20111214Answer to Motion for Summary Judgment.pdf

DONOVAN E. WALKER (ISB No. 5921)
JASON B. WILLIAMS
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
dwalkeraRidahopower.com
jwilliamsaRidahopower.com
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Attorneys for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
GRAND VIEW PV SOLAR TWO, LLC,
Complainant,
)
) CASE NO. IPC-E-11-15
)
) IDAHO POWER COMPANY'S
) ANSWER TO MOTION FOR
) SUMMARY JUDGMENT
)
)
)
)
vs.
IDAHO POWER COMPANY,
Respondent.
Pursuant to the Idaho Public Utilities Commission's ("Commission") RP 57 and
RP 256, Idaho Power Company ("Idaho Powet' or "Company"), by and through its
attorneys of record, hereby submits its Answer to the Motion for Summary Judgment
filed by Grand View PV Solar Two, LLC ("Grand View") on November 29, 2011.
I. INTRODUCTION
On August 2, 2011, Grand View filed a Complaint against Idaho Power
requesting that the Commission issue a declaratory judgment that it is entitled to a 20-
year, long-term, fixed rate Public Utilty Regulatory Policies Act of 1,978 ("PURPA")
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 1
power purchase agreement ("PPA") in which Idaho Power would explicitly disclaim any
ownership of the environmental attributes, or Renewable Energy Certificates ("RECs"),
associated with the purchase of that energy. Complaint at p. 2. Grand View demands
that the Commission require Idaho Power to insert language into its PURPA power
purchase agreement, "to the effect that Idaho Power makes no claim to REC
ownership." Complaint at p. 6. Grand View also demands a declaration that Idaho
Power is in violation of PURPA, FERCs implementing regulation, and the Commission's
orders for failng to do so. ¡d.
On September 6, 2011, Idaho Power filed its Answer to Grand View's Complaint.
In its Answer, Idaho Power stated that neither PURPA, nor this state's implementation
thereof, requires it to disclaim any possible legal claim that it may have to the
environmental attributes associated with its purchase of power from a PURPA
Qualifying Facility ("QF") for the next 20 years. Answer at p. 2. In fact, such a
disclaimer has potentially costly consequences for Idaho Power's customers should the
Legislature or other legal body determine some time during the proposed 20-year term
of the contract that the environmental attributes from the purchase of QF power in Idaho
are in fact owned by the purchasing utilty and its customers. ¡d.
On November 29, 2011, Grand View filed a Motion for Summary Judgment
where it asks for a declaratory order from the Commission requiring Idaho Power to
disclaim ownership of all environmental attributes in the PURPA power sales agreement
with Grand View. Motion for Summary Judgment at p. 36. Additionally, Grand View
asks the Commission to declare that it is entitled to a contract with rates that were in
effect on the date of the filng of the Complaint. ¡d. Grand View alleges that inclusion in
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 2
the PPA of a provision that, in effect, states that ownership of environmental attributes,
or RECs, wil be determined in accordance with applicable law would violate Section
210(e) of PURPA, violate the Takings Clause of the U.S. and Idaho Constitutions, and
violate the Dormant Commerce Clause of the U.S. Constitution.
II. SUMMARY JUDGMENT
The Commission employs the same standard on summary judgment as that
contained in the Idaho Rules of Civil Procedure: "The standard for a summary judgment
is contained in Idaho Rule of Civil Procedure 56(c), which provides that summary
judgment should be granted if 'the pleadings, depositions, and admissions on file,
together with affidavits, if any, show that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.' Upon review
of a motion for summary judgment, '(alII disputed facts are to be construed liberally in
favor of the non-moving party, and all reasonable inferences that can be drawn from the
record are to be drawn in favor of the non-moving party.' Frazier v. J.R. Simplot
Company, _Idaho _,29 P.3d 936,938 (2001)." Order No. 28888 at p. 12.
II. ARGUMENT
Grand View's Motion for Summary Judgment should be denied in its entirety.
Grand View is not entitled to the disclaimer that they request as a matter of law. In fact,
such a disclaimer is not in the best interest of Idaho Powets customers, and forcing
Idaho Power to affirmatively disclaim all environmental attributes for the next 20 years,
and fillng its system with intermittent, renewable generation sources that it cannot claim
are renewable, could have large and costly consequences for customers should the
Company come under future federal and/or state renewable portolio standards that
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 3
require such environmental attributes for compliance. The ownership of RECs is
currently unsettled in Idaho and Grand View has failed to show how it is any more
entitled, as a matter of law, than Idaho Power and its customers to currently make a
claim of ownership over the environmental attributes from a proposed PURPA qualifying
facility ("QF") project. The language proposed by Idaho Power does not violate Section
210(e) of PURPA, the Takings Clause does not apply, and the Dormant Commerce
Clause does not support Grand View's claims. Grand View is not entitled to judgment
as a matter of law and the Motion for Summary Judgment should be denied.
A. Ownership of RECs is Currently Unsettled in Idaho.
As an initial matter, Grand View grossly mischaracterizes both its relief requested
in its Complaint as well as the issues and nature of this case. Grand View has two main
objections in this case: (1) Grand View objects to following language from the PPA,
Under this Agreement, ownership of Green Tags and
Renewable Energy Certificates (RECs), or the equivalent
environmental attributes, directly associated with the
production of energy from the Seller's Facility sold to Idaho
Power wil be governed by any and all applicable Federal or
State laws and/or any regulatory body or agency deemed to
have authority to regulate these Environmental Attributes or
to implement Federal and/or State laws regarding the same.
