Morgantown Energy Associates v. Public Service Commission of West Virginia

Filing 36

MEMORANDUM OPINION AND ORDER granting the Commission and the Commissioners' 14 MOTION to Dismiss for Lack of Jurisdiction; granting the Utilities' 29 MOTION for Judgment on the Pleadings; directing that this action is dismissed and stricken from the docket. Signed by Judge John T. Copenhaver, Jr. on 9/30/2013. (cc: attys; any unrepresented parties) (tmh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON

MORGANTOWN ENERGY ASSOCIATES,
Plaintiff,
v.

Civil Action No. 2:12-cv-6327

PUBLIC SERVICE COMMISSION OF WEST VIRGINIA and
MICHAEL A. ALBERT, in his official capacity as
Chairman of the Public Service Commission, and
JON W. MCKINNEY, in his official capacity as
Commissioner of the Public Service Commission, and
RYAN B. PALMER, in his official capacity as
Commissioner of the Public Service Commission, and
MONONGAHELA POWER COMPANY and
THE POTOMAC EDISON COMPANY,
Defendants.

MEMORANDUM OPINION AND ORDER
Pending is the motion to dismiss by defendants Public
Service Commission of West Virginia, and Commissioners Michael A.
Albert, Chairman, Jon W. McKinney, and Ryan B. Palmer
(collectively, “the Commission”), filed December 7, 2012.

Also

pending is the motion for judgment on the pleadings by defendants
Monongahela Power Company (“Mon Power”) and The Potomac Edison
Company (“Potomac Edison” and together with Mon Power, “the
Utilities”), filed January 25, 2013.

The plaintiff, Morgantown Energy Associates (“MEA”), is a
general partnership with a principal place of business in

Morgantown, West Virginia.

Compl. ¶ 7.

MEA is engaged in

generating electric power from alternative energy resources which
it sells to electric utilities.

Compl. ¶¶ 19, 41.

The Public

Service Commission is an administrative agency of the State of West
Virginia, having the “authority and duty to enforce and regulate
the practices, services and rates of public utilities.”
Code § 24-1-1(a).

W. Va.

Mon Power is an electric utility in West

Virginia and Potomac Edison is its sister company.

Id. ¶ 12.

I. Background
This case arises from a dispute over ownership of
alternative and renewable energy credits (commonly called “RECs,”
or “credits”) that are a relatively recent creature of state law.
Here, the credits relate to electric energy provided by MEA to the
Utilities under a pre-existing 1989 contract that runs until 2027,
pursuant to federal law.

Congress enacted the Public Utility Regulatory Policies
Act (“PURPA”) in 1978, in the wake of the energy crisis of the
1970s, to promote greater use of domestic alternative and renewable
energy and to decrease the nation’s dependence on foreign oil.
Pub. L. No. 95-617, 92 Stat. 3117; FERC v. Mississippi, 456 U.S.
742, 746 (1982).

Under PURPA, certain facilities that produce

electricity in nontraditional ways are designated as “qualified
facilities” (“QFs”).

16 U.S.C. § 824a-3.
2

Rulemaking power to

encourage proliferation of QFs is generally held by the Federal
Energy Regulatory Commission (“FERC”), while state regulatory
commissions are charged with implementing 1 those rules.
824a-3(a, f).

16 U.S.C.

Under PURPA, utilities must purchase any electricity

made available to them by a QF at a special price called the
“avoided cost” rate.

Id.; 18 C.F.R. §§ 292.303-304.

The avoided

cost rate is a rate equal to the costs that the utility would have
incurred from generating the electricity or purchasing the
electricity from another source.
§§ 292.101(b)(6), 292.303.

16 U.S.C. § 824a-3(d); 18 C.F.R.

The contracts by which utilities

purchase electricity supplied by a facility, whether or not it is a
QF, are commonly called electric energy purchase agreements (“EEP
Agreements” or “EEPAs”) or power purchase agreements (“PPAs”).

West Virginia is among that states that, independent of
PURPA, have enacted their own laws to “encourage the development of
more efficient, lower-emitting and reasonably priced alternative
and renewable energy resources.”
2(3).

W. Va. Code §§ 24-2F-1, 24-2F-

West Virginia’s Alternative and Renewable Energy Portfolio

Act (“the W.Va. Portfolio Act” or “the Portfolio Act”) was enacted
in 2009, and tasks the Public Service Commission with rulemaking to

1

The contours of the state commission’s power to “implement” the
regulations are discussed infra, Part III.B, pp. 36-43.

3

“establish a system of tradable credits to establish, verify and
monitor the generation and sale of electricity generated from
alternative and renewable energy resources facilities.”
2F-4(a).

Id. § 24-

A “qualified facility” under PURPA is not necessarily an

“alternative and renewable energy resource” facility under the
Portfolio Act, and vice versa.

The two classification schemes

operate independently of one another and do not have the same
requirements.

The Portfolio Act awards one REC to electric utilities
for each megawatt hour of electricity purchased or generated from
specified alternative energy resource facilities.
4(b)(1-2).

Id. § 24-2F-

Utilities earn two RECs for each megawatt hour from

specified renewable energy resource facilities.
4(b)(2).

Id. § 24-2F-

The specified facilities include those located within

West Virginia, such as MEA’s Morgantown facility.

These state-

created credits can be accumulated for use in years to come.
Beginning in 2015, the Portfolio Act requires electric utilities to
own RECs in amounts equal to at least 10 percent of the energy they
sold to West Virginia retail customers in the preceding calendar
year.

Id. § 24-2F-5(d)(1).

The requirement increases to 15

percent in 2020, and settles at 25 percent in 2025.
5(c), (d)(1-2).

Id.

§ 24-2F-

If a utility cannot meet its requirement for a

given year, the Commission will assess a per-credit penalty of at

4

least the lesser of 200 percent of the average market value of a
credit or 50 dollars.

Id. § 24-2F-5(g).

In meeting the Portfolio

Act requirements, RECs may not be used more than once, but excess
RECs may be carried over for use in future years.

Id. § 24-2F-5(b,

f).

On November 5, 2010, the Commission issued General Order
No. 184.25, setting forth final rules for the Portfolio Act.

The

final rules provide that RECs may be obtained from non-utility
generators of electricity from alternative and renewable resources,
such as the plaintiff, MEA, either by purchasing the credits and
the energy bundled together or by purchasing the credits
independently, unbundled from the energy.

W. Va. Code R. § 150-34-

5.6.

This dispute concerns a circumstance that the final rules
do not directly address: who should own the credits when a nonutility QF sells electricity to utilities through an EEPA that
predates the Portfolio Act and consequently does not specify who
owns the credits?

On November 22, 2011, the Commission issued an

order (“the Commission Order”) that assigned the credits to the
purchasing utilities.

In this case, the court is asked to consider

whether the Commission violated PURPA or otherwise erred in making
that determination.
5

A. Federal Statutory Framework
As noted, PURPA created a class of electricity generating
facilities known as “qualified facilities,” or “QFs”.

QFs include

cogeneration, 2 biomass, waste, and renewable resource facilities.
See 16 U.S.C. § 824a-3.

In addition to meeting any regulatory

requirements for energy output or the manner in which energy is
generated, a facility must also be certified to be a QF. 3

If a

facility does not seek certification, even if it would meet all of
the other requirements necessary to be a qualified facility, it is
not a “qualified facility” under the regulations.

A facility may

either file a notice of self-certification with FERC or apply
directly to FERC for certification.

18 C.F.R. § 292.203.

Whether

to seek QF certification is up to the facility, as no part of PURPA
or the FERC regulations requires an otherwise qualified facility to
do so.

See generally 16 U.S.C. §§ 824-824a-3; 18 C.F.R. §§

292.101-292.602.

The plaintiff, MEA, is a qualified facility.

2

A “cogeneration” facility is one that produces both electric
energy and steam or some other form of energy useful for
“industrial, commercial, heating, or cooling purposes.” 16 U.S.C.
§ 796.
3

There is an exception: “Any facility with a net power production
capacity of 1 MW or less is exempt from the filing requirements.”
18 C.F.R. § 292.203(d).
6

To encourage the development of QFs, PURPA obligates
electric utilities to buy any electricity made available by a QF at
the avoided cost rate.

The QF may sell power on an “as available”

basis, in which case the purchasing utility will buy at the avoided
cost rate at the time of purchase.

18 C.F.R. § 292.304(d)(1).

Alternatively, the QF can enter into a contract with a utility
(known as EEPAs or PPAs), where the price may be either the avoided
cost at the time of contracting or the avoided cost at the time of
delivery.

18 C.F.R. § 292.304(d)(2).

PURPA directs the Federal Energy Regulatory Commission
(“FERC”) to prescribe “such rules as it determines necessary to
encourage cogeneration and small power production.”
§ 210(a), 16 U.S.C. § 824a-3(a).

PURPA

Section 210(f), headed

“Implementation of rules for qualifying cogeneration and qualifying
small power production facilities,” then directs “each State
regulatory authority” to “implement such [FERC] rule (or revised
rule) for each electric utility for which it has ratemaking
authority.”

Id. § 210(f), 16 U.S.C. § 824a-3(f).

PURPA § 210(e) instructs FERC to prescribe rules
exempting qualifying facilities from certain federal and state
utility regulation, including “State laws and regulations
respecting the rates, or respecting the financial or organizational
7

regulation, of electric utilities.”

16 U.S.C. § 824a-3(e); see

also Wheelabrator Lisbon, Inc. v. Conn. Dept. of Pub. Util. Ctr.,
531 F.3d 183, 185 n.7 (2d Cir. 2008).

FERC regulations accordingly

provide, that any QF is “exempted . . . from State laws or
regulations respecting: (i) The rates of electric utilities; and
(ii) The financial and organizational regulation of electric
utilities.”

18 C.F.R. § 292.602(c).

The exemption “is referred to

as the ‘exempt[ion] from . . . utility-type . . . regulation.’”
Wheelabrator, 531 F.3d at 185 n.7 (quoting Freehold Cogeneration
Assocs., L.P. v. Bd. of Reg. Comm’rs of N.J., 44 F.3d 1178, 1185
(3d Cir. 1995)).

In Freehold, the Third Circuit concluded that a state
regulatory agency had impermissibly modified an EEPA by ordering
the QF and utility to renegotiate the agreement’s purchase rate
terms.

44 F.3d at 1190.

The court observed that PURPA reserves

for FERC, not state regulators, the responsibility of regulating
the rates at which electricity is purchased under EEPAs.
1191.

Id. at

PURPA gives state regulatory agencies the authority to

review and approve EEPAs with a QF as a party, but once an EEPA is
approved, modification of the EEPA or revocation of the approval of
an EEPA constitutes “utility-type” regulation of the QF, in
violation of § 210(e).

Id. at 1191-92.

8

B. Ownership of RECs for Electricity Sold Under Preexisting EEPAs
Previous disputes have arisen regarding whether the
generator or the electric utility should own the RECs associated
with EEPAs that predate the relevant state portfolio act.

