference with private property which destroys or nullifies its value.”   See Tamm v. Burns, 222 Conn. 280, 284, 610 A.2d 590 (1992).   In light of the court's interpretation, a taking cannot be found.   The court also defers to the DPUC final decision on policy questions, such as setting the value for RECs that are transacted.

FN6. The court has also reviewed the provisions of § 16-243q(e) establishing a contested case proceeding to be conducted by DPUC. None of the six issues to be discussed at the contested case hearing authorizes the DPUC to increase the RPS requirements for purchase of RECs..  FN6. The court has also reviewed the provisions of § 16-243q(e) establishing a contested case proceeding to be conducted by DPUC. None of the six issues to be discussed at the contested case hearing authorizes the DPUC to increase the RPS requirements for purchase of RECs.

Cohn, Henry S., J.