Motion for Summary Judgment at p. 5-6; and (2) Grand View demands that the
Commission issue a declaratory judgment that Grand View "is entitled to a PPA with a
clause in which Idaho Power explicitly disclaims ownership of the environmental
attributes." Complaint at p. 2.
As stated in Idaho Powets Answer,
Contrary to Grand View's allegations, Idaho Power has not
proposed language for the PURPA contract that purports to
allocate ownership to either the QF or the utilty and its
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 4
customers. Instead, Idaho Power has proposed language
that states the ownership of environmental attributes wil be
determined by the applicable federal or state laws and/or the
appropriate regulatory body or agency deemed to have
authority to regulate environmental attributes or to implement
federal and/or state laws regarding the same.
Answer at p. 2. Clearly the provision cited above from the PPA does not itself assign
ownership to either Grand View or Idaho Power, but merely states that ownership wil
be determined by the applicable law. In stark contrast to this PPA language, Grand
View's proposed disclaimer by Idaho Power of any ownership claim in the RECs does
necessarily require a determination that the QF is the owner of such RECs. Indeed,
Grand View expressly states the same, albeit without any corresponding authority, in its
Motion. Motion for Summary Judgment at p. 22 (stating that "Grandview clearly owns
the RECs ... ").
The PPAlanguage does not violate PURPA nor Idaho law because it does not
purport to determine ownership of RECs. It is merely a change in law provision stating
that if applicable law determines REC ownership, then that applicable law governs.
Grand View's requested relief, however, does purport to determine ownership in its
demand that Idaho Power affirmatively disclaim any ownership claim in the RECs for
the next 20 years. This is inconsistent with both PURPA and with Idaho law.
The ownership of RECs is governed exclusively by State law. FERC precedent
is clear: "RECs are created by the States. They exist outside the confines of PURPA.
PURPA thus does not address the ownership of RECs . . . States, in creating RECs,
have the power to determine who owns the RECs in the initial instance, and how they
may be sold or traded; it is not an issue controlled by PURPA." America Ref-Fuel Co.,
1 05 FERC 11 61,004, 61,007 (2003). This proposition has been affrmed repeatedly by
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 5
FERC, most recently in California Public Utiliy Commission: "Compensation for such
environmental externalities through RECs is outside of PURPA, and is not part of the
avoided cost calculations; RECs are separate commodities from the capacity and
energy produced by QFs. If a state chooses to create these separate commodities,
they are not compensation for capacity and energy." 133 FERC 11 61,059 at n. 62. As
the United States Court of Appeals for the Second Circuit noted, "RECs are inventions
of state property law whereby the renewable energy attributes are 'unbundled from the
energy itself and sold separately." Wheelabrator Lisbon, Inc. v. Conn. Dept, of Pub.
Uti. Control, 531 F.3d 183, 186 (2d Cir. 2008).
Consequently, it is the State of Idaho that determines ownership of RECs, and
not FERC, nor PURPA. However, Idaho State law has neither created RECs nor
determined ownership. The Idaho Legislature has not yet acted upon this issue. The
Commission has looked at this issue on at least three occasions, but has not made any
determination as to ownership. See, IPUC Case Nos. IPC-E-04-02, IPC-E-04-16, and
AVU-E-09-04.
In Case No. IPC-E-04-02 Idaho Power filed a declaratory order action with the
Commission requesting an ownership determination as to the environmental attributes
associated with purchases from QFs. The Commission declined to issue an Order
determining ownership in that matter, stating that "the issue presented by Idaho Power
in it Petition does not present an actual or justiciable controversy in Idaho and is not ripe
for a declaratory judgment by this Commission." Order No. 29480 at p. 16. The IPUC
has been clear: "the State of Idaho has not created a green tag program, has not
established a trading market for green tags, nor does it require a renewable resource
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 6
portolio standard." Order No. 29480 at 16. The Commission also noted that the parties
were free to negotiate the sale and purchase of RECs, but that the same was not
recoverable as a PURPA cost. Id.
In Case No. IPC-E-04-16 Idaho Power argued that by filng the proposed PURPA
PPA with the Commission it had now presented the Commission with "a real case or
controversy, and therefore the lack of ripeness identified by the Commission in the
declaratory judgment action (Case No. IPC-E-04-02l is not present in this case." Order
No. 29577 at p. 3. However, the Commission again did not address the issue of REC
ownership noting that "The regulatory landscape has not changed" since issuing Order
No. 29480 because "the State of Idaho has stil not created a green tag program, has
not established a trading market for green tags, nor does it require a renewable
resource portolio standard." Order No. 29557 at 5-6.
In Case No. AVU-E-09-04, Avista filed a request for a declaratory order as to the
issue of REC ownership in the State of Idaho. However, again this issue was not
addressed because the Petition in that case was withdrawn without a ruling on the
merits.
Consequently, the issue of ownership of RECs in the state of Idaho with regard
to QF purchases remains an unsettled issue. Additionally, Idaho stil has no green tag
program, Idaho stil has not created a tradable market for green tags, and Idaho has not
instituted a renewable portolio standard. Thus, the issue of REC ownership remains
unsettled in Idaho, despite Grand View's unsupported claim that it "clearly owns the
RECs." Motion for Summary Judgment at p. 22.
