Opinion
No. CV 07 4015528S
February 13, 2008
MEMORANDUM OF DECISION
The plaintiff, NRG Energy, Inc. (NRG), appeals from an August 22, 2007 final decision of the Department of Public Utility Control (DPUC) approving capacity contracts entered into under "An Act Concerning Energy Independence (EIA)," General Statutes § 16-243m. The parties to these contracts included the defendants Connecticut Light and Power Company (CL P) and United Illuminating Company (UI) and intervenors Kleen Energy Systems, LLC (Kleen), Waterside Power, LLC (Waterside), Waterbury Generation, LLC (Waterbury), and Ameresco. The court conducted a hearing on January 29, 2008, on the DPUC's motion to dismiss for lack of standing and on the merits. The court grants the motion to dismiss for the reasons stated below.
Since the court dismisses the complaint on the ground of aggrievement, a matter of subject matter jurisdiction, the court does not reach the merits. Cox Cable Advisory Council v. Dept. of Public Utility Control, 259 Conn. 56, 788 A.2d 29, cert. denied, 537 U.S. 819, 123 S.Ct. 95, 154 L.Ed.2d 25 (2002).
The EIA was enacted by the General Assembly at a special session in June 2005, with the goals of reducing "federally mandated congested charges (FMCC)" and expanding electrical capacity in Connecticut. June Sp. Sess. P.A. 05-01; codified as General Statutes § 16-243m.
The relevant portions of § 16-243m may be summarized as follows. Under subsection (a), the DPUC was given until November 1, 2005, to identify measures to reduce FMCC, including promoting "contracts between an electric distribution company . . . and an owner of generation resources for the capacity of such resources." Under subsection (b), the DPUC was to conduct a contested case by January 1, 2006, to "establish the principles and standards to be used in developing and issuing a request for proposals" under this statute.
Under subsection (c), before February 1, 2006 the DPUC was to "conduct a proceeding to develop and issue a request for proposals to solicit the development of long-term projects designed to reduce [FMCC] . . . [P]rojects shall include . . . contracts for a term of no more than fifteen years between a person and an electric distribution company for the purchase of electric capacity rights." Under subsection (d), the DPUC was to "publish such requests for proposals in one or more newspapers or periodicals . . . and shall post such request for proposals on its web site. The [DPUC] may retain the services of a third-party entity with expertise in the area of energy procurement to oversee the development of the request for proposals and to assist the [DPUC] in its approval of proposals pursuant to this [statute]." Under subsection (e), "[a]ny person submitting a proposal pursuant to . . . subsection (c) shall include with its proposal a draft of a contract that includes the transfer to the electric distribution company of all of the rights to the installed capacity . . . No such draft of a contract shall have a term exceeding fifteen years . . ."
Under subsection (g), the DPUC, before May 1, 2006, was to "evaluate such proposals received pursuant to subsection (c) of this [statute] and may approve one or more of such proposals. The [DPUC] shall give preference to proposals that (1) result in the greatest aggregate reduction of [FMCC] . . . (2) make efficient use of existing sites and supply infrastructure, and (3) serve the long-term interests of ratepayers. Projects proposed by persons other than electric distribution companies approved pursuant to this subsection may enter into long-term contracts pursuant to subsection (i), of this [statute]."
Under subsection (i), "[a]n electric distribution company shall negotiate in good faith the final terms of the draft contract, submitted under subsection (e) of this [statute] and included in a proposal approved under subsection (g) of this [statute], and shall apply to the [DPUC] for approval of each such contract . . . No such contract may become effective without approval of the [DPUC]. The [DPUC] shall hold a hearing that shall be conducted as a contested case . . . to approve, reject or modify an application for approval of a capacity purchase contract. No contract shall be approved unless the [DPUC] finds that approval of such contract would (1) result in the lowest reasonable cost of such products and services, (2) increase reliability, and (3) minimize [FMCC] to the state over the life of the contract. Such a contract shall contain terms that mitigate the long-term risk assumed by ratepayers. No contract approved by the [DPUC] shall have a term exceeding fifteen years."
