LLC v. Department of Energy and Environmental Protection et al. (2013)

MEMORANDUM OF DECISION

The plaintiff, Waterside Power, LLC (Waterside),¹ appeals by way of a declaratory judgment action from an October 12, 2011 declaratory ruling of the defendant public utilities regulatory authority (PURA).²

The background to the declaratory ruling, taken from the record, is as follows.   In a special session of the General Assembly, the legislature passed P.A. 05–01, “An Act Concerning Energy Independence,” now codified as General Statutes § 16–243m.   This act was an effort by the legislature to “reduce federally mandated congestion charges [fmcc]” as approved by the federal energy regulatory authority (FERC).  Section 16–243m(a) directed PURA to identify, on or before November 1, 2005, such measures that would reduce fmcc and suggested such programs as a contract between an energy distribution company and an owner of generation resources.

The legislation also required PURA to conduct a contested case “to establish the principles and standards to be used in developing and issuing a request for proposals ․” § 16–243m(b).  PURA was to issue a request for proposals, § 16–243m(d);  any party submitting a proposal was to include such provisions as PURA directs, § 16–243m(e);  PURA was to evaluate these proposals and choose ones that maximized reduction of fmcc, made efficient use of existing sites, and served the long-term interests of ratepayers. § 16–243m(g).

On November 16, 2006, PURA issued drafts of what it called “a contract for differences,” between electric distribution companies and generator-owners with capacity resources.  Docket No. 05–07–14PH02.   On May 3, 2007, also in this docket, a master agreement was approved by PURA and on August 22, 2007 it was signed by Waterside and CL & P.³ PURA subsequently re-opened its docket to consider certain questions over the interpretation of the master agreement raised by CL & P and Waterside, and a decision was issued on May 18, 2011.   This resulted in a declaratory ruling request by Waterside and the declaratory ruling of October 12, 2011, now under appeal.

Waterside's dispute with PURA in this appeal,⁴ first taken in its questions to PURA that resulted in PURA's decision of May 18, 2011, and subsequently in its request for a declaratory ruling, involves the interpretation of § 6.3 of the master agreement, “Determination of Monthly Payment Amount for Capacity.”   Waterside's position is that the “Capacity Clearing Price” is identical to the “FCA Market Price.”   The FCA Market Price is determined at an auction conducted by ISO–New England.   Waterside states that at an auction held in 2008, a price of $4.50 per k/W per month was the “stop” or “floor figure.”   There was a “true-up” subsequent to the determination of the floor price that set a figure of $4.25 as the “pro-rata price.”   Waterside argues that the FCA Market Price is the $4.25 figure and is therefore the Capacity Clearing Price under the master agreement.⁵

PURA, OCC, and CL & P argue that the FCA Market Price is the “stop” or “floor price” of $4.50 and therefore is the Capacity Clearing Price.   According to PURA, the pro-rata amount is not the FCA Market Price, but only an after-auction adjustment.⁶  This result, according to Waterside, would penalize it in an amount of $.25 per k/W per month.

Waterside argues that the court should overturn PURA's interpretation of § 6.3 of the Master Agreement.   The court asked the parties to submit an additional memorandum on what the standard of review of this issue is under the Uniform Administrative Procedure Act. Under the usual standard, deference to an agency interpretation is afforded only “when the agency's interpretation has been formally articulated and applied for an extended period of time, and that interpretation is reasonable.”  Velez v. Commissioner of Labor, 306 Conn. 475, 485, 50 A.3d 869 (2012).  Velez, however, recognized an additional reason for deference where the agency relies for its interpretation on a “legislatively approved regulation.”  Id.

Another allowance for deference exists when “in light of the extremely complex and technical regulatory and policy considerations implicated,” agency expertise is to be relied upon rather than the court substituting its judgment for that of PURA. Wheelabrator Lisbon, Inc. v. Dept. of Public Utility Control, 283 Conn. 672, 692, 931 A.2d 159 (2007).

The deference enunciated in Wheelabrator is supported by three foundational cases, which provide insight into the scope and applicability of that standard.   First, in MacDermid, Inc. v. Dept. of Environmental Protection, 257 Conn. 128, 139, 778 A.2d 7 (2001), the court observed that “[w]hen an agency has expertise in a given area and a history of determining factual and legal questions similar to those at issue, its interpretation is granted deference by the courts.”   The court was not persuaded by the argument that the application of the hazardous waste laws regulations at issue presented pure questions of law, and instead concluded that the application of those regulations “requires a technical, case-by-case review that is precisely the type of situation that calls for agency expertise.”  Id.

