In re Department of Public Service

IN_RE_DEPT_OF_PUBLIC_SERVICE.90-043; 161 Vt. 97; 632 A.2d 1373		

[Filed 22-Oct-1993]

 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 90-043


 Petition of Department of Public             Supreme Court
 Service Respecting Application of
 General Order 65 and Rule 4.100 to
 Small Power Projects of 100 KW or            On Appeal from
 Less                                         Public Service Board

                                              June Term, 1993



 Richard H. Cowart, Chair

 S.R. Thanhauser, pro se, Newbury, appellant

 Kenneth C. Picton, Rutland, for appellee Central Vermont Public Service
  Corp.

 Geoffrey Commons, Special Counsel, for appellee Department of Public Service




 PRESENT:  Allen, C.J., Gibson, Dooley and Morse, JJ.



      MORSE, J.   White Oak Water Power, a small power producer, appeals from
 an order of the Public Service Board rejecting White Oak's claim that the
 Board failed to give sufficient notice of a rule providing for annual 10%
 decreases in the minimum rate that utilities pay small power producers.  We
 affirm.
      In 1981, the Board adopted General Order No. 65, which, based on an
 estimate of avoided costs of alternative energy, set the flat rate to be
 paid to small power producers during the following year at $.078 per kilo-

 

 watt hour.  The Order provided that the rate was subject to revision after
 one year, but that "[s]ubsequent rates shall not be adjusted downward by
 more than 10% of the rate established herein in the absence of a strong
 factual showing that such a reduction is justified."  In December 1982,
 shortly before White Oak submitted its applications for a small hydro-
 electric power project license and a certificate of public good, the Board
 published notice of proposed Rule 4.100.  The notice stated, in part, that
 the proposed rule "specifies the methodologies to calculate the rates for
 purchase of electricity from small power producers," "sets guidelines for .
 . . the rate for sale of electricity to small power producers," and "amends
 and replaces existing General Order No. 65."
      On January 4 and 5, 1983, the Board held public hearings, in which
 White Oak participated, on the proposed rule.  The draft of the proposed
 rule presented at the hearings provided that all existing projects would be
 entitled to a minimum rate of $.078 per kilowatt hour; however, the rule
 the Board forwarded to the legislative committee on administrative rules on
 March 11, 1983 guaranteed that rate only until June 1, 1984, with 10%
 reductions in the minimum rate that year and each subsequent year.  In a
 March 16 letter sent to all interested parties, the Board explained that the
 annual decreases in the minimum rate were added "to encourage existing small
 power producers to commit to long-term contracts," which "would provide
 greater benefits to the utilities and to their customers through cost and
 power supply planning stability."  As adopted in 1984, Rule 4.100 included
 the provision calling for annual decreases in the minimum rate.  See Rule
 4.104(G).

         

      In May 1988, in response to a petition by the Department of Public
 Service, the Board ordered that the 10% rate reduction scheduled for June 1
 of that year be deferred for one year.  Two weeks later, however, the Board
 granted Central Vermont Public Service Corporation's (CVPSC) motion for
 reconsideration of that order.  In July 1988, White Oak filed a
 "counterclaim" challenging the Board's adoption of Rule 4.100 and seeking
 to recover the difference between the $.078 rate and the lesser rates it was
 paid by CVPSC.  A hearing was held on the counterclaim in February 1989.
 In May 1989, the Department filed a motion to defer further rate reductions.
 The Board denied the motion, thus returning to the original provision
 requiring a 10% decrease in rates, effective June 1, 1989.  White Oak filed
 a motion to amend the Board's order.  In December 1989, the Board dismissed
 White Oak's counterclaim and denied its motion to amend, ruling that the
 notice of the final proposed rule was sufficient.
      As noted by the Board, the gravamen of White Oak's counterclaim and its
 motion to amend -- and the principle claim raised on appeal -- is that the
 notice for Rule 4.100 was insufficient with respect to provision 4.104(G)
 because the proposed rule did not include the annual 10% decrease in the
 minimum rate for small projects that was included in the final proposed
 rule sent to the legislative committee.
      We conclude that the Board's notice concerning provision 4.104(G) was
 sufficient.  In compliance with the APA, the Board published notice of the
 proposed rule on two separate occasions, December 16 and December 23, 1982.
 See 3 V.S.A. { 839(a).  As shown above, the December 16 notice included "a
 concise summary of the effect of the rule," see id. { 839(b)(3), which
 apprised interested parties that the rule would specify methodologies for