The steps that the DPUC took to effectuate the provisions of § 16-243m, as summarized above, are set forth in its August 22, 2007 final decision, pages 1-3. In July 2005, it began studying the means to design and run the procurement process authorized by the EIA. As permitted by subsection (d), the DPUC retained a consultant, London Economics International, LLC (LEI) to assist in designing and implementing requirements under the Act. "LEI's role included all aspects of the process, ranging from conducting a Needs Assessment, design of the Request for Proposals (RFP) and the Master Agreements, as serving as the RFP coordinator, to analyzing the Financial Bid submissions." (Return of Record, ROR, final decision, p. 1.)
"The process to determine what range of capacity was needed and how that capacity should be solicited and contracted for was a long and consultative one. Subsequent to LEI's retention in February 2006, the [DPUC] hosted Technical Meetings . . . Stakeholders were invited to submit written comments and provide feedback during the Technical meetings to assist the [DPUC] and LEI in its assessment of investment needs and in designing the RFP process." (ROR, final decision, pp. 1-2.)
On June 5, 2006, the [DPUC] issued "LEI's Investment Needs Assessment. . . . [I]t addressed the question of investment needs from a market-based perspective, identifying the quantity of additional capacity needed to balance the supply and procurement targets [of ISO-NE]." (ROR, final decision, p. 2.)
"Similarly, the [DPUC] also held several Technical Meetings to discuss the RFP and the draft contracts with stakeholders and stakeholders had several opportunities to provide comments on . . . documents. The [DPUC] extensively revised the Master Agreements and the RFP in response to stakeholder feedback . . . [T]he RFP was structured as an all-source RFP, where different types of demand-side and supply-side resources compete against each other . . ." Id., p. 2.
"After soliciting stakeholder input, the [DPUC] issued the final Needs Assessment along with the final RFP on September 15, 2006." Id. On December 13, 2006, fifteen bidders responded to the RFP. NRG was one of the bidders, proposing a "repowering project" — it would retire an existing plant, known as Montville 6, producing 409 MW and replace it with a new plant producing 630 MW. The proposed new plant was a "combined cycle gas turbine" baseload facility; another bidder, Kleen, offered to build a new 620 MW baseload plant in Middletown.
"From December 13, 2006 through May 2007, LEI analyzed the Financial Bids, conducting a sophisticated and detailed bid evaluation of each individual conforming bid, and a variety of different portfolios (i.e. combinations of conforming bids). The EIA described how the [DPUC] and LEI should select the best capacity projects for the state: projects selected should increase reliability, minimize [FMCC], and should be procured at the lowest reasonable cost possible. The objective of this procurement process was not to resolve all supply deficiencies in Connecticut for the foreseeable future or to displace or replace wholesale electricity markets. Rather, this procurement process was meant to encourage the development of new or incremental capacity sooner than might otherwise occur, focusing on capacity that minimizes costs by reducing FMCCs, improves reliability, and therefore achieves the greatest net benefits for Connecticut ratepayers over time, while maximizing other state policy objectives." Id.
"After several months of extensive analysis by LEI and consultations with [DPUC] staff, LEI recommended to the [DPUC] that it select four projects as winning bidders through [reports issued in May and in a slightly revised form in July 2007] . . . The [DPUC] carefully and extensively analyzed LEI's recommendations. The winning portfolio . . . constitutes a total maximum capacity of 787 MW and consists of one 620 MW new highly efficient combined cycle gas-fired plant in Middletown offered by [Kleen], one small, 66 MW, peaking plant located in Stamford in the constrained Southwest Connecticut (SWCT) region offered by [Waterside], one 96 MW new and highly efficient peaking unit also located in Southwest Connecticut (Waterbury) offered by [Waterbury], and one 5 MW energy efficiency program offered by [Ameresco]." Id., p. 3.