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 7
Grand View also incorrectly tries to argue that the Idaho treatment of RECs is
analogous to that of Montana and Oregon and therefore the QF should retain ownership
of the RECs. Motion for Summary Judgment at p. 15-16. However, Comparisons to
Oregon and Montana are inapt because both those states have adopted clear and
unambiguous standards that state that the QF retains the RECs. Idaho has very clearly
not done this.
Additionally, many other states have determined that the utility and its customers
are in fact the owners of the RECs from a QF. The Superior Court of New Jersey noted
in a 2007 case tt:at the issue of initial ownership of RECs for contracts that predated
their existence had arisen in at least nine states. Re Ownership of Renewable Energy
Certificates, 913 A.2d 825, 828 (NJ Super.2007). And in each state, including New
Jersey, the result was the same - the utilty was determined the owner of the RECs. Id.
In fact it is noteworthy that courts have found that even where the environmental
attributes are not part of the avoided costs set pursuant to PURPA, and the QF is not
separately compensated for RECs, that nonetheless the RECs stil pass under the PPA
and state law to the utility as part of the electrical output purchased by the utilty. In re
The Riley Energy Corp., 2004 WL 3160409 (Conn. DPUC 2004).
Consequently Grand View's assertion that it "clearly owns the RECs" is
completely unfounded. It is however clear that the law is unsettled in Idaho regarding
ownership of RECs. It is also clear that the proposed PPA language does not purport to
establish ownership of RECs itself, as does Grand View's proposed disclaimer, but
rather it simply states that ownership wil be governed by the applicable law. The
important issue is that the State of Idaho may someday determine that the ownership of
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 8
RECs generated by a QF flows to the utility and its customers who purchase the energy
and capacity from such QF project.
B. Grand View's Disclaimer Provision Should Be Rejected Outright.
The Commission's orders have been clear that ownership of RECs has not been
determined under Idaho law and the Commission wil not require REC ownership to be
determined as a condition of entering into a PURPA contract. Order No. 29480 at 16.
As noted above, this is consistent with America Ref-Fuel, where FERC concluded
unequivocally that REC ownership is outside of PURPA and therefore a PURPA
contract cannot logically be conditioned upon a party accepting a term that is outside
the confines of the statute. However, that is precisely what Grand View proposes here.
By requiring Idaho Power to disclaim ownership of RECs in this contract, even though
Idaho law does not so require, Grand View is requesting that the Commission require
the PURPA contract to definitively determine REC ownership.
Following Order No. 29480, the Commission declined to alter its conclusions
regarding the treatment of RECs in PURPA contracts because the "regulatory
landscape ha(dl not changed. The state of Idaho has stil not created a green tag
program, has not established a trading market for green tags, nor does it require a
renewable resource portolio standard." Order No. 29577 at 5-6. Here, the regulatory
landscape has stil not changed and therefore there is no basis for the Commission to
change its long-standing policy regarding the treatment of RECs in PURPA contracts.
Importantly, the rationale for rejecting Grand View's proposed contract term does
not apply to Idaho Power's proposed term. The PPA proposed a straightforward
change of law provision that merely states REC ownership wil be determined by the
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 9
applicable law. This provision in the PPA does not determine ownership of RECs-it
leaves that determination subject to applicable state or federal law.
In sum, FERC has made clear that RECs are outside the purview of PURPA and
governed exclusively by state law. Idaho state law has not established RECs or
otherwise determined ownership of RECs in the context of a PURPA transaction.
Therefore, to require IPC to affrmatively disclaim all ownership claims to the RECs is
not warranted by Idaho law. Grand View is not entitled judgment as a matter of law.
The Motion for Summary judgment should be denied.
C. The Provision in the PPA that Ownership of RECs is Governed by
Applicable State or Federal Law is Not a Reopener and is Not Preempted by
PURPA.
Idaho Power's proposed contract language is not a reopener provision. Grand
View argues that PPAs proposed clause constitutes a reopener clause that is
preempted by Section 210(e) of PURPA. Motion for Summary Judgment at p. 16.
Idaho Powets proposed language is not a reopener clause, as that term is commonly
used in contract law. In contract law, a reopener provision provides an opportunity (or
requirement) for the parties to the contract to "reopen" the contract after its has been
finalized to renegotiate a particular term. See, State, Dept. of Cent. Management
Services v. State, Labor Relations Bd., 869 N.E.2d 274, 277 (III. App. 2007). Idaho
Power's proposed term states:
Under this Agreement, ownership of Green Tags and
Renewable Energy Certificates (RECs), or the equivalent
environmental attributes, directly associated with the
production of energy from the Seller's Facility sold to Idaho
Power wil be governed by any and all applicable Federal or
State laws and/or any regulatory body or agency deemed to
have authority to regulate these Environmental Attributes or
to implement Federal and/or State laws regarding the same.
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT -10
This provision cannot reasonably be read to require a "reopening" and
renegotiation of the contract terms. The proposed PPA language does not address
REC ownership at alL. Therefore, parties cannot "renegotiate" something that was not
negotiated in the first instance. Additionally, Idaho Power's proposed contract term
does not even require negotiation-all it says is that ownership wil be determined by
the applicable law. There is nothing to negotiate. Therefore, characterizing this term as
a "reopenet' is simply incorrect.