 

 calculating rates for small power producers and would replace General Order
 65.  White Oak received both notices and, indeed, participated in the
 January 4 and 5, 1983 hearings on the rule.
      The fact that the proposed rule was amended after public hearing does
 not affect its validity unless it was amended in a manner that caused "the
 published summary of the rule to become misleading or inadequate."  3 V.S.A.
 { 846(b)(2).  We agree with the Board's conclusion that the change in the
 rule did not render the notice inadequate.  The notice of the proposed rule
 indicated that General Order 65 would be replaced by the new rule, which
 would specify the methodologies for setting rates.  That is precisely what
 the final rule did.  Neither White Oak nor any other interested party was
 "guaranteed" the methodology suggested in the proposed rule; indeed, if that
 were the case, the public hearings would have been superfluous.  See
 Rybachek v. Environmental Protection Agency, 904 F.2d 1276, 1288 (9th Cir.
 1990) ("Informed changes and distinctions are the very raison d'etre of the
 notice-and-comment period."); see also Vermont Ass'n of Realtors v. State,
 156 Vt. 525, 534, 593 A.2d 462, ___ (1991) (APA not violated where notice of
 proposed rule contained sufficient information to alert interested parties
 as to general topic of rules).
      Federal case law concerning the sufficiency of notice of rules amended
 after comment supports our conclusion that the notice here was adequate.
 The federal courts have generally cited one of two tests in determining
 whether an agency's final rule is so different from the proposed rule that a
 new notice and comment period is required: a new comment period is not
 required (1) if the final rule is in character with the original scheme and
 was a logical outgrowth of the notice and comments stemming from the

 

 proposed rule, or (2) the notice fairly apprised interested persons of the
 subject and the issues that would be considered so that those persons had an
 opportunity to comment.  Annotation, What Constitutes Adequate Notice of
 Federal Agency Rule as against Objection That Rule Adopted Differed in
 Substance from That Published as Proposed in Notice, 96 A.L.R. Fed. 411, 417
 (1990); see Brazos Elec. Power Co-op. v. SWPA, 819 F.2d 537, 543 (5th Cir.
 1987) (stating two tests employed by federal circuits).
      Thus, "the submission of a proposed rule for comment does not of
 necessity bind an agency to undertake a new round of notice and comment
 before it adopts a rule which is different -- even substantially different -
 - from the proposed rule."  McCulloch Gas Processing Corp. v. Department of
 Energy, 650 F.2d 1216, 1222 (Temp. Emer. Ct. App. 1981); see Rybachek, 904 F.2d  at 1287 ("the fact that a final rule varies from a proposal, even
 substantially, does not automatically void the regulations").  The notice
 must be sufficient to apprise interested parties of the issues involved so
 as to allow those parties an opportunity to participate in the rulemaking,
 but it need not specify every precise proposal that may ultimately be
 adopted.  Pennzoil Co. v. Federal Energy Regulatory Comm'n, 645 F.2d 360,
 371 (5th Cir. 1981); Action for Children's Television v. Federal
 Communications Comm'n, 564 F.2d 458, 470 (D.C. Cir. 1977).
      Although here the final proposed rule did differ significantly from the
 initial proposed rule, the final rule was similar to what had been the state
 of the law before the new rule was proposed.  Cf. American Fed'n of Labor v.
 Donovan, 757 F.2d 330, 339 (D.C. Cir. 1985) (final rule was not "logical
 outgrowth" of proposed rule where notice of proposed rule gave no indication
 that current regulations altered by final rule would be changed in any