Similarly, Christopher R. v. Commissioner of Mental Retardation, 277 Conn. 594, 611, 893 A.2d 431 (2006), also echoed this growing allowance for deference when it noted that, in the absence of limitations in the applicable statutes and/or regulations on the department's discretion, the department was “especially qualified” to make an eligibility determination when faced with conflicting information, including intelligence scores.  Id., 610.   Accordingly, the court there concluded that it “generally defer[s] to an agency with expertise in matters requiring such a technical, case-by-case determination” while determining whether the defendant, the commissioner of mental retardation, exceeded his statutory authority by considering additional evidence when ascertaining eligibility for services from the department.   Id. 610–11.

Finally, in Office of Consumer Counsel v. Dept. of Public Utility Control, 279 Conn. 584, 905 A.2d 1 (2006), when examining the discretion given by the legislature to PURA in deciding rate cases under General Statutes § 16–19e, the court determined that “[i]n 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 ․ This broad grant of regulatory authority carries with it the necessarily equally broad discretion, to be exercised within legal limits.”  Id., 593.

These cases, when read in concert with Wheelabrator, provide a strong foundation for a broad reading and application of the Wheelabrator deference.   See Kimberly–Clark Corporation v. Dept. of Public Utility Control, Superior Court, judicial district of New Britain, Docket No. 10 6004400 (December 10, 2010, Cohn J.) (applying the same deference enunciated in Wheelabrator to a utility rate case and limiting the court's review “to a determination of whether the department gave reasoned consideration to all the relevant factors or whether it abused its discretion”);  cf.   The Connecticut Light and Power Company v. Dept. of Public Utility Control, Superior Court, judicial district of New Britain, Docket No. CV 09 4019951 (February 4, 2010, Satter, J.T.R.) (declining to apply Wheelabrator deference because the meaning of the relationship between General Statutes § 16–244c(b)(4)(A) and § 16–244c(b)(4)(B) “could readily be determined from the wording of the statutes and no special ‘agency expertise’ ․ [was] required”).⁷

The court's position on the standard of review in this appeal was summarized in Guilford Transportation Industries v. Public Utilities Commission, 746 A.2d 910, 914 (Me.2000):  “When we review an agency's construction of a contract, it is logical to apply the same methodology utilized when an agency interprets a statute which it administers.   The contract in this case is analogous to a statute administered by the PUC. The Legislature's grant of authority to the PUC to resolve the contract dispute implies that it presumed that the PUC's expertise in utility matters would provide a more informed resolution.   Furthermore, the fact that the parties in this case explicitly agreed to have the PUC resolve the dispute suggests that the parties themselves believed that a decision-maker with specialized knowledge was preferable.”

Waterside argues that the Wheelabrator ground for deference does not apply here.   It is true that PURA was not fully interpreting a complex statute or regulation in its jurisdiction in this instance.   However, the situation here remains analogous to Wheelabrator.   First, the term at issue, Capacity Clearing Price, is unique to energy law.   The interpretation of this term depends upon the relationship of § 6.3(b) of the master agreement to the “FCA Market Price” under the ISO–New England Tariff and its forward capacity auction.   The technical nature determining a capacity offer at the auction is set forth in OCC's March 11, 2013 brief at page 6.⁸

As the OCC's brief makes clear, the determination of this term cannot be readily determined from the wording of the contract, and requires special agency expertise regarding electric capacity, capacity markets, reverse auctions, and capacity clearing price floors, amongst others, in the context of highly technical ISO–NE tariff language.   The court cannot replicate the complex, technical understanding that PURA has of these terms, especially as the resolution of these issues falls within its area of expertise.

In addition, the resolution of this issue falls within the umbrella of a statutory or regulatory interpretation.   In P.A. 05–01, the legislature expressly and specifically directed PURA to create the master agreement, dictate its terms, solicit bidders, and supervise its enforcement.⁹  Where such a clear delegation of power has occurred, “the modern tendency is liberal in approving delegation under broad regulatory standards so as to facilitate the operational functions of administrative boards or commissions.”  Salmon Brook Convalescent Home v. Comm. on Hosp. & Health Care, 177 Conn. 356, 368, 417 A.2d 358 (1979);  see also Aunt Hack Ridge Estate, Inc. v. Planning Commissioner, 160 Conn. 109, 115, 273 A.2d 880 (1970);  Jackson, Inc. v. Planning & Zoning Commission, 118 Conn.App. 202, 982 A.2d 1099, cert. denied, 294 Conn. 931, 986 A.2d 1056 (2010).¹⁰