In 2003,

FERC issued a decision declaring that REC ownership in the context
of preexisting PURPA EEPAs is a matter to be decided by the states
under state law.
(2003).

American Ref-Fuel Co., 105 F.E.R.C. ¶ 61,004

In American Ref-Fuel, FERC considered a petition from

owners of several QFs seeking a declaratory judgment that PURPA
EEPAs compensate QFs only for energy and capacity, not for any
“environmental attributes,” and therefore should not “inherently
convey to the purchasing utility any renewable energy credits.”
105 F.E.R.C. ¶ 61,005, at ¶ 2.

FERC granted the petition to the

extent that it sought a declaration that FERC’s “avoided cost
regulations did not contemplate the existence of RECs and that the
avoided cost rates for capacity and energy sold under contracts
entered into pursuant to PURPA do not convey the RECs, in the
absence of an express contractual provision.”
18.

Id. ¶ 61,006, at ¶

FERC concluded that “[w]hile a state may decide that a sale of

power at wholesale automatically transfers ownership of the statecreated RECs, that requirement must find its authority in state
law, not PURPA.”

Id. ¶ 61,007, at ¶ 24.

9

The Second Circuit considered the issue in Wheelabrator
Lisbon.

531 F.3d at 190.

There, the plaintiff, a QF, had

challenged a ruling by the Connecticut Department of Public Utility
Control (“DPUC”) that the parties’ EEPA “conveyed to [the utility,
Connecticut Light and Power,] any RECs arising from” the production
of its subject electricity.

Id. at 187.

The plaintiff argued that

DPUC’s ruling “modified the terms of the [EEPA] and thereby imposed
utility-type regulation in conflict with Section 210(e) of
[PURPA].”

Id. at 185.

The Second Circuit agreed with the district court that
DPUC’s interpretation of the EEPA with respect to ownership of RECs
did not constitute a modification of the EEPA:
As the District Court explained, “the DPUC decisions are
unlike the [state agency] order that was the subject of
Freehold.” Unlike the New Jersey agency in Freehold,
“the DPUC has not ordered the [qualifying facility] to
renegotiate the contract purchase price or ordered lower
rates. Rather, the DPUC considered the [energy purchase
agreement] at issue and concluded that [it] transferred
the renewable energy and the associated GIS Certificates
to CL & P.” We agree that the DPUC did not order the
renegotiation of the terms of the Agreement but simply
exercised its authority to interpret the Agreement’s
provisions -- as it happens, in a manner that was
unfavorable to Wheelabrator. We hold, therefore, that
the 2004 DPUC Decision does not modify the terms of the
Agreement and, accordingly, does not violate Section
210(e) of PURPA.
Id. at 188-89.

10

The Second Circuit also found that FERC’s decision in
American Ref-Fuel did not preempt DPUC’s decision.

The plaintiff

had argued that American Ref-Fuel required “RECs to be sold through
express contractual provisions and that, in the absence of such a
provision, an electricity purchase agreement cannot convey RECs.”
Id. at 189.

The court disagreed, again adopting the lower court’s

reasoning:
We agree with the District Court, and with FERC, that
American Ref-Fuel did not impose such a rule. As the
District Court correctly observed:
[In American Ref-Fuel,] [t]he FERC concluded that
RECs are created by the State and controlled by
state law, not PURPA, and that they may be decoupled
from the renewable energy . . . . Taken as a whole,
however, American Ref-Fuel does not stand for the
proposition that PURPA requires an express
contractual provision in order for RECs . . . to be
transferred to a public utility pursuant to a PURPA
contract . . . . In its order denying rehearing,
the FERC noted that the reference to an “express
contractual provision” seems to have been
misunderstood. The FERC elaborated: “We did not
mean to suggest that the parties to a PURPA
contract, by contract, could undo the requirements
of State law in this regard. All we intended by
this language was to indicate that a PURPA contract
did not inherently convey any RECs, and
correspondingly that, assuming State law did not
provide to the contrary, the [qualifying facility]
by contract could separately convey the RECs.”
In sum, the FERC decision in American Ref-Fuel does not
evince an intent to occupy the relevant field -- namely,
the regulation of renewable energy credits. Rather, it
explicitly acknowledges that state law governs the
conveyance of RECs. We conclude, therefore, that the
American Ref-Fuel does not preempt the 2004 DPUC
Decision.
Id. at 189-90 (internal citations omitted).
11

New Jersey and Pennsylvania state courts have also
considered the issue and concluded that state regulatory
authorities did not run afoul of PURPA by decreeing ownership of
RECs to utilities absent a contrary contractual provision.

See

ARIPPA v. Pa Pub. Util. Comm’n, 966 A.2d 1204, 1209 (Pa. Commw. Ct.
2009); In re Ownership of Renewable Energy Certificates (“Ownership
of RECs”), 913 A.2d 825, 828, 830 (N.J. Super. Ct. App. Div. 2007).
In Ownership of RECs, a New Jersey state court found that certain
language in American Ref-Fuel “might be construed as helpful to
appellants,” who were QFs, but that “the balance” of that opinion
supported the regulator’s decision that the RECs belonged to the
utility.

913 A.2d at 831.

It concluded that “according to FERC,

states decide who owns the REC in the initial instance.”

Id.

In

ARIPPA, a Pennsylvania state court similarly found that the
Pennsylvania Public Utility Commission “has not modified the terms
of an existing and approved contract, but rather has determined
ownership of assets which were not contemplated, let alone provided
for in the contracts at issue.”

966 A.2d at 1209.

C. Factual and Procedural Background
Plaintiff MEA owns and operates a 60.8 MW cogeneration
facility in Morgantown, West Virginia (the “Morgantown facility”)
that utilizes circulated fluidized bed combustion technology to
12

burn bituminous coal refuse as its primary energy source.
¶ 7.

Compl.

As earlier noted, it is a qualified facility under PURPA.

Id. ¶ 15.

On March 1, 1989, MEA and Mon Power entered into a long-

term EEPA, whereby Mon Power has purchased the energy and capacity
generated by MEA.

Id. ¶ 19. 4

The EEPA is in effect until 2027.

Comm’n Order 48.

In 2006, MEA registered its Morgantown facility as an
alternative energy resource under the Pennsylvania Portfolio Act
(“the Pa. Portfolio Act”).

Compl. ¶ 32; 73 P.S. §§ 1648.1-1648.8.

The Pa. Portfolio Act was enacted in 2005, and like the later W.Va.
Portfolio Act, it requires electric utilities to create or purchase
alternative 5 energy credits (“Pa.-RECs”) if they sell energy to
retail customers in Pennsylvania.

73 P.S. § 1648.3(a)(1).

Any

energy generated from alternative sources within the service
4

While Mon Power executed the EEPA, “the Commission now regulates
the combined West Virginia operations of Mon Power and [Potomac
Edison] as a single entity, including the combined costs and
rates.” City of New Martinsville v. Pub. Serv. Comm’n of W. Va.,
729 S.E.2d 188 n.6 (W. Va. 2012), consolidated on appeal with
Morgantown Energy Associates v. Pub. Serv. Comm’n of W. Va., No.
11-1739, [hereinafter New Martinsville/MEA].
5

Though an energy source under the West Virginia law may be
“renewable,” “alternative,” or neither, under the Pennsylvania law
a source may only be “alternative” or not. 73 P.S. § 1648.3. The
“alternative” category does not include the same types of energy
sources in each state. For instance, some sources considered
“renewable” under the West Virginia law, like solar plants, are
“alternative” under the Pennsylvania law. W. Va. Code § 24-2F-3
(13)(A); 73 P.S. § 1648.3(b). For simplicity and uniformity, the
court refers to credits under the Pennsylvania law as Pa.-RECs.
13

territory of PJM Interconnection, LLC (“PJM”), a FERC-regulated,
interstate regional transmission organization, or its successor, is
eligible to meet the requirements of the Pa. Portfolio Act. 73 P.S.
§ 1648.4.

The Morgantown facility is within the PJM service

territory and began generating Pa.-RECs in 2006.

Compl. 25, 28.

Under the Pa. Portfolio Act, MEA asserts that it owns the Pa.-RECs.
See 73 P.S. § 1648.3(e)(12) (providing that unless a contract for
electricity “explicitly assigns alternative energy credits in a
different manner, the owner of the alternative energy system . . .
owns any and all alternative energy credits associated with or
created by the production of the electric energy by such
facility”). 6

MEA has “banked” the Pa.-RECS with PJM’s subsidiary,

PJM-Environmental Information Services, Inc. (“PJM-EIS”) and has
also “engaged in transactions . . . in which it has sold its PaRECs to electric utilities.”

Compl. ¶¶ 25, 32-33.

MEA has not

alleged whether it sells any electric energy or RECs to entities
located in Pennsylvania.

MEA’s Morgantown facility also qualifies as an
alternative energy resource under the W.Va. Portfolio Act.
¶ 41.

Id.

MEA, however, has not filed and currently has not made a

determination to file an application to become certified under the
6

The Pennsylvania legislature amended the Pa. Portfolio Act in
2007 to include this provision, which did not apply in ARIPPA.
ARIPPA, 966 A.2d at 1207.
14

W.Va. Portfolio Act to generate West Virginia credits.

Id. ¶ 41.

It asserts that it has no legal obligation to pursue certification,
and it points out that although a facility may be capable of
generating credits recognized by two different states, the credits
can be transferred only once to a utility.

Id. ¶¶ 27, 41.

As

stated above, MEA alleges that it has “engaged in transactions”
involving such transfers.

Id. ¶ 33.

The EEPA between Mon Power and MEA, predating both
states’ portfolio acts, is silent regarding ownership of any
potential RECs generated by the Morgantown facility.

Id. ¶ 42.

1. The Commission Order
On February 23, 2011, the Utilities filed a petition for
declaratory relief with the Commission, requesting a ruling that
the Utilities were entitled to W.Va. Portfolio Act RECs
attributable to three non-utility QFs: (1) MEA’s Morgantown
facility, (2) a facility of the City of New Martinsville, (3) and
the Grant Town Project. 7

Id. ¶ 44 & n.2.

On April 19, the

Commission named MEA as a respondent in the case.

7

The second of these facilities is the subject of concurrent
litigation pending before this court as City of New Martinsville v.
Public Service Commission of West Virginia, No. 2:12-cv-1809. The
owner of the other project, the Grant Town Project, was not a party
to the proceedings before the Commission. Compl. ¶ 39 n. 9.
15

On November 22, 2011, the Commission issued an order (the
“Commission Order”) resolving the following two issues in the
affirmative:
1. Whether, under EEPAs that predate the Portfolio Act
and Commission Portfolio Standard Rules and that are
silent on the issue of credit ownership, [the Utilities]
or the QFs own the credits associated with QF generation;
and,
2. If the utilities own and are entitled to credits from
the facilities, whether the Commission has the
jurisdiction and authority to order a QF to certify the
facilities or to deem the facilities certified to
generate credits under the Portfolio Standard Rules
. . . .
Comm’n Order 10.

