Legal & Regulatory

The tyranny of the final, nonappealable condition

The financing of power generation projects increasingly depends on the execution of a long-term power-purchase agreement (PPA). A common prerequisite for considering a PPA to be "effective" is a "final and nonappealable" regulatory order approving it. Purchasing utilities justifiably insist on such certainty to immunize their PPAs from after-the-fact regulatory scrutiny and possible penalty.

Unfortunately, this focus on regulatory certainty injects its own uncertainties, which hinder development of new generation, frustrate resource planning, and increase power costs. These negative effects of the final and nonappealable requirement can be mitigated by placing reasonable limitations on the ability to challenge PPAs.

Rehearing petitions delays projects

Most states limit the right to ask for a judicial review of a regulatory decision to parties who seek a rehearing of the underlying regulatory order within 30 days. However, there is typically no time limit on regulators to rule on a rehearing petition, nor on a court to rule on a review. In practice, any rehearing petition delays satisfaction of the final and nonappealable condition (finality) by at least 90 days. This process could cause a project to be delayed for months—or even years—particularly if a request for judicial review follows.

Most states also restrict the right to seek a rehearing to the parties who participated in the regulatory proceeding. However, regulators often accept and entertain rehearing petitions filed by new participants. This largesse, and the delays and uncertainties it creates, impose costs greater than the benefits intended to be achieved by imposition of the finality condition.

Delays frustrate resource planning

Bidding protocols, regulatory approval, and other actions prolong PPA approval to the detriment of utility resource planning. How can a utility be confident that a PPA it executes today will deliver power as promised, years from now, if the PPA’s finality can be indefinitely extended by a lone person not involved in the proceeding approving the transaction?

Delaying PPA effectiveness injects uncertainty into financing, construction, and start-up schedules. Together, delayed satisfaction of the finality condition and regulators’ lax enforcement of constraints on rehearing petitions often increase project costs. From a larger perspective, they empower the smallest minority to upset a utility’s carefully crafted plans and timetable for procuring needed generation.

Limit rehearing requests

Eliminating the requirement for final and nonappealable regulatory approval of PPAs would remove unnecessary delays in project scheduling and resource development with limited, if any, cost. If the finality condition is to remain, the following are some actions that could be taken to reduce the uncertainties and costs of reaching contract finality:

  • Enforce requirements that only "parties" (actual participants in a regulatory proceeding) may seek rehearing of PPA approval orders. Party status must be an absolute jurisdictional prerequisite. Denying rehearings to petitioners who lack standing neither offends due process nor threatens the quality of decision-making or fairness. Absent allegations of fraud or regulatory impropriety, most requests for a rehearing of a PPA approval by a non-party are most often not germane and almost never granted.
  • Grant summary disposition and deny judicial appeal. In many instances, filing of even a frivolous rehearing petition causes delay, because regulatory bodies typically take several months to dismiss it. Moreover, the rehearing petition is construed as authorizing the petitioner to seek judicial review and further delays satisfaction of the finality condition. Regulators should reassert control of the process by expeditiously and summarily dismissing rehearing petitions filed by anyone without standing, stating explicitly in the dismissal order that the petitioner lacks standing to seek judicial review and specifying that the dismissal constitutes full satisfaction of the PPA’s finality condition.
  • Expedite action on valid rehearing requests. Where a party seeking a rehearing of a PPA approval order has standing, regulators should establish and actively enforce an abbreviated rehearing process that mandates issuance of its rehearing decision within 30 to 40 days. This schedule allows valid rehearing requests to be fully addressed without unduly delaying needed finality.

We do not advocate these modest reforms to deny the public or the courts the opportunity to remedy mistakes by generators, utilities, or regulators. Resource planning proceedings and competitive bidding protocols serve to limit any need for regulatory micromanagement of utility procurement. Required judicial deference to a regulatory body should be particularly dominant where the body’s action represents the essence of its authority—the need to manage procurement of incremental supplies of power. States should insist that the finality condition not jeopardize far more important (to the public interest) resource planning objectives.

Christopher A. Hilen is assistant general counsel at Sierra Pacific Power Co. He can be reached at 775-834-5696 or [email protected]. Steven F. Greenwald leads Davis Wright Tremaine’s Energy Practice Group. He can be reached at 415-276-6528 or [email protected].

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