Maine court rules on REC certification

Tuesday, June 5, 2012

Today the Maine Supreme Judicial Court issued a ruling that affects how the Public Utilities Commission evaluates some applications for renewable resource certification.

The case, Covanta Maine, LLC v. Public Utilities Commission (21-page PDF), centered on a provision of Maine law allowing existing renewable energy projects to be certified as new renewable resources if they have been refurbished after September 1, 2005 such that the project is either operating beyond its previous useful life or employing an alternate technology that significantly increases the efficiency of the generation process.

Covanta owns two standalone biomass plants in Maine.  These plants, in West Enfield and Jonesboro, generate electricity by burning wood to produce steam, which in turn spins turbines attached to generators.  Although the plants were initially built in 1986, in 2010 Covanta applied for certification of the West Enfield and Jonesboro biomass plants as new renewable capacity resources, claiming eligibility under the refurbishment clause (i.e. that each facility was operating beyond its twenty-year useful life due to investments made after September 1, 2005).

The PUC ultimately denied certification, noting that the facilities were not “refurbished” under the statute because much of the investment was for “routine maintenance”, not “refurbishment”. The Commission applied an implicit ratio test, noting that the total expensed and capitalized expenditures for the facilities were below 20% (West Enfield) and 25% (Jonesboro) of the facility’s 2008 value. The Commission concluded that neither the West Enfield nor the Jonesboro facility, when comparing Covanta’s total expenditures to the value of each facility, had sufficient capitalized investments to be considered refurbished; therefore, the Commission denied Covanta’s applications.  Covanta appealed.

Through today's majority opinion, the Law Court rejected the PUC’s analysis. The court found that the Commission did not deny the petition because it concluded that the expenditures were more in the nature of maintenance or repair items than of refurbishment investments; rather, the court found that “the Commission arbitrarily established a requirement that the expenditures meet some minimum level that equals an unspecified percentage of the total value of the facility.”
The statute does not require any minimum investment threshold, and imposing this requirement on Covanta was an error of law. Any quantitative requirement by the statute occurs only in the second prong of the pertinent section 3210(2)(B-4)(4) analysis (i.e., whether the equipment or facility is “operating beyond its previous useful life”). If the facility has been refurbished and is “operating beyond its previous useful life,” then the refurbishment investments are creating “new” energy and accomplishing the goals of the legislation.
As a result, the court vacated the PUC’s decision and remanded the matter back to the Commission. On remand, the court ordered the Commission to evaluate the expenditures by determining whether the expenditures were for the purpose of repair or maintenance, or were refurbishment investments.  The Commission must make this determination by examining the nature and character of the expenditures without any quantitative requirement related to the amount spent or the ratio of the expenditures to the total value of the facility.  The court also said that while the PUC can take the company’s tax treatment of the investments into account, this issue is not dispositive.

Two justices dissented from the majority opinion, finding that the PUC should be given deference in its evaluation of the facts of the case, including the details of Covanta's refurbishment list.

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