At the outset, the Commission noted that the Utilities
estimate the cost of “acquir[ing] additional compliance credits to
replace” the credits generated by MEA and the other two facilities
to be “approximately $50 million through 2025.”

Id.

The

Commission later refers to this as a “conservative cost estimate.”
Id. at 32.

The Commission determined that the Utilities own the
credits based on “three separate but interrelated bases”:
(i) consistent with the [Portfolio] Act, the utility that
is obligated to purchase PURPA generation (which also
qualifies as eligible generation under the Portfolio Act)
should own the credits that exist for the purpose of
measuring utility compliance with the portfolio standard,
16

(ii) [the Utilities’] ownership of the credits is based
on their ownership of the qualifying energy as it is
generated, and (iii) under the circumstances of the case
in which the Portfolio Act and the EEPAs do not contain
provisions that specify credit ownership by the utility
or the QF, it is appropriate to consider equity and
fairness and the impact of our decision on utility rates
in determining credit ownership under the EEPAs based on
the provisions of W.Va. Code § 24-2F-1 et seq. that
require that the costs associated with the [Portfolio]
Act are reasonable and the provisions of Chapter 24 of
the West Virginia Code that require the Commission to
ensure fair and reasonable rates and to balance the
interests of the current and future utility customers,
the utilities and the state economy.
Id. at 43.

The Commission concluded that:
It would be unreasonable to require the utility to purchase,
and ratepayers to pay the additional cost of credits, to
verify the purchases of PURPA generation that the utility has
purchased and will continue to purchase which qualifies as
eligible generation under the Portfolio Act.
[] In the absence of an express statutory provision governing
the issue of credit ownership under PURPA EEPAs that predate
the Portfolio Act and that are silent on the issue of credit[]
ownership, the credits under the PURPA EEPAs are owned by the
electric utility, Mon Power and PE, not the QFs, consistent
with the intent and mandates of the Act and principles of
equity and fairness.
Id. at 55.

The Commission expressly disavowed any reliance on
federal law: “The Commission is not modifying the existing PURPA
Agreements or exercising utility-type jurisdiction over MEA; we are
determining the ownership of the credits in light of state law.”
Id. at 37.

It made the following conclusions respecting the EEPAs:
17

17. When the three EEPAs in question were negotiated and
approved by the Commission, the statutory created credits
did not exist and the retention of the credits was not a
part of the contract and agreement between the parties.
The PURPA facilities received what they bargained for,
and all that they were entitled to, when agreements were
finalized setting forth the avoided cost rates and terms
that would apply to the final EEPAs.
18. By the very nature of the PURPA EEPAs, no additional
consideration is contemplated or needed other than the
substantial consideration that the projects received and
that is not usually available to merchant power
generators.
Id. at 54.

Respecting certification of the Morgantown facility, the
Commission observed that “allowing qualifying credits that are
owned by the [Utilities] to not be certified would work a hardship
on ratepayers.”

Id. at 42.

It took note of the “unusual

difficulty” the Utilities would encounter should they “seek or
expect cooperation from MEA in obtaining certification” of the
Morgantown facility.

Id.

Consequently, the Commission concluded

that, “it would be reasonable to allow the [Utilities] to seek
certification of the credits we have determined they own.”

Id.

The Commission again found its authority for the decision
in state law:
[T]he Commission has jurisdiction and authority over the
Morgantown project to deem the facility certified to
generate credits under the Commission Portfolio Standard
Rules based on the jurisdiction and authority provided in
the Portfolio Act and in Chapter 24 of the West Virginia
18

Code to resolve the issues of credit ownership and to
enable [the Utilities] to meet the compliance
requirements of the [Portfolio] Act based on our decision
in this case. The Commission’s assertion of jurisdiction
to resolve the dispute over credit ownership does not
conflict with federal jurisdiction over PURPA and the
PURPA facilities. As FERC determined in American RefFuel, the states have jurisdiction to resolve the issues
of credit ownership arising under the PURPA contracts.
. . . We believe that because our decision to certify
the Morgantown facility is an extension of the
Commission’s jurisdiction over public utilities, the
portfolio standard and credit trading system established
by the Portfolio Act, our Order does not violate the
PURPA’s prohibition against “utility-type” state law
regulation.
Id. at 42-43.
Generally, the Commission, in its order, discusses “the
credits,” without limitation on when the credits were generated and
without distinction between RECs created under West Virginia law or
RECs created under Pennsylvania law.

However, the Commission did

offer the following:
The Commission clarifies that [the Utilities are] entitled to
the credits for the duration of the term of the EEPAs.
Credits are based on energy generated by qualified facilities
and double counting of credits is prohibited. Because we are
holding that [the Utilities] own the credits related to the
power they purchase from the PURPA facilities for the
remaining term of the EEPAs, credits that are based on the
energy output of the QFs and that could be obtained under
other state laws are necessarily under the control of [the
Utilities].
Id. at 34.

In addition, the Commission ordered “that credits

related to the electricity generated from . . . the Morgantown
project owned by Morgantown Energy Associates; and sold pursuant to
the electric energy purchase agreements discussed herein belong to
19

the purchaser,” and also ordered that the “[Utilities] take
reasonable steps to secure the credits from the Morgantown facility
that are currently in the MEA [] account, including, but not
limited to, contacting PJM-EIS to advise it of the ruling in this
case.”

Id. at 56.

In December 2011, MEA and the City of New Martinsville
filed appeals of the Commission Order with the West Virginia
Supreme Court of Appeals, which the high court subsequently
consolidated.

Compl. ¶ 53.

2. The April FERC Order
On February 24, 2012, while the state appeal was pending,
MEA petitioned FERC to bring an enforcement action against the
Commission to require compliance with PURPA.

Compl. ¶ 54.

The

petition asserted that the Commission’s order violates PURPA in
three respects: (1) by concluding that Mon Power’s payments under
the EEPA warranted giving Mon Power the credits, (2) by concluding
that the Commission has the authority to deem MEA’s facility
certified under the W.Va. Portfolio Act, and (3) by discriminating
against MEA based on its QF status under PURPA in setting
electricity rates, in violation of 16 U.S.C. §824a-3(b)(2) and 18
C.F.R. § 292.304(a)(1), because the Commission purportedly does not
also deem RECs generated by a facility that is not qualified under
20

PURPA to be owned by the utility to which the facility sells power.
Id. ¶ 55.

On April 24, 2012, FERC issued a Notice of Intent Not to
Act and Declaratory Order.

FERC declined to exercise its

discretionary enforcement authority under § 210(h) of PURPA.
Morgantown Energy Associates (Morgantown I), 139 F.E.R.C. ¶ 61,066,
at ¶ 44-45 (2012).

It quoted from and reiterated its holding in

American Ref-Fuel:
[FERC] has recognized that PURPA does not address the
ownership of RECs and that states have the authority to
determine ownership of RECs in the initial instance, as
well as how they are transferred from one entity to
another.
Id. ¶ 46.

It further explained the rationale behind American Ref-

Fuel, stating that the rates at which the utilities must purchase
power from QFs “must be just and reasonable to the electric
customer of the public utility and in the public interest,” but an
electric utility is not required to pay the QF more than the
avoided cost.

Id. ¶ 47.

Nonetheless, FERC found that “certain statements in the
[Commission] Order are inconsistent with PURPA.”

Id. ¶ 45.

FERC

concluded that “[t]o the extent that the [Commission] Order finds
that avoided-cost rates under PURPA also compensate for RECs, the

21

[Commission] Order is inconsistent with PURPA.”

Id. ¶ 47.

In a

footnote, FERC further explains the perceived inconsistency:
The West Virginia Order relies primarily on the avoided
cost rate in the contract[] between Morgantown Energy and
Monongahela Power . . . as justification for finding that
the RECs produced by the QFs are owned by the purchasing
utility in the first instance. See, e.g., West Virginia
Order at 28-31. For example, the West Virginia Order
states that avoided cost rate contracts under PURPA
provide a substantial consideration to the QF sufficient
to compensate not only for the energy and capacity
contemplated in the contracts, but also for the RECs
produced by the QFs. See West Virginia Order at 28.
Id. ¶ 47 n.68.

3. The Appeal to the West Virginia Supreme Court
On June 11, 2012, in New Martinsville/MEA, 729 S.E.2d 188
(W. Va. 2012), the West Virginia Supreme Court of Appeals affirmed
the Commission Order in full.

The court held,

[T]he Commission has not modified the terms of the
existing EEPAs but, instead, has only determined
ownership of assets -- the credits -- which were not
contemplated and, thus, not provided for in the EEPAs.
Id. at 196.

It further explained,

[T]he Commission considered the EEPAs and concluded that
because the Utilities own the electricity as it is
generated, they also own the credits which only come into
existence after the electricity is generated.
*

*

*

Thus, in reaching its decision, the Commission has only
interpreted the EEPAs to evaluate the Utilities’
obligations under them and their ownership of the
electricity at the time it is generated. The Commission
22

has not interfered with the Generators’ federally granted
right to be exempt from certain utility-type state
regulation.
Id. 196-97.

The court found that the April FERC order “ha[d] no
bearing upon” the appeal before it.

Id. at 199 n.15.

Consequently, the court disagreed with FERC’s concerns and
“concluded that the Commission’s decision is not inconsistent with
PURPA but, rather, is a well-reasoned decision based upon our state
law.”

Id.

The court next addressed MEA’s contention that the
Commission violated MEA’s federal exemption from “utility-type”
state law regulation by deeming MEA certified to create West
Virginia RECs.

The court found that the Commission has an

appropriate state law basis for its determination:
Given MEA’s refusal to seek certification of its
Morgantown project under the Portfolio Standard Rules,
the Commission’s decision to deem the project certified
is the only mechanism by which the Utilities can receive
certification that the energy they are purchasing
satisfies the requirements of the Portfolio Act. The
Portfolio Standard Rules provide for waiver thereof upon
a showing of hardship or unusual difficulty in complying
with any one rule. 150 C.S.R. § 34–1.5a. Certainly, a
hardship on ratepayers would occur in this instance if
the qualifying credits owned by the Utilities were not
certified.
Id. at 200.

23

Given this state-law justification for certifying MEA to
generate RECs, the high court then explained why it did not
consider the certification to be “utility-type” regulation:
Contrary to the assertions of MEA, the Commission’s
decision that it will certify the Morgantown project to
create credits under the Portfolio Act . . . does not
constitute impermissible “utility-type” regulation
prohibited by PURPA. The Commission’s decision is simply
an extension of its jurisdiction over public utilities
and the authority conferred upon it by the Portfolio Act.
By deeming the Morgantown project certified, the
Commission is not regulating the Morgantown project in
any respect; instead, it is only providing a mechanism
for the owner of the energy, the Utilities, to receive
certification that the energy they are purchasing
qualifies for the purpose of satisfying the requirements
of the Portfolio Act.
Id.

4. The September FERC Order
On May 6, 2012, the Utilities filed with FERC a request
for clarification or, alternatively, a motion for rehearing of
FERC’s April Order.

