Californians for Renewable Energy, a California Non-Profit Corporation; Michael E. Boyd; Robert Sarvey, Plaintiffs-Appellants,
California Public Utilities Commission, an Independent California State Agency; Michael R. Peevey, Timothy Alan Simon, Michael R. Florio, Catherine J.K. Sandoval, Mark J. Ferron, in their individual and official capacities as current Public Utilities Commission of California Members, Defendants-Appellees, and Solutions for Utilities, Inc., a California Corporation, Plaintiff, and Rachel Chong, John A. Bohn, Dian M. Gruenich, Nancy E. Ryan, in their individual capacities as former Public Utilities Commission of California Members; Southern California Edison Company, a California Corporation, Defendants.
and Submitted February 6, 2019 Pasadena, California
from the United States District Court for the Central
District of California S. James Otero, Senior District Judge,
Presiding D.C. No. 2:11-cv-04975-SJO-JCG
J. Westreich (argued), Pasadena, California, for
Christine Jun Hammond (argued), Arocles Aguilar, California
Public Utilities Commission, San Francisco, California, for
J. Richardson, Gregory M. Adams, Richardson Adams, PLLC,
Boise, Idaho; Irion Sanger, Sanger Law, PC, Portland, Oregon;
for Amici Curiae Community Renewable Energy Association and
Northwest and Intermountain Power Producers Coalition.
Before: Ronald M. Gould and Jacqueline H. Nguyen, Circuit
Judges, and Algenon L. Marbley, [*] District Judge.
panel affirmed in part and reversed in part the district
court's judgment in favor of the California Public
Utilities Commission on small-scale solar energy
producers' claims that the CPUC's programs did not
comply with the Public Utility Regulatory Policies Act and
implementing regulations promulgated by the Federal Energy
the district court's summary judgment in favor of CPUC,
the panel held that PURPA requires utilities to purchase
electricity directly from "qualifying facilities,"
or "QFs," meaning qualifying small power production
facilities or cogeneration facilities, and to pay QFs at a
rate equal to the utility's "avoided cost." In
2005, the Energy Policy Act eliminated the must-purchase
obligations for any QF that FERC determined had
nondiscriminatory access to particular markets. In 2011, FERC
released California utilities from PURPA's mandatory
purchase obligations for QFs over 20 MW and established a
presumption that the obligations would apply for QFs 20 MW or
smaller, such as plaintiffs. PURPA also includes an
interconnection requirement, obligating utilities to connect
QFs to the power grid.
2010, CPUC entered into the QF settlement, which, among other
things, established a standard contract for QFs with capacity
of 20 MW or less. Under California Assembly Bill 1613, CPUC
operated a separate program for combined heat and power
facilities. CPUC also operated the Feed-in-Tariff or
Renewable Market Adjusting Tariff program for renewable
generators with capacities of 3 MW or less, as well as the
Net Energy Metering Program ("NEM Program") for
consumers with capacity of 1 MW or less. Plaintiffs alleged
that, through these programs, CPUC was not enforcing (1)
PURPA's requirement that utilities pay QF's the
"full avoided cost" and (2) PURPA's
plaintiffs argued that CPUC improperly calculated avoided
cost based on multiple sources of electricity, rather than
using "multi-tiered pricing" and calculating the
avoided costs for each type of electricity. The panel
concluded that, in light of two FERC orders interpreting
avoided cost, when a state, such as California, has a
Renewables Portfolio Standard and the utility is using a
QF's energy to meet this "RPS," the utility
cannot calculate avoided cost based on energy sources that
would not also meet the RPS. Because the district court did
not read FERC's order as requiring an avoided cost based
on renewable energy where energy from QFs was being used to
meet RPS obligations, it did not consider whether utilities
were fulfilling any of their RPS obligations through the
challenged CPUC programs. The panel therefore remanded the
case to the district court for a determination in the first
instance of whether CPUC's programs comply with this
aspect of PURPA.
plaintiffs argued that several CPUC programs violated PURPA
because they did not include capacity costs as part of the
full avoided cost. The panel held that if a QF displaces a
utility's need for additional capacity, then the utility
is required to include capacity costs as part of avoided
cost. The panel concluded that neither the QF Settlement
contract price nor a NEM Program price violated PURPA. The
panel held that utilities do not violate PURPA in not
compensating QFs for Renewable Energy Credits.