 

 respect); Chocolate Mfrs. Ass'n of United States v. Block, 755 F.2d 1098,
 1106-07 (4th Cir. 1985) (in light of fact that flavored milk had always been
 permitted by prior regulations, and there was no suggestion of change in
 this policy by proposed rule, notice of final rule that amended proposed
 rule by deleting flavored milk from agency program was inadequate).  Given
 the fact that the proposed rule suggested a change in the current policy,
 which permitted annual decreases up to 10%,(FN1) White Oak was on notice that
 the Board would be considering whether to permit annual decreases in the
 rates for small power producers.  The Board's initial inclination to allow
 small power producers to lock into a certain rate does not suggest that,
 after public comment, it could not make an informed decision to reverse its
 earlier stance and permit annual decreases in that rate.  White Oak has
 failed to show that it had no opportunity to comment on the proposed
 changes.
      White Oak also argues that the Board should have followed "contested
 case" procedures rather than rulemaking procedures in adopting Rule 4.100
 because the rule involved ratemaking.  See 3 V.S.A. { 801(b)(2) (contested
 case is proceeding, "including but not restricted to rate-making and
 licensing," in which legal rights and duties may be determined only after
 hearing); In re Vermont Welfare Rights Organization, 132 Vt. 622, 626, 326 A.2d 828, 831 (1974) (PSB's general order prescribing when utilities may
 disconnect service for nonpayment of bills affected rates and therefore
 constituted improper rulemaking done outside contested case proceeding).  We
 conclude that the Board properly employed rulemaking in adopting Rule
 4.104(G).
       Beyond the specific procedural rules authorized by the APA, an
 agency's rulemaking authority must be found in the Legislature's grant of
 authority.  Welfare Rights, 132 Vt. at 627, 326 A.2d  at 831.  As the
 Department of Public Service points out, this case involves the Board's
 setting of rates that small power producers may charge utilities rather than
 retail rates that utilities may charge consumers.  The Public Utility
 Regulatory Policies Act of 1978 (PURPA), 16 U.S.C. { 824a-3, and
 implementing state law, e.g., 30 V.S.A. { 209(a)(8), govern the former.
 PURPA requires the Federal Energy Regulatory Commission (FERC) to adopt
 rules regulating utilities' purchase of power from small power producers,
 and gives each state regulatory body authority to implement such rules.  See
 In re Vermont Power Exchange, ___ Vt. ___, ___, 617 A.2d 418, 421 (1992).
      FERC rules specifically allow the state regulatory body authority to
 implement PURPA by "'issuance of regulations.'" Id. (quoting 18 C.F.R. {
 292.401(a).(FN2) "Under Vermont's implementation of PURPA, the Legislature's
 grant of power to the PSB is very broad."  Id. at ___, 617 A.2d  at 422.  The
 Board has jurisdiction "in all matters" involving the sale of electricity
 generated by qualifying facilities.  30 V.S.A. { 209(a)(8).  Considering the

 

 overall PURPA implementation system, { 209(a)(8) provides the Board with the
 authority to make rules specifying the methodology for calculating rates for
 electricity produced by small qualifying facilities.  Cf. In re Vermont
 Power Exchange, ___ Vt. at ___, 617 A.2d  at 422 (Board has authority to
 require utilities to pay part of cost of activities of state's purchasing
 agent).
      Affirmed.

                                    FOR THE COURT:



                                    ___________________________________
                                    Associate Justice



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                                 Footnotes


FN1.   The Board and CVPSC state that General Order 65 permitted annual
 decreases of 10% or less in the rate paid to small power producers without a
 "strong factual showing" of need for the adjustment.  Although White Oak
 does not specifically dispute this point, we acknowledge that the Order
 could be construed to mean that when rates are set at 90% or less than the
 rates established by that Order for the ensuing year -- even as the result
 of cumulative decreases over more than one year -- the adjustment must be
 supported by a "strong factual showing."  Even if we were to adopt the
 latter construction of General Order 65, we would still conclude that the
 Order and the final proposed rule were similar, and that the notice of the
 rule was sufficient.


FN2.    By executive order of May 22, 1992, 18 C.F.R. { 292.401 was removed
 as part of a general "housecleaning" of obsolete and redundant regulations.
 57 Fed. Reg. 21,734.  The removal of the section was "merely procedural" in
 nature and did not alter substantive policy of the Federal Energy Regualtory
 Commission.  See id. at 21,733.