Section 210(e) of PURPA does not prohibit the PPAs proposed language. Grand
View argues that Idaho Powets proposed contract language wil subject Grand View to
ongoing utility-like regulation in violation of Section 210(e) of PURPA. As support for
this argument, Grand View relies on cases focusing on state commission decisions that
required renegotiation of the rates in a PURPA contract. Grand View concludes its
argument by stating, unequivocally, that the present case "is not different in any material
regard from the similar provision rejected by every state and federal authority to address
the issue." Motion for Summary Judgment at p. 19. Grand View's characterization of
the law and its argument is wrong for two reasons. First, numerous courts addressing
the actual issue presented here-REC ownership-have concluded that Section 21 O( e)
of PURPA does not preempt the type of provision proposed by Idaho Power. And
second, the cases Grand View relies on are entirely distinguishable because they
involve the reopening of a PURPA contract to change the avoided cost rate and not to
address the ownership RECs, which is exclusively a state matter outside of PURPA,
including Section 210(e).
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 11
First of all, numerous courts have concluded that Section 210(e) does not apply
to RECs. In Wheelabrator Lisbon, Inc. v. Connecticut Department of Public Utiliy
Control, the United States Court of Appeals for the Second Circuit addressed the
specific question presented here-whether Section 210(e) of PURPA preempt a state
commission decision requiring a QF to transfer ownership of RECs to the
interconnected utilty. 531 F.3d 183 (2d Cir. 2008). In that case the Connecticut
regulatory commission concluded that the utilties were the owners of RECs resulting
from PURPA contracts entered into prior to the state's creation and regulation of RECs.
The Second Circuit concluded that the state commission's decision, which determined
REC ownership, was not preempted by Section 210(e) of PURPA. Id. at 188. While the
court's analysis focused on the fact that the PPA was silent as to RECs and therefore
did not require "modification" to determine REC ownership, the court also made clear
that RECs are not subject to PURPA and therefore PURPA does not preempt their
regulation. Indeed, the Second Circuit noted that there was no evidence that "Congress
intended to occupy the field or otherwise preempt state regulation of the ownership of
RECs entirely." Id. at 189 n. 10. The Second Circuit also rejected an argument that
FERC's decision in American Ref-Fuel preempted the state commission's decision
because that order "explicitly acknowledges that state law governs the conveyance of
RECs." Id. at 190. Here, Idaho Power's proposed contract term does not modify the
contract or otherwise require renegotiation of its terms. It simply states that the
ownership of RECs shall be determined by applicable law, if that law determines the
issue during the life of the contract.
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 12
The Second Circuit's decision in Wheelabrator affirmed the district court's ruling
that Section 210(e) does not preempt a state commission ruling determining that RECs
are transferred from the QF to the interconnecting utilty. Wheelabrator Lisbon, Inc. v.
Conn. Dept. of Pub. Uti. Control, 526 F.Supp.2d 295 (D. Conn. 2006). Quoting FERC's
America Ref-Fuel order, the district court in that case correctly concluded: "While a
state may decide that a sale of power at wholesale automatically transfers ownership of
the state-created RECs, that requirement must find its authority in state law, not
PURPA." Id. at 306. Therefore, "neither PURPA, the regulations, nor America Ref-Fuel
preempt the (state commission'sl decisions that (RECsl associated with renewable
energy transferred pursuant to the (PPAsl must also be transferred." Id. The district
court also distinguished this case from Freehold Cogeneration Associates v. Board of
Regulatory Commissioners of New Jersey, 44 F.3d 1178 (3d Cir. 1995) (relied upon by
Grand View) because the state commission did not order renegotiation of the contract
purchase price nor did it lower rates. Id.
In another case the Commonwealth Court of Pennsylvania likewise ruled that
PURPA does not preempt state regulation of RECs. ARRIPA v. Penn. Publ. Util.
Comm'n, 966 A.2d 1204 (2009). The court in that case concluded that "Freehold is
completely distinguishable; the ownership of (RECsl was not at issue in Freehold." Id.
at 1210. The court concluded that "PURPA did not preempt the Commission's authority
to determine the ownership of (RECs). Id.
Although these cases all addressed ownership of RECs in contracts entered into
before RECs were created by state law, Idaho Power does not rely on them for the
proposition that Idaho Power is entitled to the RECs as a matter of law. Indeed, Idaho
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 13
Powets proposed contract terms, unlike that proposed by Grand View, does not
determine REC ownership. Rather, the Company relies on these cases for the simple
proposition that Section 210(e) of PURPA does not preempt the proposed PPA
language because (1) it does not re-open the contract or require future negotiations and
(2) state law, not PURPA, governs RECs.
Secondly, the cases relied upon by Grand View are clearly and significantly
distinguishable because they address rate changes and involve renegotiation or
modification of a PURPA contract. In support of its argument that Section 210(e)
prohibits the inclusion of Idaho Powets proposed contract language, Grand View relies
on several cases where courts have invalidated commission action because the action
constituted utilty-like regulation in violation of PURPA. These cases are distinguishable
from the current case for two reasons. First, the cases involve commission orders
addressing changes in the avoided cost rate during the life of a contract, not REC
ownership. Second, the cases deal expressly with state commission orders requiring
renegotiation and modification of PURPA contracts. Idaho Powets proposed contract
language does not involve changes to the avoided cost rate in the contract, does not
require renegotiation of the contract, nor does it modify the contract in any way.