Morgantown Energy Associates (Morgantown II),

140 F.E.R.C. ¶ 61,223, at ¶ 3 (2012).

The Utilities claimed that

the order did not identify which statements in the Commission order
were inconsistent with PURPA, and that FERC erred in determining
that the Commission Order found that avoided cost rates compensate
the QF for both RECs and energy.

Id.

On September 20, 2012, FERC

issued an order denying a request by the Utilities for
reconsideration of its April order.
24

Id. ¶ 1.

FERC acknowledged

the Supreme Court of Appeals affirmance, but did not comment on its
substance, instead focusing on the Commission Order.
n.34.

Id. ¶ 14 &

In the September order FERC explained its concerns regarding

one of the perceived rationales for the Commission’s decision:
While the [Commission] Order may also identify other
bases for its decision to find that RECs produced by QFs
belong to the purchasing utility, we cannot ignore those
portions of the [Commission] Order that clearly refer to
the avoided cost rate under PURPA as justification for
its finding that RECs produced by QFs belong to the
purchasing utility in the first instance. It is likewise
significant, we find, that the West Virginia Commission
implied that RECs produced by non-QFs could be considered
to be owned by the non-QF generator in the first instance
rather than the first purchaser of the output of the nonQF generator. The only reasonable reading of the
[Commission] Order is that the West Virginia Commission’s
finding that the RECs produced by QFs, as opposed to RECs
produced by non-QFs, are owned by the purchasing
utilities in the first instance is based on the West
Virgnia Commission’s belief that the PURPA avoided cost
rates are overly generous and therefore must include
RECs.
Id. ¶ 21.

It continued,

We note . . . that the West Virginia Commission did not
find the sale of power at wholesale automatically
transfers RECs. Instead, the West Virginia Commission
found that RECs produced by QFs are owned by the
purchasing utility (while RECs produced by non-QFs are
not); and the West Virginia Commission clearly based this
finding on its expressly stated belief that avoided cost
rates were overly generous to utilities and unfair to
consumers. Under these circumstances it is clear that to
this extent, at least, the West Virginia Order is
inconsistent with the Commission’s ruling in American
Ref-Fuel that avoided cost rates “in short, are not
intended to compensate the QF for more than capacity and
energy.”
Id. (quoting Am. Ref-Fuel, 105 F.E.R.C. ¶ 61,004, at ¶ 22).

25

The order then makes clear that FERC’s criticism is
limited to the rationale perceived by it in the Commission Order,
not the Commission’s actual decision to assign credits to the
utilities:
Because the ownership of the RECs is a matter of West
Virginia law, we are not dictating to West Virginia
whether a generator or the electric utility purchasing
capacity and energy from the generator should own RECs at
their creation. Rather, we merely find that the West
Virginia Commission cannot, consistent with PURPA, assign
ownership of the RECs to the Utilities on the grounds
that the avoided cost rates in their PURPA [agreements]
compensate the QFs for RECs in addition to energy and
capacity.
Id. ¶ 24.

In addition, FERC acknowledged that the Commission Order

rested on other justifications as well: (1) that “it is
unreasonable to retroactively apply [the unbundling provision,
Portfolio Standard Rule 5.6] to PURPA [EEPAs] entered into prior to
the rule's effective date,” and (2) that “because RECs are a tool
for ensuring that electric utilities purchase energy that satisfies
their renewable portfolio standard obligations, RECs are not
necessary in the presence of PURPA [EEPAs] because PURPA [EEPAs]
perform the same function as RECs.”

Id. ¶ 21 n. 45.

Ultimately,

FERC denied the request, rejecting the Utilities’ arguments for
reconsideration.

Id. ¶ 26.

26

5. Federal District Court
Under PURPA, when FERC declines to bring an enforcement
action within 60 days of the filing of a petition, the petitioner
may bring its own enforcement action against the state regulatory
authority in the appropriate U.S. district court.
§ 824a-3(h)(2)(B).

16 U.S.C.

Pursuant to that provision, MEA filed the

present action on October 8, 2012.

The complaint names as defendants the Commission and its
individual commissioners.

It asserts six counts.

Count I seeks a

declaratory judgment that the Commission Order violates PURPA and
its implementing regulations.

Count II claims that the Commission

Order is preempted because it has the effect of modifying the
avoided cost in the EEP agreement, a power reserved solely to FERC
under PURPA.

Count III seeks a declaration that the Commission

Order violates PURPA’s exemption of QFs from state utility-type
regulation.

Count IV seeks a declaration that the Commission Order

violates PURPA § 210(b) by discriminating against QFs.

Count V

seeks an order enjoining the Commission from enforcing the
Commission Order.

Lastly, Count VI alleges that the individual

commissioners violated the Takings Clause of the Fifth Amendment by
granting ownership of MEA’s Pa.-RECs to the Utilities without just
compensation.

27

The original defendants, consisting of the Commission and
its commissioners, filed their pending motion to dismiss under
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) on December
7, 2012.

On January 10, 2013, the court granted the Utilities’

motion to intervene as party defendants, and on January 25, 2013
the Utilities filed their pending motion for judgment on the
pleadings under Federal Rule of Civil Procedure 12(c).

In their motions, the defendants assert that federal
jurisdiction is barred by the Rooker-Feldman doctrine.

They also

contend that this action is not properly before this court because
it is not a challenge to the Commission’s “implementation” of
PURPA, but rather an “as applied” challenge.

The Utilities

additionally argue that the court should abstain from adjudicating
the controversy under various abstention doctrines.

Should the court recognize jurisdiction and decline to
abstain, the defendants maintain that preclusion principles require
it to honor the state decisions granting credit ownership to the
electric utilities.

The Utilities also argue that each Counts I-V

of the complaint should be dismissed for failure to state a claim,
and the Commission argues that Count VI should be dismissed for
failure to state a claim.

28

II. Governing Standard
Under Federal Rule of Civil Procedure 8(a)(1), a
complaint must contain “a short and plain statement of the grounds
for the court’s jurisdiction.”

Rule 12(b)(1) correspondingly

permits a defendant to assert, by motion, that the plaintiff’s
claim for relief fails for “lack of subject-matter jurisdiction.”
Fed. R. Civ. P. 12(b)(1).

The plaintiff has the burden of proving

that subject matter jurisdiction exists.
Co., 166 F.3d 642, 647 (4th Cir. 1999).

Evans v. B.F. Perkins,
“When a defendant

challenges subject matter jurisdiction pursuant to Rule 12(b)(1),
‘the district court is to regard the pleadings as mere evidence on
the issue, and may consider evidence outside the pleadings without
converting the proceeding to one for summary judgment.’”

Id.

(quoting Richmond, Fredericksburg & Potomac R. Co. v. United
States, 945 F.2d 765, 768 (4th Cir. 1991)).

The court “should

grant the Rule 12(b)(1) motion to dismiss ‘only if the material
jurisdictional facts are not in dispute and the moving party is
entitled to prevail as a matter of law.’”

Id. (quoting Richmond,

945 F.2d at 768).

Under Rule 8(a)(2), the complaint must contain “a short
and plain statement of the claim showing that the pleader is
entitled to relief.”

Rule 12(b)(6) correspondingly permits a
29

defendant to challenge a complaint when it “fail[s] to state a
claim upon which relief can be granted.”

Fed. R. Civ. P. 12(b)(6).

The required “short and plain statement” must provide
“‘fair notice of what the . . . claim is and the grounds upon which
it rests.’”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007)

(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); see also
Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir. 2007).

“To

survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that
is plausible on its face.’”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Twombly, 550 U.S. at 570); see also Monroe v. City
of Charlottesville, 579 F.3d 380, 386 (4th Cir. 2009).

Facial

plausibility exists when the court is able “to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556).

The

plausibility standard “is not akin to a ‘probability requirement,’”
but it requires more than a “sheer possibility that a defendant has
acted unlawfully.”

Id. (quoting Twombly, 550 U.S. at 556).

In assessing plausibility, the court must accept as true
the factual allegations contained in the complaint, but not the
legal conclusions.

Id.

“Threadbare recitals of the elements of a

cause of action, supported by mere conclusory statements, do not
30

suffice.”

Id.

The determination is “context-specific” and

requires “the reviewing court to draw on its judicial experience
and common sense.”

Id. at 679.

Federal Rule of Civil Procedure 12(c) provides that
“[a]fter the pleadings are closed -- but early enough not to delay
trial -- a party may move for judgment on the pleadings.”
Civ. P. 12(c).

Fed. R.

A Rule 12(c) motion “is assessed under the same

standard that applies to a Rule 12(b)(6) motion.”

Walker v.

Kelley, 589 F.3d 127, 139 (4th Cir. 2009); Independence News, Inc.
v. City of Charlotte, 568 F.3d 148, 154 (4th Cir. 2009) (citing
Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999)).

III. Discussion

A. The Rooker-Feldman Doctrine
The defendants argue that the Rooker-Feldman doctrine
bars this court’s jurisdiction.

The United States Supreme Court

holds that the doctrine “recognizes that 28 U.S.C. § 1331 is a
grant of original jurisdiction, and does not authorize district
courts to exercise appellate jurisdiction over state-court
judgments, which Congress has reserved to this Court.”

Verizon

Md., Inc. v. Pub. Serv. Comm’n of Md., 535 U.S. 635, 644 n.3
31

(2002).

It is named for the only two Supreme Court cases in which

it has been applied: Rooker v. Fidelity Trust Co., 263 U.S. 413
(1923), and Columbia Court of Appeals v. Feldman, 460 U.S. 462
(1983).

See Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544

U.S. 280, 283 (2005).

In Exxon Mobil, the Supreme Court warned that lower
courts had at times applied the doctrine “far beyond the contours
of the Rooker and Feldman cases, overriding Congress’ conferral of
federal-court jurisdiction concurrent with jurisdiction exercised
by state courts, and superseding the ordinary application of
preclusion law pursuant to 28 U.S.C. § 1738.”

544 U.S. at 283.

The Court clarified that the doctrine is limited to “cases brought
by state-court losers complaining of injuries caused by state-court
judgments rendered before the district court proceedings commenced
and inviting district court review and rejection of those
judgments.”

Id. at 284.

It added that the Rooker-Feldman doctrine does not become
applicable “simply because a party attempts to litigate in federal
court a matter previously litigated in state court.”

Id. at 293.

The federal district court still has jurisdiction if the case
before it “‘present[s] some independent claim’” even if that claim
“‘denies a legal conclusion that a state court has reached in a
32

case to which [the plaintiff] was a party.’”

Id. (quoting GASH

Assocs. v. Rosemont, 995 F.2d 726, 728 (7th Cir. 1993)).

Thus, in

Exxon Mobil, the Court declined to apply Rooker-Feldman where the
plaintiff did not “repair[] to federal court to undo the [state
court] judgment in its favor” but rather “filed suit in Federal
District Court . . . to protect itself in the event it lost in
state court on grounds (such as the state statute of limitations)
that might not preclude relief in the federal venue.”