Here, PURA simply issued a reasonable interpretation of its own contract.   PURA is not usurping FERC by interpreting terms contained in the ISO–NE tariff, instead, PURA is merely interpreting a term contained in a contract that it drafted and approved that is based on references to the “FCA Market Price” under the ISO–New England Tariff.   This document is PURA's contract and its responsibility, and not FERC or ISO–New England's.   The interpretation of terms within the master agreement falls well within the scope of the power delegated to PURA by the legislature in P.A. 05–01.   Furthermore, as PURA argues in its May 6, 2013 supplemental brief, pp. 2–3, FERC has already accepted that the capacity clearing price in the 2008 forward capacity auction was $4.50/kW-month via its incorporation of that amount into the Cost of New Entry (CONE) for the second ISO–NE Forward Capacity Auction (FCA);  see 123 FERC P 61290.   Thus, the court declines to re-examine PURA's determination in this case.

Deferring to PURA's interpretation of “capacity clearing price” under § 6.3 of the master agreement, and finding that such interpretation is reasonable, the court dismisses Waterside's appeal from the declaratory ruling.¹¹

Henry S. Cohn, Judge

FOOTNOTES

FN1. Waterside meets the requirements of jurisdiction and aggrievement for this appeal.  General Statutes §§ 4–176(h) and 4–183(a).   Other defendants in this appeal are Connecticut Light & Power (CL & P) and the office of consumer counsel (OCC), both of which intervened in the proceedings.   The named defendant, department of energy and environmental protection, is the general supervisory agency for PURA..  FN1. Waterside meets the requirements of jurisdiction and aggrievement for this appeal.  General Statutes §§ 4–176(h) and 4–183(a).   Other defendants in this appeal are Connecticut Light & Power (CL & P) and the office of consumer counsel (OCC), both of which intervened in the proceedings.   The named defendant, department of energy and environmental protection, is the general supervisory agency for PURA.

FN2. Certain of the decisions of PURA were rendered under its prior name, the department of public utility control, DPUC..  FN2. Certain of the decisions of PURA were rendered under its prior name, the department of public utility control, DPUC.

FN3. There were three other master agreements also signed on this date.   One of these agreements was signed by Kleen Energy Systems, that also has a declaratory judgment action pending in this court.   The Kleen matter raises additional issues to the present matter and has not reached the stage where a decision of this court need be issued.   See Kleen Energy Systems, LLC v. Dept. of Energy and Environmental Protection, Superior Court, judicial district of New Britain, Docket No. CV 11 6013370 (September 7, 2012, Cohn, J.);   PURA Docket No. 11–08–09, Remand Decision, November 15, 2012;  Kleen Energy Systems, LLC v. Connecticut Light and Power Company, Superior Court, judicial district of Middlesex, Docket No. CV 13 6008898 (May 2, 2013, Domnarski, J.).   Also pending in this court as related to this decision is Kleen Energy Systems, LLC v. Dept. of Energy and Environmental Protection, Superior Court, judicial district of New Britain, Docket No. CV 126018850..  FN3. There were three other master agreements also signed on this date.   One of these agreements was signed by Kleen Energy Systems, that also has a declaratory judgment action pending in this court.   The Kleen matter raises additional issues to the present matter and has not reached the stage where a decision of this court need be issued.   See Kleen Energy Systems, LLC v. Dept. of Energy and Environmental Protection, Superior Court, judicial district of New Britain, Docket No. CV 11 6013370 (September 7, 2012, Cohn, J.);   PURA Docket No. 11–08–09, Remand Decision, November 15, 2012;  Kleen Energy Systems, LLC v. Connecticut Light and Power Company, Superior Court, judicial district of Middlesex, Docket No. CV 13 6008898 (May 2, 2013, Domnarski, J.).   Also pending in this court as related to this decision is Kleen Energy Systems, LLC v. Dept. of Energy and Environmental Protection, Superior Court, judicial district of New Britain, Docket No. CV 126018850.

FN4. A further claim of Waterside in this appeal over PURA's jurisdiction was withdrawn as unripe as it relates to a November 15, 2012 decision of PURA, still pending in the Kleen Energy litigation, see footnote 3, and a PURA remand decision of November 15, 2012..  FN4. A further claim of Waterside in this appeal over PURA's jurisdiction was withdrawn as unripe as it relates to a November 15, 2012 decision of PURA, still pending in the Kleen Energy litigation, see footnote 3, and a PURA remand decision of November 15, 2012.