By its clear terms Section 210(e) of PURPA exempts QFs from "State laws and
regulations respecting the rates, or respecting the financial or organizational regulation,
of electric utilities." 16 U.S.C. § 824a-3(3). And the cases relied upon by Grand View
address exclusively renegotiation of purchase/price terms. In Freehold, the lead case
relied on by Grand View, the issue was whether a state commission decision requiring
the QF and the utility to renegotiate the rate terms of the PPA or, in the alternative, to
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 14
negotiate an appropriate buyout of the PPA violated PURPA. Freehold, 44 F.3d at
1190. The United States Court of Appeals for the Third Circuit held that the state
commission's action was preempted by PURPA because requiring renegotiation of the
purchase price constituted utilty-like regulation prohibited by Section 210(e).
In Afton Energy, Inc. v. Idaho Power Company, the Idaho Supreme Court
concluded that a PURPA contract that included a provision stating that the "rates, terms
and conditions set forth in this agreement are subject to the continuing jurisdiction of the
(IPUC)" violated Section 210(e) of PURPA because it subjected the QF to utilty-type
regulation, again focusing on the Commission's continuing jurisdiction over the rates in
the contract. 107 Idaho 781, 787-788. The remaining cases relied on by Grand View
also all include contract terms allowing the state commission to modify the avoided cost
rate over the life of the contract. See Motion for Summary Judgment at p. 18-19 (relying
on Smith Cogeneration Mgt. v. Corp. Comm'n, 863 P.2d 1227 (Okla. 1993) and Oregon
Trail E1ec. Consumers Co-op, Inc. v. Go-Gen Co., 7 P.3d 594 (Or. App. 2000)).
Here, Idaho Powets proposed contract term has no impact on the avoided cost
rate, does not require renegotiation of the contract, nor does it modify the contract in
any way. Therefore, the present case is easily distinguishable from those relied upon
by Grand View. Additionally, as referenced above, in cases where courts have actually
examined the issue in this case-REC ownership-the courts have consistently
concluded that Section 210(e) of PURPA does not apply because RECs fall outside of
PURPA and are subject to exclusively state regulation. The PPA provision that
provides that ownership of RECs is governed by the applicable law is not a contract
reopener, is not preempted by PURPA, and does not subject the QF to utilty type
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 15
regulation. Grand View is not entitled judgment as a matter of law. The Motion for
Summary judgment should be denied.
D. The Takings Clause Does Not Apply.
Grand View argues that approval of Idaho Powets proposed contract term
amounts to an impermissible taking under both the Idaho and federal constitutions.
Motion for Summary Judgment at p. 20. This argument has been soundly rejected by
several courts. Indeed, the United States District Court for the District of Connecticut
directly rejected a QF's argument that a state commission's ruling determining
ownership of RECs constituted a taking under the federal constitution. Wheelabrator,
526 F.Supp.2d at 307. In that case, the QFs argued that a state commission decision
holding that RECs were the property of the interconnected utility constituted a taking
because it deprived them of valuable property. The court dismissed this argument
reasoning that RECs are a creation of state law and state law determined that the utility
was the owner.
In a case arising out of the same dispute, the Supreme Court of Connecticut
likewise rejected the QF's argument that the state commission's decision constituted a
taking under Connecticut law. Wheelabrator Lisbon, Inc. v. Dept. of Pub. Util. Control,
931 A.2d 159, 176-77 (Conn. 2007). The court concluded that there was no taking
because the RECs were not the propert of the QF, because it was within the
jurisdiction of the state commission to determine QF ownership, and because the
commission concluded that the utilty was the owner. Id.
Here, FERC has been clear that RECs are the creation of state law and their
ownership is subject to, and determined by state law. Idaho Power's proposed
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 16
language simply states that if state law determines that Idaho Power, or the QF, is the
owner of the RECs, then it is so. Because Idaho law determines the owner of the
RECs, Grand View cannot be deprived of a property interest if it turns out that state law
determines it had no property interest in the first place. Regardless, the PPA language
itself merely states that ownership of RECs is controlled by the applicable law. This
language itself performs no "taking" of property. The Takings clause of the U.S. and
Idaho Constitutions does not apply. Grand View is not entitled to judgment as a matter
of law. Summary Judgment should be denied.
Additionally, Grand View also argues that the Commission's approval of Idaho
Power's proposed contract term amounts to a regulatory taking under Lucas v. South
Carolina Coastal Council, 505 U.S. 1003 (1992). Motion for Summary Judgment at p.
23. As Grand View admits, however, in that case the United States Supreme Court
held that a taking occurs only when the government action results in the deprivation of
all economically beneficial use of the propert. Lucas, 505 U.S. at 1019. Here, in the
worst case, even Grand View itself claims that a Commission ruling in Idaho Power's
favor would merely "cloud Grand View's clear title" to the RECs. Motion for Summary
Judgment at p. 24. Indeed, Grand View is not being deprived of the revenue it wil
receive from the contract to sell energy and capacity to Idaho Power, and moreover, the
unsubstantiated claim that the PPA language makes the RECs invaluable is simply not
true, and at the least is a contested issue of material fact.
