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<title>Louisiana Public Service Commission Declares Cogeneration Facility Jointly Owned
by a Utility Affiliate and a Manufacturing Company Not a Public Utility</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="70%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u>
<br>
<br>
May 1999<br>
</u><font face="Arial"><big><big><big>Louisiana Public Service Commission
Declare Cogeneration Facility Jointly Owned By A Utility Affiliate And A
Manufacturing Company Not A Public Utility<br>
</big></big></big></font></b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
05/99</em>)</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">On April 21, 1999, the Louisiana Public
Service Commission (PSC) unanimously determined that a cogeneration facility whose power
would be consumed by an owner-manufacturing company and would be sold at wholesale is not
an electric public utility under Louisiana law, and not otherwise subject to regulation by
the PSC as an electric public utility. The cogeneration facility is a combined cycle
project, and the steam produced could be sold to third parties. The joint owners are PPG
Industries, Inc. (PPG), a manufacturer having a chemical plant at the site of the proposed
cogeneration facility, and Entergy Power (Entergy), a non-regulated subsidiary of Entergy
Corporation. Factors considered by the PSC in its decision included the fact that each
owner holds a fifty percent interest in the facility, which mirrors capacity entitlements
for each owner; the fact that PPG would use a portion of its capacity entitlement for its
on-site chemical plant; the fact that PPG would operate the facility; and the fact that
there would be no retail sales of the energy. The PSC declined to regulate the production
and sale of steam generated at the facility.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Under Louisiana law, an "electric public
utility" is defined as "any person furnishing electric service within the State
of Louisiana." Persons not primarily engaged in the generation, transmission,
distribution, and/or sale of electricity who own, lease, or operate an electric generation
facility are exempted from this general rule provided such persons consume all of the
energy generated by the facility for their own use at the site of generation, sell all of
the energy generated to an electric public utility, or combine self-consumption with sale
to a public utility.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">In the petition to the PSC requesting a declaration
as to the regulated status of the facility, the owners described the plan related to the
proposed facility. The PSC specifically limited its order to these factual
representations. The direct owner of the facility will be RS Cogen, with PPG and Entergy
each owning fifty percent of RS Cogen, and each entitled to fifty percent of the electric
capacity of the facility. Each owner is committed to pay for its capacity with mirror
demand charges. While Entergy is a non-regulated company, it is affiliated with Entergy
Gulf States, Inc. (EGS), which is an electric utility providing service in the area
surrounding the site of the facility, by virtue of the fact that each is owned by Entergy
Corporation, a public utility holding company. However, Entergy’s relevant activities
are independent and segregated from the regulated activities of EGS. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">PPG will use its capacity for its on-site chemicals
plant and/or will sell its capacity in the wholesale power market. The capacity to which
Entergy is entitled will be sold to Entergy Power Marketing Corporation (EPMC), a
wholesale power marketer affiliated with Entergy. EPMC will only sell its capacity
entitlement in the wholesale power market. The owners will apply for the facility to
achieve the status of a "Qualifying Facility" under the Public Utility
Regulatory Policies Act (PURPA). RS Cogen will sell the steam generated by the facility to
PPG and possibly third parties pursuant to the requirements of the PURPA. The owners
represented that no retail electric service would be provided by the facility and that no
utilities or ratepayers will become obligated for any of the costs associated with the
facility.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Because the facility would not be providing retail
electric service to the public, and because the facility would have no captive customers
and not subject ratepayers or utilities to risk, the PSC found the owners do not provide
electric service to the public and are therefore not subject to the jurisdiction of the
PSC. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The PSC additionally found the facility falls within
the exemption provision of "electric public utilities" under Louisiana law. The
PSC found all three owners to be owners, lessees, or operators of the generating facility
on the basis that RS Cogen is the direct owner, PPG is an indirect owner and the operator
of the facility, and that Entergy is an indirect owner. The PSC also found that no owner
is primarily engaged in the generation, transmission, distribution and/or sale of
electricity. The PSC specifically noted that a greater than fifty percent equity interest
in the facility by Entergy would meet this requirement, but a fifty percent equity
interest does not. Even though Entergy is neither a utility nor a holding company, because
it is held by a electric utility holding company, it is considered engaged in the
generation, transmission, distribution and/or sale of electricity. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The PSC also found the self-consumption and/or
wholesale consumption requirement for the electric public utility exemption to be present.
Because PPG is an owner/operator of fifty percent of the facility and because that
ownership interest is equivalent to its entitlement to fifty percent of the capacity, the
PSC found that PPG will not be buying power from the facility, but instead will be
consuming energy for its own use. The PSC further determined that the sale of power in the
electric wholesale market by PPG and Entergy is not subject to state regulation because
the wholesale sales would fall under the jurisdiction of the Federal Energy Regulatory
Commission (FERC). Even though states have the responsibility to implement FERC’s
regulations pertaining to wholesale power sales by qualifying facilities under PURPA and
the PSC did issue such an order implementing the regulations, the PSC found that a
wholesale sale between PPG and an electric utility would not subject PPG to state
regulation where the sales are an integrated part of the qualifying facility. However, the
PSC stated the order does not affect its ability to regulate PPG or RS Cogen as a customer
or supplier to EGS, including sales of excess energy under PURPA. The PSC similarly found
that the transfer of Entergy’s fifty percent capacity to EPMC constitutes a wholesale
sale of power of a qualifying facility which is not subject to state regulation.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The PSC declined to regulate the production and sale
of steam generated by the facility, stating it has not historically done so and does not
intend to change that policy now. The PSC conditioned the order on the facility remaining
a "qualifying facility" under PURPA and asserted the order does not affect its
regulatory power over the owners in the event retail competition is approved in Louisiana.
The PSC also stated the order does not affect its avoided cost regulations.</font></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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