The DPUC's role under subsection (g) of the statute was completed with the issuance of the final decision on May 3, 2007.
"On May 18, 2007, [CL P] filed executed public and non-private versions of the Master Agreements with Kleen and Waterside for review [by the DPUC]. On May 24 and June 15, 2007, [UT] filed executed public and non-public versions of the Master Agreements with Waterbury and Ameresco, respectively." Id.
The DPUC then commenced the contested case to approve the contracts under subsection (i). "The [DPUC] reviewed evidence regarding the selected projects and Master Agreements [to] decide . . . whether the proposed contracts [met] the statutory criteria and whether to approve, reject, or modify proposed capacity contracts with the projects selected [under subsection (g)]. [The DPUC recognized that it] may only approve contracts of fifteen years or less in duration that contain terms that mitigate the long-term risk assumed by the ratepayers, and only if the contracts (1) result in the lowest reasonable cost of such products and services, (2) increase reliability, and (3) minimize [FMCCs] to the state over the life of the contract." Id., p. 3.
The DPUC conducted its hearings and had oral argument in July and August 2007. On August 22, 2007, the DPUC issued its final decision. The final decision found that the proposed projects met the criteria of subsection (i). "The selected projects will improve reliability. No parties or intervenors presented evidence that the selected projects will not provide reliability benefits." (ROR, final decision, p. 19.)
On the point of "lowest reasonable cost," the final decision analyzed LEI's methodology and concluded that the contracts are "at the lowest reasonable cost for the products and services provided. The projects were procured competitively, which is the standard approach for ensuring the lowest cost procuring products and services at a specific point in time . . . The projects in the aggregate maximized net economic benefits to Connecticut ratepayers, which were essentially used as a proxy for determining the lowest reasonable cost in this process, as well as achieving the last criteria required by the EIA (minimization of FMCCs). LEI determined that [these contracts] would result in the largest aggregate net benefits to ratepayers, a weighted average of $522 million on a net present value over the 15 year time horizon." (ROR, final decision, p. 24.)
Finally the final decision relied on the July 5, 2007 LEI report to conclude that the proposed projects would reduce wholesale market prices and reduce ratepayers' obligations to pay FMCCs. The benefits outweighed the cost of the contracts to the ratepayers. (ROR, final decision, p. 27.) The final decision concluded: "The [DPUC] finds by a preponderance of evidence that the four proposed projects, based on their financial bids and the terms and conditions of the Master Agreements that they have agreed to adhere to, meet the criteria of section 16-243m(i). This conclusion is supported by LEI's economic analysis discussed more fully above which the [DPUC] finds by a preponderance of the evidence to be reasonable and consistent with evaluating the proposed Master Agreements with the approval criteria of section 16-243m." (ROR, final decision, p. 32.)
The final decision also dealt with three claims raised by NRG, which had been allowed by the DPUC to intervene in the subsection (i) contested hearing. These claims also form the basis of the administrative appeal. Two of these claims involved the selection process in the subsection (g) proceeding, an uncontested case where the four proposed contractors had been chosen. While the DPUC did respond to NRG in the final decision, it also emphasized that the scope of the subsection (i) proceeding did not include reconsidering subsection (g) issues. "The [DPUC] limited the scope in this [subsection (i)] proceeding in an attempt to prevent revisiting issues about assumptions and evaluation methodologies that were previously discussed, decided, and then relied on in [the subsection (g)] proceeding . . . [The DPUC] did not want to have a `battle of experts' in this contested case proceeding regarding issues that had long ago been decided on in the past uncontested case proceeding which required the [DPUC] to select projects which would ultimately be considered for capacity contracts in this proceeding." (ROR, final decision, p. 9.)
Having made this point, the DPUC did discuss NRG's claims. The first was that § 2.1 of the RFP drafted by LEI misled NRG into believing that its proposal to "repower" its Montville plant would receive full credit for 630 mw of power after 2010. LEI only credited NRG's proposal with an incremental amount of 221 mw. The final decision replied that "NRG had not otherwise made any official announcement to the [DPUC] or to ISO-NE that the facility was going to be retired." NRG did not submit any questions to clarify their understanding of how "such a project would be evaluated." (ROR, final decision, p. 14.)