Grand View acknowledges that if it retains any economic value in the RECs then
"just compensation may be required by weighing relevant factors set forth in Penn
Central Transportation Company v. New York City, 438 U.S. 104, 124 (1978)." Motion
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 17
for Summary Judgment at p. 23. Although Grand View does not say what these factors
are, the United States Supreme Court has identified the following factors that are used
to determine if a regulatory taking requires compensation: (1) the character of the
governmental action; (2) the action's economic impact; and (3) the actions interference
with reasonable investment-backed expectations. Id. Importantly, this analysis is case-
specific and requires the development of a robust factual record upon which to
determine if a taking has occurred and the appropriate level of compensation. Id. This
points to a fatal flaw with Grand View's regulatory takings claim-on a motion for
summary judgment there is simply an insuffcient factual record upon which to
determine if the Commission's action would rise to the level of a regulatory taking.
Indeed, without the robust factual record required for such a finding, the Commission
should dismiss this argument out of hand.
However, for the sake of argument, if the Commission were to determine that the
factual records provide it with sufficient bases to undergo the regulatory takings
analysis, Grand View's argument nonetheless falls well short of demonstrating that the
inclusion of a provision in the PPA stating that the applicable law governs REC
ownership constitutes a regulatory takings.
With respect to the first factor, the Court noted that a taking is "more readily"
found when the government action results in a physical invasion "than when
interference arises from some public program adjusting the benefits and burdens of
economic life to promote the common good." Id. The Court noted that it has
recognized "in a wide variety of contexts, that government may execute laws or
programs that adversely affect recognized economic values" without requiring
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 18
compensation. Id. (quoting Pennsylvania Coal. Co. v Mahon, 260 U.S. 393, 413 (1922)
("Government hardly could go on if to some extent values incident to property could not
be diminished without paying for every such change in the general law"). Here, there is
no physical invasion. Rather, there is regulation by a government body designated to
regulate public utilities in the state of Idaho. Even assuming arguendo that a decision to
insert Idaho Power's proposed term into the contract may adversely affect Grand View's
economic interests, it is not a regulatory taking simply because of that fact.
With respect to the second factor, courts require a party arguing that a regulatory
taking has occurred to demonstrate "serious financial loss." Cineaga Gardens v. United
States, 331 F.3d 1319, 1340 (Fed. Cir. 2003). Although courts have been clear that
there is no specific numerical value, "serious financial loss" generally entails the loss of
most, if not all, of the economic value of the property. See Euclid v. Ambler Realty Co.,
272 U.S. 365 (1926) (75% diminution in value caused by zoning law not a taking), and
Hadacheck v. Sebastian, 239 U.S. 394 (1915) (87 1/2% diminution in value not a
taking). Here, the record does not contain sufficient evidence to demonstrate the extent
of Grand View's claimed economic harm if any. In any event, it is undisputed that
Grand View wil be able to engage in its primary business-the generation and sale of
energy and capacity to Idaho Power. While it may not be able to obtain the highest
possible REC price (although the factual record does not necessarily demonstrate this),
Grand View has hardly demonstrated that it wil suffer "serious financial harm" as a
result of the Commission adopting Idaho Power's proposed contract language. See
Yancey v. U.S., 915 F.2d 1534, 1540 (Fed. Cir. 1990) (a regulation that denies the best
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 19
or most profitable use of property is not necessarily a taking). This also assumes that
the proposed PPA language is doing the "taking" which it arguably is not.
The third factor-the actions interference with reasonable investment-backed
expectations-is intended to "limit recoveries to property owners who can demonstrate
that they bought their property in reliance on a state of affairs that did not include the
challenged regulatory regime." Cineaga Gardens, 331 F.3d at 1345. "This factor also
incorporates an objective test to support a claim for a regulatory taking, an investment-
backed expectation must be "reasonable.''' Id. Here, the state of the law in Idaho is
clear-PURPA contracts cannot be conditioned upon the inclusion of terms determining
REC ownership and the law is unsettled as to the owner of QF-generated RECs. This
has been the clear state of the law at least since the Commission's two cases in 2004.
In light of the unsettled nature of Idaho law with respect to REC ownership, Grand View
cannot reasonably argue that it had an expectation of absolute REC ownership
irrespective of changes in Idaho law. And, most importantly, because Grand View's
Motion does not even address these factors, Grand View did not actually make this
argument or represent that it had this expectation.
Grand View also argues that a Commission ruling in Idaho Power's favor wil
result in a taking of its property right in the "going concern value of its QF business."
Motion for Summary Judgment at p. 22. However, approval of Idaho Power's proposed
contract language does not compromise Grand View's "right to conduct a business."
Coeur d'Alene Garbage Service v. Coeur d'Alene, 114 Idaho 588, 591 (1988). Clearly,
Grand View's primary business is generating and sellng energy and capacity to Idaho
Power. The proposed clause does nothing to impact its abilty to continue to do so
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 20
going forward. If anything, it would be the state of law on the issue of REC ownership,
itself, that is impacting the parties, and not a PPA provision stating that ownership is
governed by the applicable law. Indeed, even Grand View argues that the "going
concern value is a compensable property interest separate and distinct from the RECs."