plaintiffs argued that the NEM Program violated PURPA's
interconnection requirement. The panel held that there was no
violation because the regulations allow utilities to charge
QFs for connection fees.
panel affirmed the district court's dismissal of claims
for equitable damages and attorney fees. The panel held that
the Eleventh Amendment precluded equitable damages because
CPUC was an arm of the state. Plaintiffs could not recover
attorney fees because PURPA created no attorney fee remedy.
panel reversed and remanded on the issue of the district
court's error in not interpreting FERC's regulations
to require state utility commissions to consider whether an
RPS changed the calculation of avoided cost. The panel
affirmed the district court's judgment in all other
in part, Judge Nguyen wrote that the district court's
judgment should be affirmed in its entirety. She wrote that
CPUC's programs did not conflict with PURPA, and the
majority's misreading of the law undercut discretion
intended for the states and inflicted significant
consequences upon their energy policy.
MARBLEY, DISTRICT JUDGE.
1978, Congress enacted the Public Utility Regulatory Policies
Act ("PURPA"). PURPA made several changes to energy
regulation, particularly to how utilities would interact with
small independent energy producers. PURPA charges the Federal
Energy Regulatory Commission ("FERC") with enacting
implementing regulations. FERC's regulations, in turn,
allow state regulatory agencies to determine exactly how they
will comply with PURPA and FERC's regulations. The
relevant state agency here is the California Public Utilities
for Renewable Energy ("CARE") and two of its
members, Michael E. Boyd and Robert Sarvey, are small-scale
solar producers. They allege that CPUC's programs do not
comply with PURPA. Specifically, they argue that CPUC has
incorrectly defined the amount that PURPA requires utilities
to pay qualifying facilities ("QFs"). CARE argues
that PURPA also allows equitable damages and attorney fees.
district court dismissed CARE's claims for equitable
damages and attorney fees and entered summary judgment for
CPUC on CARE's PURPA challenges. We affirm in part and
reverse in part.
FACTUAL AND PROCEDURAL BACKGROUND
enacted PURPA "to encourage the development of
cogeneration and small power production facilities, and thus
to reduce American dependence on fossil fuels by promoting
increased energy efficiency." Indep. Energy
Producers Ass'n, Inc. v. Cal. Pub. Utils. Comm'n
("IEP"), 36 F.3d 848, 850 (9th Cir. 1994).
To achieve this objective, Congress sought to eliminate two
significant barriers to the development of alternative energy
sources: (1) the reluctance of traditional electric utilities
to purchase power from and sell power to non-traditional
facilities, and (2) the financial burdens imposed upon
alternative energy sources by state and federal utility
created a new category of energy producers: qualifying
facilities. QFs can be either "small power production
facilit[ies] or "cogeneration facilit[ies]." 18 CFR
§§ 292.201 & 292.203. FERC has authority to
define the requirements for being a QF. 16 U.S.C.
§§ 796(17)(C) & (18)(B).
address the barriers facing QFs, PURPA required utilities to
purchase electricity from QFs, i.e. the mandatory purchase
requirement, 16 U.S.C. § 824a-3(a), and to pay QFs rates
that "shall be just and reasonable to the electric
consumers of the electric utility and in the public
interest." 16 U.S.C. § 824a-3(b). Utilities must
compensate QFs at a rate equal to the utility's
"avoided cost." 18 CFR § 292.304(d).
"Avoided cost" is "the incremental cost to
an electric utility of electric energy or capacity or both
which, but for the purchase from the qualifying facility or
qualifying facilities, such utility would generate itself or
purchase from another source." 18 C.F.R. §
regulatory agencies have the responsibility of calculating
avoided cost, but FERC has set forth factors that states
should consider. 18 C.F.R. § 292.304(e). Those factors
(1) the utility's system cost data;
(2) the terms of any contract including the duration of the
(3) the availability of capacity or energy from a QF during
the system daily and seasonal peak periods;
(4) the relationship of the availability of energy or
capacity from the QF to the ability of the electric utility
to avoid costs; and
(5) the costs or savings resulting from variations in line
losses from those that would have existed in the absence of
purchases from the QF.