The second contention raised by NRG was that the various scenarios used by LEI in the bid evaluation analysis were faulty. The scenarios were alleged to be unrealistic and unreliable. For example, NRG objected to LEI's consideration of massive rolling blackouts in Connecticut, when nothing of this magnitude had ever occurred here. The DPUC answered that LEI was not incorrect in testing all possible future market outcomes. "Such worst case scenarios are often difficult to anticipate and are not expected to happen, as seen, for example, with real world events, like the tripling of gas prices and the overnight bankruptcy of Enron." (ROR, final decision, p. 12.)
The final contention of NRG related to the DPUC's reliance on LEI in both the subsection (g) selection process and the contested case review process of subsection (i). NRG made the claim that it was illegal for LEI to advise the DPUC on which bidders should be approved for selection and then to participate as DPUC's expert in the subsection (i) contested case. The DPUC replied that every party had a full hearing and their views were fully evaluated. Further the legislature had established a two-part process. It would be "legally and factually impossible for the [DPUC] to bifurcate all of the issues in this procurement process into discrete separate bundles in the two separate proceedings when there are several overarching statutory preferences and criteria that all must be satisfied at all times in order to satisfy the legislative intent of Section 16-243m by obtaining additional capacity resources that benefit Connecticut." In addition it was unfeasible to have two separate experts for subsection (g) and subsection (i). The statute had no such requirement. (ROR, final decision, p. 31.)
NRG has taken an appeal from the August 22, 2007, final decision. The DPUC moved to dismiss the complaint on the ground of lack of aggrievement and has raised the issue in its brief on the merits. Our Supreme Court has stated the standard for finding standing as follows: "Standing is not a technical rule intended to keep aggrieved parties out of court; nor is it a test of substantive rights. Rather it is a practical concept designed to ensure that courts and parties are not vexed by suits brought to vindicate nonjusticiable interests and that judicial decisions which may affect the rights of others are forged in hot controversy, with each view fairly and vigorously represented . . . Two broad yet distinct categories of aggrievement exist, classical and statutory . . . Classical aggrievement [the only aggrievement claimed in this appeal] requires a two part showing. First, a party must demonstrate a specific, personal and legal interest in the subject matter of the [controversy], as opposed to a general interest that all members of the community share . . . Second, the party must also show that the [alleged conduct] has specifically and injuriously affected that specific personal or legal interest . . ." (Citation omitted.) Andross v. West Hartford, 285 Conn. 309, 322 (2008).
Under General Statutes § 4-183(a), a plaintiff must be "aggrieved" to file an administrative appeal. Appeals taken under § 16-35 from final decisions of the DPUC must comply with § 4-183(a). Southern New England Telephone Co. v. Dept. of Public Utility Control, 64 Conn.App. 134, 139, 779 A.2d 817 (2001), appeal dismissed, 260 Conn. 180, 799 A.2d 294 (2002). This is a matter of subject matter jurisdiction. Wesley v. Schaller Subaru, Inc., 277 Conn. 526, 537, 893 A.2d 389 (2006).
After both the complaint and the motion to dismiss were filed, the parties agreed that each would file briefs on the merits without prejudice to raising the issue of aggrievement at the hearing on the merits.