Id. at 293-

94.

Discussing the impact of Exxon Mobil, our court of
appeals explained,
Whereas [before Exxon] we examined whether the statecourt loser who files suit in federal court is attempting
to litigate claims he either litigated or could have
litigated before the state court, Exxon requires us to
examine whether the state-court loser who files suit in
federal district court seeks redress for an injury caused
by the state-court decision itself. If he is not
challenging the state-court decision, the Rooker-Feldman
doctrine does not apply.
Davani v. Virginia Department of Transportation, 434 F.3d 712, 718
(4th Cir. 2006) (footnote omitted) (permitting a federal employment
discrimination and retaliation action following the state court’s
refusal to overturn the plaintiff’s grievance with the employer).
It borrowed this example from the Second Circuit:
Suppose a plaintiff sues his employer in state court for
violating . . . anti-discrimination law and . . . loses.
If the plaintiff then brings the same suit in federal
court, he will be seeking a decision from the federal
court that denies the state court’s conclusion that the
33

employer is not liable, but he will not be alleging
injury from the state judgment. Instead, he will be
alleging injury based on the employer’s discrimination.
The fact that the state court chose not to remedy the
injury does not transform the subsequent federal suit on
the same matter into an appeal, forbidden by RookerFeldman, of the state-court judgment.
Id. at 719.

The Supreme Court further emphasized the doctrine’s
limits in Lance v. Dennis, decided the term following Exxon Mobil:
Neither Rooker nor Feldman elaborated a rationale for a
wide-reaching bar on the jurisdiction of lower federal
courts, and our cases since Feldman have tended to
emphasize the narrowness of the Rooker–Feldman rule. See
Exxon Mobil, 544 U.S., at 292, 125 S.Ct. 1517 (Rooker–
Feldman does not apply to parallel state and federal
litigation); Verizon Md. Inc. v. Public Serv. Comm'n of
Md., 535 U.S. 635, 644, n. 3, 122 S.Ct. 1753, 152 L.Ed.2d
871 (2002) (Rooker–Feldman “has no application to
judicial review of executive action, including
determinations made by a state administrative agency”);
Johnson v. De Grandy, 512 U.S. 997, 1005–1006, 114 S.Ct.
2647, 129 L.Ed.2d 775 (1994) (Rooker–Feldman does not bar
actions by a nonparty to the earlier state suit).
Indeed, during that period, “this Court has never applied
Rooker–Feldman to dismiss an action for want of
jurisdiction.” Exxon Mobil, supra, at 287, 125 S.Ct.
1517.
546 U.S. 459, 464 (2006).

Particularly relevant to this case is

the admonition that “[t]he doctrine has no application to judicial
review of executive action, including determinations made by a
state administrative agency.”

Verizon Md., 535 U.S. at 644 n.3.

34

The facts in Verizon Maryland were somewhat analogous to
those here.

Pursuant to the Telecommunications Act of 1996, the

Maryland Public Service Commission had approved an “interconnection
agreement” and “reciprocal compensation arrangement” through which
Verizon would share its network with WorldCom and other
competitors.

Id. at 638-39.

Sometime thereafter, Verizon informed

WorldCom that it would no longer pay for certain calls which it
contended were not subject to the interconnection agreement.

Id.

WorldCom filed a complaint with the commission challenging
Verizon’s claim, and the commission found in favor of WorldCom.
Id.

On appeal, a Maryland state court affirmed the order.

Id.

Verizon then filed an action in federal district court,
alleging that the commission’s ruling violated the 1996 Act and a
later FCC determination.

Id. at 640.

The district court dismissed

the action, and the Fourth Circuit affirmed on immunity grounds.
Id.

On appeal to the Supreme Court, the commission suggested that

Rooker-Feldman should have precluded federal jurisdiction.

The

Court dismissed the argument in a footnote, stating that RookerFeldman limits jurisdiction “over state-court judgments” and
therefore does not apply “to judicial review of executive action,
including determinations made by a state administrative agency.”
Id. at 644 n.3.

35

This court finds the Rooker-Feldman doctrine likewise
inapplicable to MEA’s claims.

MEA has not brought a direct

challenge to the West Virginia Supreme Court’s judgment.

MEA is

challenging the Commission’s ruling regarding credit ownership, a
determination by a state administrative agency, just as in Verizon
Maryland.

While the federal challenge may “deny” the West Virginia

Supreme Court’s legal conclusion that the Commission Order is
consistent with PURPA, that denial does not make this action a
challenge to a state court judgment.
U.S. at 293.

See Exxon Mobil Corp., 544

The Commission’s further argument that the state high

court created the injury by making the Commission order the “law of
the land in West Virginia” is unpersuasive.
Mot. Dismiss 18.

Comm’n’s Mem. Supp.

Such a rationale would apply to any state high

court decision and considerably broaden a doctrine whose
application the Supreme Court has expressly left rather narrow.

Having found that this case is not a direct challenge to
a state court judgment, the court need not address MEA’s two
alternative arguments against the application of Rooker-Feldman: 1)
that this action began with the FERC petition and therefore
preceded the state court judgment and 2) that the doctrine is
inapplicable because this court has exclusive jurisdiction over
PURPA implementation challenges.

36

B. Statutory Jurisdiction Under PURPA
The defendants also assert that this case does not
challenge the Commission’s “implementation” of FERC rules for
electric utilities, and consequently fails to qualify for PURPA’s
statutory grant of jurisdiction to federal district courts.

See

PURPA § 210(f, h), 16 U.S.C. § 824a-3(f, h).

Section 210 of PURPA provides the mechanism though which
qualifying facilities can bring an action in federal district
court.

As discussed above, § 210(f) concerns the “[i]mplementation

of rules for qualifying cogeneration and qualifying small power
production facilities” and requires “each State regulatory
authority” -- in this case, the Commission -- to “implement such
rule (or revised rule) for each electric utility for which it has
ratemaking authority.”

Id.

The implementation must occur “on or

before the date one year after” FERC prescribed the rule.

Id.

If

the regulatory authority fails to implement the FERC rules,
§ 210(h) provides that “[a]ny electric utility, qualifying
cogenerator, or qualifying small power producer may petition [FERC]
to enforce the requirements of subsection (f).”
3(h)(2)(B).

Id. § 824a-

If FERC declines to bring an enforcement action,

§ 210(h) then authorizes the electric utility, qualifying
cogenerator, or qualifying small power producer to bring an action

37

against the state regulatory authority in “the appropriate United
States district court.”

Id.

MEA’s complaint expressly provides § 210(h) as the basis
for this court’s jurisdiction for claims against the Commission
arising under PURPA.

Compl. ¶ 5.

The defendants, however, contend

that this lawsuit does not relate to the Commission’s
“implementation” of FERC rules because the initial assignment of
RECs is controlled by state law, not by PURPA.

They consequently

assert that this court lacks jurisdiction under § 210(h) to review
the Commission Order.

The court believes its exercise of jurisdiction is proper
in this instance.

While Wheelabrator and American Ref-Fuel

conclude that state regulatory agencies’ assignment of RECs is a
matter of state law, these opinions do not stand for the further
position that the assignment of state credits can never result in a
violation of PURPA.

Consistent with those opinions, a state

commission would violate PURPA by assigning credits in a way that
directly modifies EEPAs, that is, by ruling that the EEPAs
“inherently convey” the credits.
¶ 61,005.

Am. Ref-Fuel, 105 F.E.R.C.

That is what MEA alleges has happened in this case.

38

FERC, in somewhat qualified language, appears to agree
with MEA, and though it declined to initiate an enforcement action,
FERC expressly stated that MEA “may bring its own enforcement
action . . . in the appropriate United States district court.”
F.E.R.C. ¶ 61,066 at ¶ 45.

139

The defendants argue that the court is

not obligated to follow a FERC order.

See Xcel Energy Servs., Inc.

v. FERC, 407 F.3d 1242, 1244 (D.D.C. 2005) (“An order that does no
more than announce [FERC’s] interpretation of the PURPA or one of
the agency’s implementing regulations is of no legal moment unless
and until a district court adopts that interpretation when called
upon to enforce the PURPA.”).

While that may be, close scrutiny of

FERC’s conclusions is inappropriate in the context of a
jurisdictional inquiry, and the court, accordingly, takes FERC’s
conclusions at face value as support for jurisdiction.

See Hartley

v. CSX Transp., Inc., 187 F.3d 422, 425 (4th Cir. 1999) (“[A]
jurisdictional inquiry is not the appropriate stage of litigation
to resolve these various uncertain questions of law and fact.
. . .

To permit extensive litigation of the merits of a case while

determining jurisdiction thwarts the purpose of jurisdictional
rules.”).

Section 210 gives this court jurisdiction over challenges
to PURPA implementation, and this is such a challenge.

Whether it

is also a fruitful challenge should not be determined within the

39

threshold jurisdictional inquiry.

The court concludes that

jurisdiction is proper and leaves consideration of American RefFuel for the discussion of MEA’s specific claims.

The court rejects the defendants’ argument that the
assignment of Portfolio Act credits is not a matter of PURPA
implementation because, it says, “implementation” occurred in 1981,
when it implemented West Virginia’s PURPA program.
Supp. Mot. Dismiss 25.
Pleadings 13, 20.

Comm’n’s Mem.

See also Mem. Supp. Utilities’ Mot. J.

A 1983 FERC policy statement clarifies that

implementation enforcement under § 210 extends to state regulatory
authorities that “completed the implementation process, but have
promulgated regulations which are inconsistent with or contrary to
[FERC’s] regulations.”

Policy Statement Regarding the Commission’s

Enforcement Role Under Section 210 of the PURPA (“Policy
Statement”), 23 F.E.R.C. ¶ 61,304, at ¶ 61,644 (1983).

The policy

statement continues: “Thus, for example, an allegation that a State
regulatory authority had promulgated regulations which include a
purchase rate standard contrary to [FERC] regulations would
properly lie before [FERC] or before a judicial forum of proper
jurisdiction.”

Id.; see also Occidental Chem. Corp. v. La. Pub.

Serv. Comm’n, 494 F. Supp. 2d 401, 409 (M. D. La. 2007) (“Federal
jurisdiction under § 210(h) exists whenever a state regulatory
authority has adopted requirements that ‘include a purchase rate

40

standard contrary to existing [FERC] regulations.’” (quoting Policy
Statement, 23 F.E.R.C. at ¶ 61,644)).

Section 210 “implementation”

actions are not limited to the review of a regulatory authority’s
initial implementation.

If the Commission Order modified the EEPA

purchase rates contrary to FERC regulations, as MEA alleges, then
the Commission has failed to implement PURPA.

The court likewise disagrees with the defendants’ related
contention that jurisdiction is improper because the complaint can
“[a]t best” be construed as an “as applied” challenge.

Comm’n’s

Mem. Supp. Mot. Dismiss 24-25; see also Utilities’ Mem. Supp. Mot.
J. Pleadings 11.