Cal. Pub. Util. Comm'n
("CPUC"), 133 FERC ¶ 61, 059, 61,
265, 2010 WL 4144227 (2010). "Avoided cost rates may
also 'differentiate among qualifying facilities using
various technologies on the basis of the supply
characteristics of the different technologies.'"
Id. at ¶ 61, 265-66 (quoting 18 C.F.R. §
292.304(c)(3)(ii)). Avoided cost can also include the
capacity costs that the utility avoids by purchasing
electricity from QFs. CPUC, at ¶ 26.
changed this statutory scheme in 2005 with the Energy Policy
Act ("EPAct"). With EPAct, Congress acknowledged
that QFs no longer faced the same barriers that prompted
PURPA. EPAct thus eliminated the must-purchase obligations
for any QF that FERC determined had "nondiscriminatory
access to" particular markets as specified in 16 U.S.C.
§ 824a-3(m). In 2011, FERC released California utilities
from PURPA's mandatory purchase obligations for QFs over
20 MW. Pac. Gas and Elec. Co., 135 FERC ¶
61234, 62305 (2011). FERC established a presumption that the
mandatory purchase obligation would apply for QFs 20 MW or
smaller unless the utility showed that "each small QF .
. ., in fact, has nondiscriminatory access to the
market." New PURPA Section 210(m) Regulations
Available to Small Power Production and Cogeneration
Facilities ("Order 668"), 71 Fed. Reg. 64342,
64363 (Oct. 20, 2006). The facilities that CARE represents
produce less than 20 MW of energy.
addition to mandatory purchase requirements, PURPA requires
utilities to connect QFs to the power grid. The
interconnection requirement goes hand-in-hand with the
mandatory purchase requirement for "[n]o purchase or
sale can be completed without an interconnection between the
buyer and seller." Am. Paper Institute, Inc. v. Am.
Elec. Power Serv. Corp., 461 U.S. 402, 418 (1983). Using
its authority under PURPA, FERC promulgated a rule requiring
that "any electric utility shall make such
interconnection with any qualifying facility as may be
necessary to accomplish purchases or sales under
[PURPA]." 18 C.F.R. § 292.303(c)(1). FERC's
rule also specifies that "[e]ach qualifying facility
shall be obligated to pay any interconnection costs which the
State regulatory authority . . . may assess against the
qualifying facility on a nondiscriminatory basis with respect
to other customers with similar load characteristics."
18 C.F.R. § 292.306(a).
The Challenged CPUC Programs
1980s, CPUC required utilities to offer one of four standard
contracts if a QF requested one. These contracts
"differ[ed] primarily in the length of the contract, the
availability of capacity and energy from a QF, and the
avoided cost rate payments corresponding to such
availability." IEP, 36 F.3d at 852. This
program was successful but did not "accurately reflect
the avoided cost of . . . utilities." Solutions for
Utilities, Inc. v. Cal. Pub. Utilities Comm., CV
11-04975 SJO (JCGx), 2016 WL 7613906, at *5 (C.D. Cal. Dec.
28, 2016). CPUC discontinued using these contracts in the
mid-1980s because of "QF oversubscription."
Id. The elimination of these contracts and the
subsequent search for a better mechanism for compensating QFs
sparked years of litigation. Rather than use long-term
pricing, CPUC moved to using short-run pricing. State
legislation in 1996 "set forth certain elements to be
included in setting [short-term avoided cost
('SRAC')]." Order Instituting Rulemaking to
Promote Policy, Program Coordination and Integration in
Electric Utility Resource Planning, No. D.07-09-040, 2007 WL
2872674, at *9 (Cal. P.U.C. Sept. 20, 2007). Disputes,
situation was finally resolved in 2010 with the Qualifying
Facility and Combined Heat and Power ("CHP")
Program Settlement ("QF Settlement"). Solutions
for Utilities, Inc., 2016 WL 7613906, at *6. Among other
things, the QF Settlement established four standard
contracts. Id. One of these standard contracts was
designed specifically for QFs with capacity of 20 MW or less.
Id. Any QF 20 MW or smaller may avail itself of this
contract, regardless of where the QF sources its energy. This
contract sets the price paid to QFs based on both capacity