AMER. PAPER INSTIT. V. AEP SVC. CORP., 461 U. S. 402 (1983)

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U.S. Supreme Court

Amer. Paper Instit. v. AEP Svc. Corp., 461 U.S. 402 (1983)

American Paper Institute, Inc. v.

American Electric Power Service Corp.

No. 82-34

Argued March 22, 1983

Decided May 16, 1983*

461 U.S. 402


Section 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA) was designed to encourage the development of cogeneration facilities and small power production facilities and to reduce the demand for fossil fuels. Section 210(a) directs the Federal Energy Regulatory Commission (FERC) to prescribe rules requiring electric utilities to deal with qualifying cogeneration and small power facilities. With respect to utilities' purchases of electricity from such facilities, § 210(b) provides that rates set by FERC "shall be just and reasonable to the electric consumers of the electric utility and in the public interest," shall not discriminate against qualified cogeneration and small power facilities, and shall not exceed "the incremental cost to the electric utility of alternative electric energy." Following rulemaking proceedings, FERC promulgated a rule requiring utilities to purchase electric energy from a qualifying facility at a rate equal to the utility's "full avoided cost," i.e., the cost to the utility which, but for the purchase from the qualifying facility, would be incurred by the utility in generating the electricity itself or purchasing the electricity from another source. FERC also promulgated a rule requiring utilities to make such physical interconnections with cogenerators and small power producers as are necessary to effect purchases or sales of electricity authorized by PURPA. Upon review, the Court of Appeals vacated both rules, holding that FERC had not adequately explained its adoption of the full-avoided-cost rule, and that it exceeded its statutory authority in promulgating the interconnection rule, in view of § 210(e)(3) of PURPA, which provides that "[n]o qualifying small power production facility or qualifying cogeneration facility may be exempted under this subsection from" specified provisions of the Federal Power Act (FPA) which require FERC to afford an opportunity for a hearing before ordering an interconnection.


1. FERC did not act arbitrarily or capriciously in promulgating the full-avoided-cost rule, which is the maximum rate permissible under

Page 461 U. S. 403

§ 210(b). Such rule plainly satisfies the requirement of § 210(b) that the rate not discriminate against qualifying cogeneration and small power production facilities. FERC also adequately explained why the rate is "just and reasonable to the electric consumers of the electric utility and in the public interest." Both the statutory language and the legislative history confirm that Congress did not intend to impose traditional ratemaking concepts on sales by qualifying facilities to utilities. And although FERC recognized that the rule would not directly provide any rate savings to consumers, it reasonably deemed it more important at this time that the rule would provide a significant incentive for the development of cogeneration and small power production, and that ratepayers and the Nation as a whole will benefit from the decreased reliance on scarce fossil fuels and the more efficient use of energy. Pp. 461 U. S. 412-418.

2. Nor did FERC exceed its authority in promulgating the interconnection rule. The authority granted by § 210(a) to promulgate such rules as are necessary to require utilities to deal with qualifying facilities plainly encompasses the power to promulgate rules requiring utilities to make physical connections with such facilities, and FERC reasonably interpreted § 210(e)(3) as forbidding it to exempt qualifying facilities from being the "target" of interconnection applications by other facilities under the FPA, but not as forbidding it to grant qualifying facilities the right to obtain interconnections under PURPA without applying for an order under the FPA. Such interpretation is supported by the purposes of PURPA and the statutory scheme created by both Acts. Pp. 461 U. S. 418-423.

219 U.S.App.D.C. 1, 675 F.2d 1226, reversed and remanded.

MARSHALL, J., delivered the opinion of the Court, in which all other Members joined, except POWELL, J., who took no part in the consideration or decision of the cases.

Page 461 U. S. 404

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