As one court explained,

An implementation claim . . . involves a contention that
the state agency has failed to implement a lawful
implementation plan under § 210(f) of PURPA. An asapplied claim, in contrast, involves a contention that
the agency’s implementation plan is unlawful, as it
applies to or affects an individual petitioner.
Mass. Inst. of Tech. v. Mass. Dep’t of Pub. Util. (“MIT”), 941 F.
Supp. 233, 237 (D. Mass. 1996).

“Because the jurisdictional grant

in § 210(h) of PURPA extends only to cases in which a federal court
is asked to require a state agency . . . to implement, federal
courts have refused to hear as-applied claims.”

Id. (citing

Greensboro Lumber Co. v. Ga. Power Co., 643 F.Supp. 1345, 1374
(N.D. Ga. 1986), aff’d 844 F.2d 1538, 1542 (11th Cir. 1988) (“The
district court held that it lacked subject matter jurisdiction over

41

Greensboro’s ‘as applied’ claim, and we find its reasoning
persuasive.”)).

In arguing that the pending action is an “as applied”
challenge, the defendants rely on Greensboro Lumber and MIT.

The

court observes that the instant case differs from those “as
applied” cases in that the complaint alleges an impermissible
modification of preexisting EEPAs that would broadly affect all
West Virginia QFs.

In Occidental Chemical Corp., the district

court distinguished Greensboro Lumber and MIT on grounds that are
equally apt in this case.

See 494 F. Supp. 2d at 410 (“Inasmuch as

the Greensboro Lumber Co. court relied upon the allegation that the
non-regulated utility violated PURPA as-applied to the plaintiff
alone, the case is distinguishable.

In the case sub judice,

neither Carville nor Occidental allege that the [state regulatory]
order violates PURPA as-applied to either plaintiff alone.”); id.
(“Like Greensboro Lumber Co., Mass. Inst. of Tech. is
distinguishable because neither Carville nor Occidental allege that
either is the only QF subjected to the new methodology for
calculating avoided cost.

To the contrary, Occidental alleges that

‘the [state regulator’s] failure to implement PURPA is demonstrated
by the broad scope of entities to whom the [state regulator’s]
Order applies . . . .’”). 8

8

The Commission Order sets forth a rule

The Commission argues that Occidental Chemical is itself
42

that broadly applies to PURPA QFs and that is allegedly
“inconsistent with or contrary to [FERC’s] regulations.”
Statement, 23 F.E.R.C. at ¶ 61644.

Policy

The Commission Order does not

relate to a “particular qualifying facility,” 9 Greensboro Lumber,
643 F. Supp. at 1374, and the court is satisfied that this action
is not an “as applied” challenge.

C. Abstention
The Utilities argue that this court should abstain from
adjudicating MEA’s claims under the Younger, Burford, Pullman,
Princess Lida, and Colorado River abstention doctrines because the
“exact claims” have already been adjudicated in state proceedings
before the Commission and the West Virginia Supreme Court of
Appeals.

Utilities’ Mem. Supp. Mot. J. Pleadings 3, 24-25.

The

Utilities’ opening brief dedicates a mere three sentences of
argument to these several complex doctrines.

The reply brief

distinguishable because in that case the state regulator expressly
authorized modification of the QF’s avoided cost rates, whereas
this case “indirectly reduces the QFs avoided cost rate previously
implemented.” Comm’n Reply 19. But MEA claims precisely the
contrary: that, inasmuch as the Commission relied on the avoided
cost rates as grounds for its decision, it directly modified the
rates. Moreover, even if such a distinction is tenable, it is of
no consequence to the grounds on which Occidental Chemical
distinguished Greensboro Lumber and MIT.
9

The Commission acknowledged the breadth of the Commission Order’s
impact when, in arguing for the application of Rooker-Feldman, it
stated that the Commission Order had become the “law of the land in
West Virginia.” Comm’n’s Mem. Supp. Mot. Dismiss 18.
43

simply gives a short discussion of Burford followed by a series of
sentences, each one of which describes why a different abstention
doctrine applies to this case.

The court concludes that the

abstention arguments have not been seriously raised by the
Utilities.

In any event, the court declines to abstain under the

aforementioned doctrines.

The case has been fully resolved in the

West Virginia Supreme Court of Appeals and there is no ongoing,
parallel state proceeding, so abstention is not warranted under
Younger, Colorado River, or Pullman.

See England v. Louisiana

State Bd. of Medical Examiners, 375 U.S. 411, 416 n.7 (1964)
(Pullman); United States v. South Carolina, 720 F.3d 518, 527 (4th
Cir. 2013) (Younger); Ackerman v. ExxonMobil Corp., -- F.3d --,
2013 WL 4008699, at *3 (4th Cir. 2013) (Colorado River).

There are

no unresolved questions of state law, so abstention is not
warranted under Burford.

See Town of Nags Head v. Toloczko, --

F.3d --, 2013 WL 4517074 at *3 (4th Cir. 2013).

Finally, MEA does

not request that the court take control of property over which a
state court has obtained jurisdiction.

Rather than asking the

court to control the RECs, MEA asks for an injunction against the
Commission, damages, and declaratory relief.
is not warranted under Princess Lida.

Therefore, abstention

See Gannett Co., Inc. v.

Clark Const. Group, Inc., 286 F.3d 737, 747 n. 9 (4th Cir. 2002).

10

10

The court also declines to abstain pursuant to the discussion in
the order dismissing the companion case before it, City of New
Martinsville v. Public Service Comm’n of West Virginia, 2:12-cv44

D. Res Judicata and Collateral Estoppel
The defendants assert that res judicata and collateral
estoppel bar MEA’s complaint because the issues have been fully
litigated within the Commission’s proceeding and the state court
appeal.

The Full Faith and Credit Act, 28 U.S.C. § 1738 requires
the federal court to “give the same preclusive effect to a statecourt judgment as another court of that State would give.”
Steel, Inc. v. First Ala. Bank, 474 U.S. 518, 523 (1986).

Parsons
The

application of preclusion principles is subject to a two-part
inquiry:
First, a federal court must look to state law to
determine the preclusive effect of the state court
judgment. If state law would not bar relitigation of an
issue or claim decided in the earlier proceeding, then
the inquiry ends -- a federal court will not give the
state court judgment preclusive effect either. If state
law would afford the judgment preclusive effect, however,
then a federal court must engage in a second step -— it
must determine if Congress created an exception to
§ 1738. Only if “some exception to § 1738 applie[s]” can
a federal court refuse to give a judgment the preclusive
effect to which it is entitled under state law. An
exception “will not be recognized unless a later statute
contains an express or implied partial repeal” of § 1738.

1809.
45

In re Genesys Data Techs., Inc., 204 F.3d 124, 128 (4th Cir. 2000)
(citations omitted); see also Jaffe v. Accredited Sur. and Cas.
Co., 294 F.3d 584, 590 (4th Cir.2002).

Under the relevant state law, res judicata prevents
relitigation when three elements are satisfied:
First, there must have been a final adjudication on the
merits in the prior action by a court having jurisdiction
of the proceedings. Second, the two actions must involve
either the same parties or persons in privity with those
same parties. Third, the cause of action identified for
resolution in the subsequent proceeding either must be
identical to the cause of action determined in the prior
action or must be such that it could have been resolved,
had it been presented, in the prior action.
Blake v. Charleston Area Med. Ctr., Inc., 498 S.E.2d 41, 49 (W. Va.
1997) (quoting Hannah v. Beasley, 53 S.E.2d 729, 732 (W. Va.
1949)).

The West Virginia Supreme Court of Appeals has further

expounded on what constitutes the same cause of action in the res
judicata context:
“[F]or purposes of res judicata, ‘a cause of action’ is
the fact or facts which establish or give rise to a right
of action, the existence of which affords a party a right
to judicial relief. . . . The test to determine if the
. . . cause of action involved in the two suits is
identical is to inquire whether the same evidence would
support both actions or issues. . . . If the two cases
require substantially different evidence to sustain them,
the second cannot be said to be the same cause of action
and barred by res judicata.”
Id. at 48 (quoting White v. SWCC, 262 S.E.2d 752, 756 (W. Va.
1980)).

For res judicata to be applicable, a prior adjudication

need not have formally and directly addressed a matter:
46

“[A]n adjudication by a court having jurisdiction of the
subject-matter and the parties is final and conclusive,
not only as to the matters actually determined, but as to
every other matter which the parties might have litigated
as incident thereto and coming within the legitimate
purview of the subject-matter of the action. It is not
essential that the matter should have been formally put
in issue in a former suit, but it is sufficient that the
status of the suit was such that the parties might have
had the matter disposed of on its merits.”
Id. (quoting Syl. Pt. 1, Conley v. Spillers, 301 S.E.2d 216, 217
(W. Va. 1983)).

For administrative agency decisions, the preclusion rule
is derived from Page v. Columbia Natural Resources, Inc. and
provides as follows:
An assessment of three factors is ordinarily made in
determining whether res judicata and collateral estoppel
may be applied to a hearing body: (1) whether the body
acts in a judicial capacity; (2) whether the parties were
afforded a full and fair opportunity to litigate the
matters in dispute; and (3) whether applying the
doctrines is consistent with the express or implied
policy in the legislation which created the body.
480 S.E.2d 817, 831 (W. Va.) (quoting Syl. Pt. 3, Mellon-Stuart Co.
v. Hall, 359 S.E.2d 124, 126 (W. Va. 1987)).

One need not pause to consider whether the proceedings
that culminated in the Commission Order met this test.

According

preclusive effect to the Commission Order would be inconsistent
with the framework through which the court conducts its review,
inasmuch as Section 210(h) gives the court jurisdiction to review
47

regulatory authority decisions for compliance with PURPA
implementation rules.

Barring review due to the Commission’s own

proceedings would significantly impair the court’s ability to carry
out that congressionally granted function.

The court, however, concludes that the Supreme Court of
Appeals’ decision in New Martinsville/MEA bars relitigation of
MEA’s claims.

First, New Martinsville/MEA was a final adjudication

on the merits by a court having jurisdiction of the proceedings.
Blake, 498 S.E.2d at 49.

The high court affirmed the Commission’s

order as consistent with both PURPA and state law.

New

Martinsville/MEA, 729 S.E.2d at 196-97, 199 (“[W]e find no merit to
the arguments asserted by the Generators and, therefore, the
decision of the Commission finding that the credits at issue are
owned by the Utilities is affirmed.”).

As expressly recognized by

FERC, the high court had jurisdiction to consider PURPA
implementation claims:
[T]he Commission [(FERC)] believes that its jurisdiction
to review and enforce the section 210(f) implementation
requirement (i.e., the requirement that State regulatory
authorities . . . promulgate rules consistent with the
requirements established by this Commission under section
210(a) of PURPA) is not exclusive. In fact, we would
anticipate that generally proceedings would be initiated
at the State level.
Policy Statement, 23 F.E.R.C. ¶ 61,304, at ¶ 61,664.