Motion for Summary Judgment at p. 23. If that is the case, then Grand View fails to
demonstrate how a term in the contract addressing REC ownership somehow
compromises its "separate and distinct" propert interest in the business of generating
and sellng power. And, to reiterate, takings claims are highly factual specific and in this
case there are currently insufficient facts for Grand View to make the types of claims
that it does.
Finally, it is necessary to point out that Grand View argues that a provision in the
PPA stating that applicable law governs REC ownership constitutes a takings while
simultaneously arguing that the inclusion of a provision requiring Idaho Power to
disclaim all rights to the RECs is legally necessary. Because Idaho law has not
determined ownership of RECs, its stands to reason that if Idaho Power is required to
disclaim RECs over which it may be determined to have an ownership interest, then a
takings wil definitely have occurred in that instance. In other words, the proposed PPA
language does nothing to constitute a taking. It simply refers the issue of ownership to
the applicable state or federal law. However, Grand View's proposed language
requiring Idaho Power to affrmatively disclaim any ownership claim it may have for the
next 20 years does itself have a serious taking clause problem. If Idaho law determines
that Idaho Power is the owner, then the disclaimer provision constitutes a takings from
Idaho Power and its customers.
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 21
Grand View has failed to set forth a sufficient factual basis appropriate for
summary judgment. Grand View has failed to establish that there are no genuine
issues as to material facts. Grand View is not entitled to judgment as a matter of law.
Summary Judgment should be denied.
E. The Dormant Commerce Clause Does Not Support Grand View's Claim.
Grand View argues that if the Commission requires the contract to include Idaho
Power's proposed language it wil constitute a burden on interstate commerce for
protectionist purposes in violation of the Dormant Commerce Clause of the federal
constitution. This argument is without merit. In support of its position, Grand View
relies on cases that deal with examples of affirmatively discriminatory state action-
none of which are applicable to this case. Motion for Summary Judgment at p. 27. In
the context of the Dormant Commerce Clause, '''discrimination' simply means
differential treatment of in-state and out-of-state economic interests that benefis the
former and burdens the latter." United Haulers Ass'n Inc., v. Oneida-Herkimer Solid
Waste Management Authority, 550 U.S. 330, 331 (2007). The Dormant Commerce
Clause prohibits affirmative discriminatory state action, such as facially discriminatory
laws or laws that have a discriminatory impact, unless the state can demonstrate the
action "serves a legitimate local purpose and that this purpose could not be served as
well by available nondiscriminatory means." Maine v. Taylor, 477 U.S. 131, 137-38
(internal citations omitted). "Shielding in-state industries from out-of-state competition is
almost never a legitimate local purpose, and state laws that amount to 'simple economic
,
protectionism' consequently have been subject to a 'virtually per se rule of invalidity.'"
Maine v. Taylor, 477 U.S. 131, 148-49 (1986) (quoting Philadelphia v. New Jersey, 437
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 22
U.S. 617, 624 (1978); Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 471
(1981 )).
Unlike the cases cited by Grand View, Idaho Power's PPA clause is not
affirmatively discriminatory. Nothing in Idaho Power's PPA clause creates differential
treatment between in-state QFs and out-of-state QFs. The mere fact that Grand View
perceives its ability to sell RECs in a particular manner as impeded by Idaho Power's
PPA clause is not enough to make the clause discriminatory on its face or in effect.
Further, Idaho Power's PPA clause does not limit the REC markets that Grand View can
transact in, nor does it prohibit Grand View from transacting in REC markets. Indeed,
Grand View acknowledges that it would stil be able to sell RECs, albeit in a form Grand
View considers less desirable-that is, not in a "long-term forward strip of up to 5
years." Motion for Summary Judgment at p. 24. The Dormant Commerce Clause is
meant to protect against state's erecting barriers to interstate commerce for purposes of
state economic protectionism; it is not designed to ensure that participants in interstate
commerce receive the best possible deaL.Additionally, Grand View's Dormant
Commerce Clause argument suffers the same infirmity that its Takings Clause
argument suffers. Their issue is not with the benign language proposed for the PPA
that simply states ownership is controlled by the applicable state or federal law. It is
with the state of the law itself, or the law governing ownership of RECs that Grand View
would have issue with. The proposed PPA language itself does not confer ownership to
either Idaho Power or the QF.
Even considering for the sake of argument that the proposed PPA language did
discriminate on its face or in effect, (which it clearly does not) the clause serves a
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 23
legitimate local purpose that could not be served by any other means. It ensures that in
the event state or federal law determines that Idaho Power is the owner of the RECs,
Idaho Power and its customers wil receive the benefit of those RECs - and wil not
have disclaimed or forgone its ownership rights for the 20 year term of the PPA. This
legitimate local purpose is not mere economic protectionism nor is there any other way
for Idaho Power to ensure that Idaho Power ratepayers receive the benefits for the
RECs they paid for, should they be determined by the applicable laws to own them.
Grand View also argues that Idaho Power's PPA clause "clouds" Grand View's
title to the RECs and that this cloud creates an "undeniable" burden on interstate
commerce. Motion at 28. Even assuming Idaho Power's PPA clause creates a "cloud"
on Grand View's title, the fact of such a burden is not the relevant question under
Dormant Commerce Clause analysis. It is tellng that Grand View fails to quote the
relevant test for determining whether non-discriminatory action which creates a burden
on interstate commerce violates the Dormant Commerce Clause.