In this case, the specific law governing standing for unsuccessful bidders applies, which recognizes that failing to obtain a public contract usually means that a party cannot show the "specific personal or legal interest" needed for aggrievement. The latest case from our Supreme Court summarizes its rulings as follows: "Both parties agree that unsuccessful bidders have no standing to challenge the award of a state contract in the absence of allegations of `fraud, corruption or acts undermining the objective and integrity of the bidding process . . ." (Internal quotation marks omitted.) Connecticut Associated Builders Contractors v. Hartford, 251 Conn. 169, 179, 740 A.2d 813 (1999); see also Unisys Corp. v. Dept. of Labor, 220 Conn. 689, 693-95, 600 A.2d 1019 (1991); Ardmare Construction Co. v. Freedman, 191 Conn. 497, 502-03, 467 A.2d 674 (1983). In Connecticut Associated Builders Contractors v. Hartford, supra, 182-84, this court specifically held that "subcontractors that submitted unsuccessful bids have no standing to challenge the bidding process because they have no legal stake in the process." Ferguson Mechanical Co. v. Dept. of Public Works, 282 Conn. 764, 770, fn. 6, 924 A.2d 846 (2007).
Because there is no ground to take an administrative appeal, Ardmare Construction Co. v. Freedman, 191 Conn. 497, 503, 467 A.2d 674 (1983) (there is no hearing required by statute or regulation), the exceptional suit claiming "fraud, corruption or acts undermining the objective and integrity of the bidding process" must be brought for declaratory and injunctive relief at the time of the conclusion of the bidding process. Id., 505; Spiniello Construction Co. v. Manchester, 189 Conn. 539, 456 A.2d 1199 (1983). See AEP Resources Service Co. v. Long Island Povver Authority, 686 N.Y.S.2d 663 (Supreme Court, 1999), in which the plaintiff obtained injunctive relief against the Power Authority to annul a contract awarded to a competing concern, Transenergie. The court in AEP found standing for the plaintiff.
In this appeal, NRG attempts to obtain standing by accepting parts of the holdings discussed above, but also in carrying these decisions one step further. It argues that the DPUC rejected its claims in the course of a contested case, the subsection (i) proceeding. Further matters that it has raised in the appeal arise directly from the statutory language in subsection (i)(1): "No contract shall be approved unless the [DPUC] finds that approval of such contract would . . . result in the lowest reasonable cost of such products and services." Finally, NRG claims that the DPUC in its August 22, 2007 final decision authorized " illegal competition," thereby giving it standing. State Medical Society v. Board of Examiners in Podiatry, 203 Conn. 295, 303, 524 A.2d 636 (1987).
Thus the argument is made that this is not similar to Ferguson in which a contested case did not take place, because there was no statutory or regulatory right to a hearing. Ferguson Mechanical Co. v. Dept. of Public Works, 282 Conn. 777-78. Rather, under subsection (i) there is a mandatory hearing.
In order to accept the position of NRG, however, the court would also have to accept the interpretation of NRG that subsection (g) and subsection (i) do not have separate functions in the statutory scheme. The DPUC interpretation is that under the timetables of the statute, it was to develop an RFP by February 1, 2006 (subsection (c)), publish the RFP and hire a consultant (subsection (d)), evaluate and choose proposals in an uncontested proceeding by May 1, 2006, (subsection (g)), and finally conduct a contested case to approve draft contracts (subsection (i)). The fact that an entity that applied under subsection (g) also participated as an intervenor in the subsection (i) proceeding does not mean that the issues settled in subsection (g) may be raised again in the subsequent approval proceeding. That NRG was permitted to intervene in the contested case does not require the DPUC to incorporate a review of the NRG critique into its review of whether the contracts produce the "lowest reasonable cost" for the consumer. The claims which NRG raises in this appeal certainly could have been the subject of a declaratory judgment or injunctive action, as indicated above.
Written exceptions were filed by NRG on April 26, 2007, in the uncontested docket, challenging the DPUC view that the NRG proposal was to supply 221 mw of power after 2010. (ROR, supp. Item XII.) The final decision also states at page 8: "In [the uncontested docket], the OCC and NRG were heavily engaged in a lengthy and extensive stakeholder process and had every opportunity to influence the assumptions and methodologies ultimately employed by LEI in evaluating and selecting bids."