48

MEA’s position to the contrary -- that this court has
exclusive jurisdiction over PURPA enforcement claims -- is based on
the following statement from a federal court of appeals:
Congress created in § 210 a complete and independent
scheme by which the purposes of PURPA are to be realized.
That scheme involves the promulgation of regulations by
the FERC, and their subsequent enforcement exclusively in
federal district court, at the insistence of either a
private party or the FERC itself.
Industrial Cogenerators v. FERC, 47 F.3d 1231, 1235-36 (D.C. Cir.
1995).

MEA overlooks that the appeals court made the statement in

the context of the plaintiff’s direct challenge to a FERC order.
Under PURPA, a plaintiff may opt to pursue judicial enforcement of
a state’s PURPA implementation in one of two ways: directly, at the
state level under § 210(g); or in federal district court after
petitioning FERC under § 210(h).

See Rainbow Ranch Wind, LLC &

Rainbow West Wind, LLC, 139 F.E.R.C. ¶ 61,304 (“Section 210(g) and
section 210(h) of PURPA provide for separate state and federal
rights to challenge a state’s implementation of PURPA.

A state’s

implementation of PURPA and the Commission’s rules implementing
PURPA may be challenged either through the state courts under
section 210(g) of PURPA, or separately at the Commission under
section 210(h) of PURPA, or both.”).

Industrial Cogenerators’

discussion of exclusivity stands only for the proposition that a
direct challenge to a FERC order must occur under § 210(h), at the
federal district court.

Here, MEA is challenging a state

implementation enforcement action, not a FERC order.
49

The second element required for applying preclusion is
satisfied since, in both this case and New Martinsville/MEA, MEA is
challenging the Commission Order and the Commission and the
Utilities are defending.

See Blake, 498 S.E.2d at 49.

While the

individual Commissioners were not parties to New Martinsville/MEA,
MEA does not assert that the Commissioners were not in privity with
the Public Service Commission.

Indeed, the Commissioners, sued

here in their official capacity, are in privity with the Public
Service Commission.

While the West Virginia cases are relatively

silent on the matter, there exists other persuasive authority on
the issue.

See, e.g., Tait v. Western Maryland R. Co., 289 U.S.

620 (1933) (tax collector in privity with Commissioner of Internal
Revenue);

Mears v. Town of Oxford, Md., 762 F.2d 368, 371 n.3 (4th

Cir. 1985) (applying Maryland law).

Finally, the causes of action identified for resolution
in this action are identical to the causes of action determined in
New Martinsville/MEA, or such that they could have been resolved,
had they been presented.

See id.

The West Virginia Supreme Court

of Appeals addressed and rejected MEA’s Count I argument that the
Commission improperly modified the EEPAs: “the Commission has not
modified the terms of the existing EEPAs but, instead, has only
determined ownership of assets -- the credits -- which were not

50

contemplated and, thus, not provided for in the EEPAs.”

New

Martinsville/MEA, 729 S.E.2d at 196.

The same discussion also addresses MEA’s Count II
preemption claim, which arises from the allegedly improper
modification.

Count II alleges “[s]pecifically” that the

Commission was prohibited from “holding that the payment of avoided
cost rates included compensation for RECs.”
the high court addressed this issue.

Compl. ¶ 72.

Notably,

It recognized that modifying

the EEPA is something the Commission cannot do under § 210(e) of
PURPA, citing Freehold, 44 F.3d at 1192; and it concluded that the
Commission’s actions were not preempted because the Commission did
not modify the terms of the EEPA.

New Martinsville/MEA, 729 S.E.2d

at 196.

New Martinsville/MEA directly and thoroughly resolved
MEA’s Count III claim that the decision to certify the Morgantown
facility constituted utility-type regulation, concluding that it
did not.

Id. at 196-97, 200.

There the court noted that “MEA

argues that the Commission’s conclusion that it can ‘deem’ the
Morgantown project certified to create credits recognized by West
Virginia law contradicts MEA’s federally-created exemption from
‘utility-type’ state law regulation.”

Id. at 199.

Here, MEA makes

the same claim in Count III: “The [Commission’s] decision that it
51

‘has the jurisdiction and authority to deem’ MEA’s facility
certified as a qualified energy resource to generate WV-RECs exerts
impermissible ‘financial’ and ‘organizational’ regulation of MEA.”
Compl. ¶ 79.

In Count IV, MEA asserts that “[t]he [Commssion] Order
violates PURPA’s anti-discrimination provision by determining that
the avoided cost rates paid to MEA . . . include MEA’s WV-RECs.”
Compl. ¶ 86.

PURPA mandates that rates for the purchase of energy

by a utility must not discriminate against QFs (as compared to
facilities that are not qualified).

16 U.S.C. § 824a-3(b)(2).

MEA

claims that under West Virginia law, a non-QF will retain any RECs
associated with the energy it generates.

As a result, MEA argues,

the Commission Order discriminates because QFs do not get to keep
their RECs -– instead they go to the utility with which the QF has
a contract.

For the moment, the court sets aside whether MEA is
correct about the state of the law in West Virginia and its
discriminatory effect.

The viability of MEA’s cause of action is

not at issue in an analysis of res judicata.

52

All the court need

determine is whether MEA asserts the same cause of action as in New
Martinsville/MEA. 11

As to whether MEA asserts the same cause of action as in
New Martinsville/MEA, the discrimination argument in Count IV
appears directly in MEA’s brief presented before the West Virginia
Supreme Court of Appeals.

Utilities’ Mot. Dismiss, Exh. A 32.

Therefore, even if the discrimination claim did not constitute the
same cause of action as in the instant case -- which it did because
there is no additional evidence required to pursue it -- it clearly
could have been made in New Martinsville/MEA, inasmuch as the
argument was, in fact, presented there.

That is enough for res

judicata.

Count V merely requests injunctive relief, and is not a
stand-alone claim.

Finally, respecting Count VI, the West Virginia

Supreme Court of Appeals directly considered and rejected MEA’s
argument that the Commission Order “results in the taking of
private property without just compensation.”

New Martinsville/MEA,

729 S.E.2d at 197 n.13 (“[W]e find no merit to this argument
because the Commission determined that the credits were owned by

11

Nevertheless, the court does ultimately examine the merits of
MEA’s discrimination claim and concludes that MEA makes an
incorrect statement of the law and that the Commission Order is not
discriminatory. See infra Part III.E.4, pp. 61-63.
53

the Utilities in the first instance.

The Commission’s decision

could not constitute an unconstitutional taking because no property
owned by [MEA] was taken.”).

Despite the overlap between this case and New
Martinsville/MEA, MEA insists that the two cases are entirely
distinct claims: “The object of this case -- enforcement of a PURPA
implementation claim -- is separate and distinct from the issue of
REC ownership presented in the New Martinsville case.” 12
Comm’n’s Mot. Dismiss 23.

Opp’n to

As stated above, however, state law

interprets a “cause of action” for purposes of res judicata as “the
fact or facts which establish or give rise to a right of action,
the existence of which affords a party a right to judicial relief.”
See Blake, 498 S.E.2d at 48.

In both New Martinsville/MEA and this

case, MEA attempts to overturn the Commission Order, and it is the
circumstances of the PURPA implementation claims and takings claim

12

Even if this were the case, it appears that New
Martinsville/MEA’s underlying conclusions would merit preclusive
effect on collateral estoppel grounds. See Bland v. State, 737
S.E.2d 291, 297 (W. Va. 2012) (“Collateral estoppel will bar a
claim if four conditions are met: (1) The issue previously decided
is identical to the one presented in the action in question; (2)
there is a final adjudication on the merits of the prior action;
(3) the party against whom the doctrine is invoked was a party or
in privity with a party to a prior action; and (4) the party
against whom the doctrine is raised had a full and fair opportunity
to litigate the issue in the prior action.” (quoting Syl. Pt. 1,
State v. Miller, 459 S.E.2d 114 (W. Va. 1995))).
54

that give rise to the right of action in each case.

Therefore, the

causes of action are identical.

MEA suggests that even if the requirements for res
judicata are satisfied, the court may nonetheless decline to
enforce the doctrine.

MEA is right that the court is not obligated

to apply the doctrine: “[E]ven though the requirements of res
judicata may be satisfied, we do ‘not rigidly enforce [this
doctrine] where to do so would plainly defeat the ends of
Justice.’”

Blake, 498 S.E.2d at 50 (quoting Gentry v. Farruggia,

53 S.E.2d 741, 742 (W. Va. 1949)).

However, it is unclear how MEA

believes the West Virginia Supreme Court of Appeals’ decision in
New Martinsville/MEA would “plainly defeat the ends of justice,”
apart from the mere fact that MEA disagrees with its outcome.
Moreover, as discussed below, this court substantially agrees with
New Martinsville/MEA -- although it need not agree to apply res
judicata.

See Blake, 498 S.E.2d at 49 (“An erroneous ruling of the

court will not prevent the matter from being res judicata.”
(quoting Syl. Pt. 1, Conley, 301 S.E.2d at 217)).

Accordingly, res judicata applies to each and every count
brought by MEA in its complaint, and bars them all from
relitigation in this court.

55

E. Sufficiency of the Claims 13
Apart from the application of res judicata, the court
agrees with the Utilities assertion that MEA’s PURPA claims in
Counts I through V fail as a matter of law. 14

1. Count I: Violation of PURPA
Count I alleges the Commission Order violates PURPA and
FERC’s regulations implementing PURPA by “granting ownership of WVRECs to Mon Power without requiring the payment of compensation to

13

MEA asserts that “these issues are inappropriate for a motion to
dismiss and are contrary to the agreement of the parties to present
the issues to the Court in two steps.” Opp’n to Utilities’ Mot. J.
Pleadings 17. The court’s January 10, 2013 bifurcation order,
however, did not limit the motions to procedural issues, and the
Utilities’ arguments are appropriate at this juncture. Moreover,
the arguments overlap considerably with what the parties have
elsewhere deemed “procedural” arguments, and, in any case, MEA has
had an opportunity to respond.
14

The parties do not address the merits of Count VI, the takings
claim, which is only asserted against the Commission. That is,
they do not address whether the Commission Order effected an
unconstitutional taking. The Commission and MEA do argue over how
sovereign immunity might bar relief under Count VI, but they both
agree that even after applying sovereign immunity, prospective
injunctive relief would still be available against the individual
Commissioners. Inasmuch as resolving the sovereign immunity
arguments would not eliminate Count VI outright, and because the
court dismisses Count VI on res judicata grounds, there is little
utility to addressing the sovereign immunity claims, and the court
declines to do so.
56

MEA beyond the avoided cost rate in the parties’ PURPA EEP[A].”
Compl. ¶ 67.

The Utilities seek dismissal on the ground that the
Commission Order was purely a matter of state law and did not
violate PURPA. 15

They argue that the Commission Order assigns

credits based exclusively on state law authority, consistent with
American Ref-Fuel, and that MEA has no grounds for challenging that
decision.

The basis for the decision, the Commission states, was

the assessment of the Portfolio Act’s policy goals and the
determination that granting credits to the generators would be an
“un-bargained for windfall” for the generator and would be “unfair
to the utilities and rate-paying public.”

