American Paper Institute, Inc. v. American Electric Power Service Corp.

Background

This case concerns two FERC rules under a 1978 energy law aimed at encouraging cogeneration and small power production. One rule requires utilities to buy power from qualifying small producers at the utility’s full avoided cost. The other requires utilities to make physical interconnections so purchases or sales can occur. Several electric utilities challenged both rules in the Court of Appeals, which vacated them, and the Supreme Court agreed to review those decisions.

Reasoning

The Court addressed whether FERC acted arbitrarily in adopting the full-avoided-cost rate and whether it exceeded its authority by ordering interconnections without requiring an evidentiary hearing in every case. The Court found FERC reasonably concluded that offering the maximum statutory rate best furthers Congress’s goal of encouraging these technologies. It also held that requiring a hearing for every interconnection would frustrate the statute’s purpose, and that FERC’s rulemaking power reasonably includes ordering necessary interconnections.

Real world impact

As a result, qualifying cogenerators and small power producers are generally entitled to be paid a utility’s full avoided cost, and utilities must make necessary interconnections without invoking a full hearing for each hookup. Waivers and negotiated contracts remain possible, and the decision seeks to speed development of small power projects while reducing reliance on fossil fuels. The case is remanded for further proceedings consistent with this opinion.