The court agrees that this is a reasonable reading of what § 16-243m provides, and it defers to the DPUC interpretation. "Although the interpretation of statutes is ultimately a question of law . . . it is the well established practice of [the courts] to accord great deference to the construction given [a] statute by the agency charged with its enforcement . . . Conclusions of law reached by the administrative agency must stand if the court determines that they resulted from a correct application of the law to the facts found and could reasonably and logically follow from such facts." Wheelabrator Lisbon, Inc. v. Dept. Of Public Utility Control, 283 Conn. 672, 691, 931 A.2d 159 (2007).
It is important to remember that the EIA came about because of a perceived crisis by the General Assembly. As Senator Fonfara stated at the June 2005 special session: "Without affirmative action on our part, the economy and individual ratepayers will be negatively impacted. [EIA] is our answer to the broken deregulated generation market." Senate proceedings, p. 5553. It was a concern to the legislature that the selection process be completed with relative dispatch. (The court deems it appropriate to quote the legislative history in this complex matter to assist in determining the interrelationship of subsection (g) and subsection (i). See General Statutes § 1-2z).
While the DPUC's interpretation of this statute is not "time-tested," it has expertise in placing contracts through competitive bidding (see, e.g., Wheelabrator; Minnesota Methane, LLC v. Department of Public Utility Control, 283 Conn. 700 (2007)) and its interpretation should receive deference. MacDermid, Inc. v. Dept. of Environmental Protection, 257 Conn. 128, 139, 778 A.2d 7 (2001).
Since NRG was a failed bidder in the subsection (g) proceeding, it must allege and prove fraud, corruption or lack of integrity in the bidding process to obtain aggrievement. NRG has stated that it does not make this claim, and therefore lacks the specific personal or legal interest to claim standing.
NRG asserts that the court find standing regarding its two claims of procedural irregularity in the contested case under subsection (i). These claims of illegality are, however, without merit. First, it is claimed that the DPUC considered extra-record evidence when it discussed a scenario test that LEI had run at the request of the OCC. (ROR, final decision, p. 13.) The test in question became a part of the record (ROR, transcript, July 9, 2007, pp. 527-28) and the plaintiff, whose attorney was present, did not object to its introduction at the hearing. This transcript was certified to the court as part of the record under § 4-183(g). The court finds that the evidence in question was not "extra-record." State Board of Labor Relations v. Freedom of Information Commission, 43 Conn.App. 133, 141-42, 682 A.2d 1068 (1996) aff'd, 244 Conn. 487, 709 A.2d 1129 (1998).
Secondly, NRG points out that LEI, chosen under § 16-243(d), assisted the DPUC both during the subsection (g) proceeding and the subsection (i) proceeding. LEI testified at the hearings on the contested case and was cross-examined by NRG. NRG also submitted testimony by its experts. The claim is that under § 4-181 and the case law, the involvement of LEI was illegal. NRG contends that LEI had participated in the subsection (g) process and had a stake in defending itself in the subsection (i) process.
The simple answer to this contention is that the DPUC was obliged to make a final decision and was authorized by the General Assembly to have assistance of an expert. The DPUC was free to accept some, all or none of the statements of LEI. Lawrence v. Kozlowski, 171 Conn. 705, 708, 372 A.2d 110 (1976).
LEI was an agent of the DPUC under § 4-181(b) and thus exempt from the strictures of § 4-181(a). There is no rule of law that requires a consultant to be disqualified from assisting the agency at any steps of the contracting process. Petrowski v. Norwich Free Academy, 199 Conn. 231, 506 A.2d 139 (1986) (member of private school board, whose law firm represents the school, may hear disciplinary appeal.) In addition, NRG fails to meet its burden to show bias or prejudgment. See Withrow v. Larkin, 421 U.S. 35, 57, 95 S.Ct. 1456, 43 L.Ed.2d 712 (1975) (agency combined investigative function with adjudicative function; Larkin failed to show "the adjudicators would be so psychologically wedded to their complaints that they would consciously or unconsciously avoid the appearance of having erred or changed position").
For the foregoing reasons, NRG's complaint is dismissed for lack of standing.