FN5. The Master Agreement, Section 6.3(b), defines the “FCA Market Price,” in relevant part, as being “equal to ․ (ii) the Capacity Clearing Price from the applicable annual FCA ․ The Capacity Clearing Price from the FCA will be based on published values from ISO–NE in the relevant month.”   “Capacity Clearing Price” is defined in Article 1 of the Master Agreement, in relevant part, as “the market clearing price in the Forward Capacity Auction.”   Since the Master Agreement is a contract for differences, Section 6.3 of the Master Agreement calculates the Monthly Payment Amount by subtracting out the FCA Market Price.   Waterside Power's complaint is that CL & P subtracted out $4.50/kW-month rather than $4.25/kW-month from the Monthly Payment Amount.   See Waterside Brief at 11..  FN5. The Master Agreement, Section 6.3(b), defines the “FCA Market Price,” in relevant part, as being “equal to ․ (ii) the Capacity Clearing Price from the applicable annual FCA ․ The Capacity Clearing Price from the FCA will be based on published values from ISO–NE in the relevant month.”   “Capacity Clearing Price” is defined in Article 1 of the Master Agreement, in relevant part, as “the market clearing price in the Forward Capacity Auction.”   Since the Master Agreement is a contract for differences, Section 6.3 of the Master Agreement calculates the Monthly Payment Amount by subtracting out the FCA Market Price.   Waterside Power's complaint is that CL & P subtracted out $4.50/kW-month rather than $4.25/kW-month from the Monthly Payment Amount.   See Waterside Brief at 11.

FN6. ISO New England Inc., FERC Electric Tariff No. 3, Section III. 13.2.7.3(b) (“Payments to individual listed resources shall be prorated based on the total number of MWs of capacity clearing in the Forward Capacity Auction ․”)..  FN6. ISO New England Inc., FERC Electric Tariff No. 3, Section III. 13.2.7.3(b) (“Payments to individual listed resources shall be prorated based on the total number of MWs of capacity clearing in the Forward Capacity Auction ․”).

FN7. See also Arlington, Texas v. Federal Communications Commission, 569 U.S. decided May 20, 2013, noting that the agency had “expansive construction of the extent of its own power.”.  FN7. See also Arlington, Texas v. Federal Communications Commission, 569 U.S. decided May 20, 2013, noting that the agency had “expansive construction of the extent of its own power.”

FN8. “To use a highly simplified hypothetical example, suppose a zone needed 100 kW of capacity, but when the auction price descended down to the floor price of $4.50/kW-month, the zone still had bidders willing to supply 120 kW at that level.   If load paid all 120 kW the full $4.50/kW-month even though only 100 kW was needed, that would lead to needless overpayments.   The total amount paid by load in this example ought to be only $450 per month (100 kW times $4.50/kW-month), but load would instead pay $540 per month (120 kW times $4.50/kW-month).   To prevent overpayments and fix the amount to be paid by load, it was decided in the FCM settlement that the amount paid to each unit that stayed in the auction at the $4.50 level would be reduced, or prorated.   In our example, each of the 120 kW capacity would get a prorated payment of $4.75/kW-month in order to keep the total payment of load at $450 per month (120 times $3.75 equals $450).   In the actual Forward Capacity Auction at issue, the excess was not as large as in the hypothetical, and proration brought payments down to $4.25/kW-month.”.  FN8. “To use a highly simplified hypothetical example, suppose a zone needed 100 kW of capacity, but when the auction price descended down to the floor price of $4.50/kW-month, the zone still had bidders willing to supply 120 kW at that level.   If load paid all 120 kW the full $4.50/kW-month even though only 100 kW was needed, that would lead to needless overpayments.   The total amount paid by load in this example ought to be only $450 per month (100 kW times $4.50/kW-month), but load would instead pay $540 per month (120 kW times $4.50/kW-month).   To prevent overpayments and fix the amount to be paid by load, it was decided in the FCM settlement that the amount paid to each unit that stayed in the auction at the $4.50 level would be reduced, or prorated.   In our example, each of the 120 kW capacity would get a prorated payment of $4.75/kW-month in order to keep the total payment of load at $450 per month (120 times $3.75 equals $450).   In the actual Forward Capacity Auction at issue, the excess was not as large as in the hypothetical, and proration brought payments down to $4.25/kW-month.”