Comm’n Reply 6.

MEA relies on “FERC’s view” that the Commission Order
violated PURPA by “impermissibly discriminat[ing]” against West
Virginia QFs with PURPA-approved EEPAs.

Opp’n to Comm’n 12.

MEA

quotes the FERC’s conclusion that “[t]he only reasonable reading”
of the [Commission] Order is that the West Virginia Commission’s
finding . . . is based on the West Virginia Commission’s belief
that the PURPA avoided cost rates are overly generous and therefore
must include RECs.”

140 F.E.R.C. ¶ 61,223 at ¶ 21.

15

MEA further

The Commission raised these arguments in the jurisdictional
context, but the court, for reasons discussed above, finds it more
appropriate to consider the arguments with respect to the merits.
57

points to statements that the Commission Order was “inconsistent
with PURPA,” 139 F.E.R.C. ¶ 61,066 at ¶ 47, and was “inconsistent
with [FERC’s] ruling in American Ref-Fuel that avoided cost rates
‘in short, are not intended to compensate the QF for more than
capacity and energy,’”

140 F.E.R.C. ¶ 61,223 at ¶ 21.

The court agrees with the Supreme Court of Appeals’
reasoning in New Martinsville/MEA.

There, the high court found

that the Commission, in accordance with the legislative intent of
the Portfolio Act and its statutory charge to balance the interests
of the utilities, the public, and the state’s economy in making its
assessment, “concluded that the public interest favored awarding
ownership of the credits to the Utilities.”
729 S.E.2d at 198.

New Martinsville/MEA,

Thus, the Commission’s determination is

consistent with FERC’s guidance in American Ref-Fuel that a state
regulator should “find its authority [for assigning RECs] in state
law, not PURPA.”

105 F.E.R.C. ¶ 61,007, at ¶ 24.

Other courts

have noted and approved similar public policy grounds for assigning
RECs.

See Ownership of RECs, 913 A.2d 825, 830 (N.J. Super. Ct.

App. Div. 2007) (“[A]s the [state regulator] concluded, assignment
of the Renewable Energy Certificates to appellants necessarily
would have meant that retail consumers would have had to pay more
for electricity.

This result would be unfair to retail consumers,

who have already paid for appellants’ electricity, and is entirely

58

inconsistent with the governing state legislation.”); ARIPPA v. Pa
Pub. Util. Comm’n, 966 A.2d 1204, 1214 (Pa. Commw. Ct. 2009)
(accepting the state regulator’s “conclu[sion] that the public
interest favored awarding ownership rights in the credits to the
distribution company” where there was “no controlling statutory
language in the applicable version of [the state portfolio
standards act], no controlling precedent, and no guiding language
in the contracts themselves”).

The Commission Order does not conclude, as proscribed by
American Ref-Fuel, that the avoided cost rate inherently
compensates for more than capacity and energy.

As the Supreme

Court of Appeals observed, the Commission “only interpreted the
EEPAs to evaluate the Utilities’ obligations under them and their
ownership of the electricity at the time it is generated.”
Martinsville, 729 S.E.2d at 196.

New

It did not “interfere[] with the

Generators’ federally-granted right to be exempt from certain
utility-type state regulation.”

Id. at 196-97.

In implementing the Portfolio Act, the Commission
necessarily had to consider the circumstances surrounding the PURPA
EEPAs -- agreements that are directly relevant to the Portfolio
Act’s policy goals of providing renewable energy at reasonable
prices.

Id. 198-99 (“The purpose of the Portfolio Act is to
59

encourage the creation and use of energy from alternative sources
of energy.

West Virginia Code § 24–2F–2(7) (Repl.Vol.2008 &

Supp.2011) states: ‘It is in the public interest for the state to
encourage the construction of alternative and renewable energy
resources facilities that increase the capacity to provide for
current and anticipated electric energy demand at a reasonable
price.’”).

The Commission’s finding that PURPA EEPAs are generous

and require no additional consideration is merely an assessment of
policy concerns.

It does not signify a belief that the EEPAs

“inherently” convey RECs.

See 105 F.E.R.C. ¶ 61,005, at ¶ 2.

The

Commission Order is not based on PURPA and does not modify the
EEPA’s avoided cost rates.

FERC’s April and September orders do not require the
court to reach a different outcome.

As the defendants emphasize,

FERC’s conclusions are not binding upon this court, though the
court does consider FERC’s studied and informed pronouncements
respectfully.

FERC’s opinion that the Commission Order in one

respect is inconsistent with PURPA does not diminish the
determination of the Commission and the West Virginia Supreme Court
that the Commission’s conclusion, that the RECs at issue belong to
the Utilities, is based on state law.

Having determined that Count

I does not assert a cognizable violation of PURPA, the court
concludes that MEA is not entitled to declaratory relief.

60

2. Count II: Federal Preemption
Count II asserts that the Commission Order is preempted
by federal law in that it is contrary to and inconsistent with the
Commission’s PURPA § 210(f) implementation requirement.

As stated by the Second Circuit in Wheelabrator, “The
FERC decision in American Ref-Fuel does not evince an intent to
occupy the relevant field - namely, the regulation of renewable
energy credits.

Rather, it explicitly acknowledges that state law

governs the conveyance of RECs.”

531 F.3d at 190.

This court has

concluded that West Virginia state law -- particularly the W.Va.
Portfolio Act -- appropriately governed the Commission’s conveyance
of RECs.

The Commission Order is consistent with PURPA, and MEA

has failed to state grounds for its preemption claim.

3. Count III: Exemption of QFs from State Regulation
In Count III, MEA seeks a declaration that the Commission
Order violates PURPA’s exemption of QFs from state laws relating to
utility-type regulation.

MEA asserts that the Commission’s

“decision that it ‘has the jurisdiction and authority to deem’
MEA’s facility certified . . . to generate WV-RECs exerts
impermissible ‘financial’ and ‘organizational’ regulation of MEA.”
Compl. ¶ 79.

The Utilities contend that this count fails because
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certifying the MEA facility would not amount to the “management” of
MEA.

The court does not agree that the Commission’s
certification of the Morgantown facility constitutes utility-type
regulation.

New Martinsville/MEA is again persuasive.

That court

aptly found that since the Utilities owned the credits “in the
first instance,” unilateral certification by the Commission was the
“only mechanism by which the [Utilities] can receive certification
that the energy they are purchasing satisfies the requirements of
the Portfolio Act.”

New Martinsville/MEA, 729 S.E.2d at 200.

Given this state-law justification, the court agrees with
the state supreme court’s further conclusion that the decision was
“simply an extension of [the Commission’s] jurisdiction over public
utilities and the authority conferred upon it by the Portfolio
Act.”

New Martinsville/MEA, 729 S.E.2d at 200.

It “provid[ed] a

mechanism for the owner of the energy, the Utilities, to receive
certification that the energy they are purchasing qualifies for the
purpose of satisfying the requirements of the Portfolio Act.”

Id.;

see also Comm’n Order 42 (recognizing the need “to allow the
[Utilities] to seek certification of the credits we have determined
they own” given the “unusual difficulty”).

Rather than regulating

the organizational or financial aspects of the Morgantown facility,
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its certification merely recognizes the Utilities’ compliance with
the Portfolio Act.

Count III fails to state a claim of utility-

type regulation.

4. Count IV: PURPA’s Anti-Discrimination Provision
As noted, Count IV asserts that the Commission Order
violates PURPA § 210(b) and 18 C.F.R. § 292.304(a)(1) by creating a
rate for the purchase of energy that discriminates against QFs.
PURPA regulation 18 C.F.R. § 292.304(a) provides that “[r]ates for
purchases shall: (i) Be just and reasonable to the electric
consumer of the electric utility and in the public interest; and
(ii) Not discriminate against qualifying cogeneration and small
power production facilities.”

MEA contends that the Commission

Order is discriminatory against QFs because it concludes that the
PURPA EEPAs convey the credits whereas, under state law, non-QF
generators are able to sell their electricity while retaining the
credits associated with the energy they generate.

Id. ¶ 86.

MEA’s characterization of state law as discriminatory
appears to arise from a statement in the Commission Order that
“[t]he unbundling provision in Rule 5.6 of the Commission Portfolio
Standard Rules cannot reasonab[ly] be applied retroactively; it was
intended to apply prospectively to agreements for the purchase of
electricity entered [into] after January 4, 2011, the effective
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date of the Rules.”

Comm’n Order 53.

According to MEA, this

statement means that a non-utility generator that is not a QF under
PURPA with a post January 4, 2011 contract gets to keep its RECs,
because under the rules it can unbundle the RECs from the power it
sells to a utility and sell those RECs separately.
Utilities’ Mot. J. Pleadings 23.

Pl.’s Resp.

While that may be true, MEA fails

to show how such a rule is discriminatory against QFs.

If the

Commission Order were to discriminate against MEA, it must do so
with respect to a similarly situated non-QF, that is, a facility
not qualified under PURPA that had a long-term contract to sell
power that it entered into before the effective date of the rules.
The Commission Order says nothing about a non-utility non-QF that
had a long-term contract to sell power that it entered into before
January 4, 2011, nor does the Commission order address REC
ownership for QFs that have not entered into a contract before
January 4, 2011.

Indeed, parties fitting those descriptions were

not before the Commission.

The Commission Order merely states that

its unbundling rules were not meant to apply to preexisting
contracts, a ruling that depends not upon QF status, but upon
whether a non-utility generator entered into an energy sale
contract before the effective date of the rules.

In addition, the Utilities make a different argument for
dismissing Count IV.

They argue that the anti-discrimination

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provision prohibits discrimination in the setting of cost rates,
not in the determination of REC ownership.

REC ownership, they

argue, is not controlled by PURPA and is a matter of state law
according to American Ref-Fuel.

They contend that because the

Commission Order determined REC ownership and did not set cost
rates, it cannot violate the anti-discrimination provision.
court agrees.

The

Having already concluded that the Commission Order

assigned credits as a matter of state law and not as a modification
of EEPA avoided cost rates required under PURPA, there is no change
in any EEPA rate that could be deemed discriminatory.

Count IV

fails to state a claim.

5. Count V: Injunctive Relief
Count V merely asserts that “[b]ecause the [Commission]
Order violates PURPA, MEA is entitled to an Order enjoining the
Commission from enforcing the [Commission] Order.”

Compl. ¶ 89.

Since the court finds the Commission Order to be consistent with
PURPA, injunctive relief is unwarranted.

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IV.
It is, accordingly, ORDERED as follows:
1.

The motion to dismiss, filed by the Commission and the
Commissioners on December 7, 2012, be, and it hereby is,
granted;

2.

The Utilities’ motion for judgment on the pleadings,
filed January 25, 2013, be, and it hereby is, granted;
and

3.

This action be, and it hereby is, dismissed and stricken
from the docket.

The Clerk is directed to transmit copies of this order to
all counsel of record and any unrepresented parties.
ENTER: September 30, 2013

John T. Copenhaver, Jr.
United States District Judge

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