In Maine v. Taylor, a case Grand View cites, the Supreme Court of the United
States held that state action which incidentally burdens interstate commerce is invalid
only if the burden is "clearly excessive in relation to the putative local benefit." Id.
(quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)). In fact, "(tlhe limitation
imposed by the Commerce Clause on state regulatory power is by no means absolute,
and the states retain authority under their general policy powers to regulate matters of
legitimate local concern, even though interstate commerce may be affected." Maine v.
Taylor, 477 U.S. 131, 137-38 (1986). In this case, any burden on interstate commerce
resulting from Idaho Power's PPA clause is merely incidental to the State's legitimate
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 24
purpose. Further, the burden is slight. As recognized by Grand View, it is stil able to
sell its RECS, and may even be able to sell them in 5-year strips. In short, there is no
conclusive proof that Grand View wil experience any burden as result of the proposed
PPA clause, and certainly none that did not all ready exist simply because of the state
of the law itself in the state of Idaho.
Finally, Grand View argues that the "practical effect of Idaho Power's proposed
clause clouding ownership to RECs is analogous to the ilegal in-state processing
requirements." Motion for Summary Judgment at p. 29. Grand View cites to several
cases involving in-state processing requirements or their equivalent. Id. However, a
central concern of these cases was that the state action constituted hoarding of a local
resource to the detriment of out-of-state competitors. C&A Carbone v. Clarkstown, 511,
US 383, 392 (1994) ("The flow control ordinance has the same design and effect. It
hoards solid waste, and the demand to get rid of it, for the benefi of the preferred
processing facilty."); South Central Timber Development, Inc. v. Wunnicke, 467 U.S.
82, 84 (1984) (The contract for the sale of Alaskan timber required that "(plrimary
manufacture within the State of Alaska" prior to export); New England Power Co. v. New
Hampshire, 455 U.S. 331, 339 (1982) ("The order of the New Hampshire Commission,
prohibiting New England Power from sellng its hydroelectric energy outside the State of
New Hampshire, is precisely the sort of protectionist regulation that the Commerce
Clause declares off-limits to the states."). A contract provision allowing Idaho Power to
claim ownership of RECs in the event that state or federal law determines REC
ownership flows to the purchasing utilty is not analogous. Unlike the in-state
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 25
processing cases, the proposed PPA clause does not result in hoarding of a local
resource, nor does it detrimentally impact out-of-state competitors.
Grand View has failed to set forth a sufficient factual basis appropriate for
summary judgment. Grand View has failed to establish that there are no genuine
issues as to material facts. Grand View is not entitled to judgment as a matter of law.
Summary Judgment should be denied.
IV. CONCLUSION
Grand View's Motion for Summary Judgment should be denied in its entirety.
Grand View is not entitled to the disclaimer that they request - as a matter of law. In
fact, such a disclaimer is not in the best interest of Idaho Power's customers, and
forcing Idaho Power to affirmatively disclaim all environmental attributes for the next 20
years, and filing its system with intermittent, renewable generation sources that it
cannot claim are renewable, could have large and costly consequences for customers
should the Company come under future federal and/or state renewable portolio
standards that require such environmental attributes for compliance. It could have
additional and just as costly consequences for customers should the Idaho legislature
determine that the RECs generated by QFs are owned by the purchasing utilty and its
customers in the future.
The ownership of RECs is currently unsettled in Idaho and Grand View has failed
to show how it is any more entitled, as a matter of law, than Idaho Power and its
customers to currently make a claim of ownership over the environmental attributes
from a proposed PURPA QF project. Grand View seeks to extract additional value,
above and beyond the avoided cost to which it is entitled, from Idaho Power's
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 26
customers. The language proposed by Idaho Power does not violate Section 21 O( e) of
PURPA, the Takings Clause does not apply, and the Dormant Commerce Clause does
not support Grand View's claims. Grand View is not entitled to judgment as a matter of
law and the Motion for Summary Judgment should be denied.
Respectfully submitted this 13th day of December 2011.
ONOVAN E. WALKER
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 27
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 13th day of December 2011 I served a true and
correct copy of IDAHO POWER COMPANY'S ANSWER TO MOTION FOR
SUMMARY JUDGMENT upon the following named parties by the method indicated
below, and addressed to the following:
Commission Staff
Kristine Sasser
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Grand View PV Solar Two, LLC
Peter J. Richardson
Gregory M. Adams
RICHARDSON & O'LEARY, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, Idaho 83707
Avista Corporation
Michael G. Andrea, Senior Counsel
Avista Corporation
1411 East Mission Avenue - MSC-23
P.O. Box 3727
Spokane, Washington 99220-3727
Clint Kalich, Manager
Resource Planning and Analysis
Avista Corporation
1411 East Mission Avenue - MSC-7
P.O. Box 3727
Spokane, Washington 99220-3727
IDAHO POWER COMPANY'S ANSWER
TO MOTION FOR SUMMARY JUDGMENT - 28
-- Hand Delivered
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FAX
-- Email Kris.SasseraRpuc.idaho.gov
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FAX
-- Email peteraRrichardsonandoleary.com
gregaRrichardsonandoleary.com
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-- Email michael.andreaaRavistacorn.com
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-- Email clint.kalichaRavistacorn.com
~û
Donovan E. Walker