FN9. PURA found on page 5 of its final decision that Waterside “knew or should have known” at the time of entering into the master agreement that the “capacity payment could be prorated down from the capacity clearing price” under FCM rules, if there was excess capacity.   Waterside denies this understanding, but it is supported by substantial evidence.  New England Cable Television Ass'n, Inc. v. DPUC, 247 Conn. 95, 117, 717 A.2d 1276 (1998).   Waterside participated in the drafting of PURA's RFP (Docket No. 11–08–09, November 15, 2012, p. 3)..  FN9. PURA found on page 5 of its final decision that Waterside “knew or should have known” at the time of entering into the master agreement that the “capacity payment could be prorated down from the capacity clearing price” under FCM rules, if there was excess capacity.   Waterside denies this understanding, but it is supported by substantial evidence.  New England Cable Television Ass'n, Inc. v. DPUC, 247 Conn. 95, 117, 717 A.2d 1276 (1998).   Waterside participated in the drafting of PURA's RFP (Docket No. 11–08–09, November 15, 2012, p. 3).

FN10. See the classical summary in State v. Stoddard, 126 Conn. 623, 628 13 A.2d 586 (1940) (“A Legislature, in creating a law complete in itself and designed to accomplish a particular purpose, may expressly authorize an administrative agency to fill up the details by prescribing rules and regulations for the operation and enforcement of the law.   In order to render admissible such delegation of legislative power ․ it is necessary that the statute declare a legislative policy, establish primary standards for carrying it out, or lay down an intelligible principle to which the administrative officer or body must conform ․”)..  FN10. See the classical summary in State v. Stoddard, 126 Conn. 623, 628 13 A.2d 586 (1940) (“A Legislature, in creating a law complete in itself and designed to accomplish a particular purpose, may expressly authorize an administrative agency to fill up the details by prescribing rules and regulations for the operation and enforcement of the law.   In order to render admissible such delegation of legislative power ․ it is necessary that the statute declare a legislative policy, establish primary standards for carrying it out, or lay down an intelligible principle to which the administrative officer or body must conform ․”).

FN11. Even if the court were to employ plenary review, the court agrees with the conclusion of PURA as set forth in its final decision of October 4, 2011, p. 6:  “․ Waterside's pro-rated capacity payment made pursuant to ISO–NE market rules is not equal to the Capacity Clearing Price.   The Capacity Clearing Price was $4.50/kW-month. Because there was excess capacity, ISO–NE then applied a market rule to pro-rate the actual capacity payment down to a Payment Rate of $4.25/kW-month. The Capacity Clearing Price is not changed or pro-rated by ISO–NE, the capacity payment is pro-rated.”   The final decision also states that the master contract does not contain any language referring to a subsequent adjustment as changing the Capacity Clearing Price.   Thus, PURA has determined that the FERC tariff makes a distinction between the floor price and the adjusted price.   The floor price is the FCA price and also the Capacity Clearing Price.   To hold otherwise, the court would have to accept Waterside's interpretation that the $4.50 price is not the “true” Capacity Clearing Price, without any language to that effect in either master agreement or the FERC tariff.   The court agrees with PURA's reasonable and rational interpretation.   See Southern New England Telephone Co. v. Dept. of Public Utility Control, 274 Conn. 119, 132, 874 A.2d 776 (2005) (court approves DPUC interpretation as meeting legislative intent)..  FN11. Even if the court were to employ plenary review, the court agrees with the conclusion of PURA as set forth in its final decision of October 4, 2011, p. 6:  “․ Waterside's pro-rated capacity payment made pursuant to ISO–NE market rules is not equal to the Capacity Clearing Price.   The Capacity Clearing Price was $4.50/kW-month. Because there was excess capacity, ISO–NE then applied a market rule to pro-rate the actual capacity payment down to a Payment Rate of $4.25/kW-month. The Capacity Clearing Price is not changed or pro-rated by ISO–NE, the capacity payment is pro-rated.”   The final decision also states that the master contract does not contain any language referring to a subsequent adjustment as changing the Capacity Clearing Price.   Thus, PURA has determined that the FERC tariff makes a distinction between the floor price and the adjusted price.   The floor price is the FCA price and also the Capacity Clearing Price.   To hold otherwise, the court would have to accept Waterside's interpretation that the $4.50 price is not the “true” Capacity Clearing Price, without any language to that effect in either master agreement or the FERC tariff.   The court agrees with PURA's reasonable and rational interpretation.   See Southern New England Telephone Co. v. Dept. of Public Utility Control, 274 Conn. 119, 132, 874 A.2d 776 (2005) (court approves DPUC interpretation as meeting legislative intent).

Cohn, Henry S., J.