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Californians for Renewable Energy v. California Public Utilities Commission

United States Court of Appeals, Ninth Circuit

April 24, 2019

Californians for Renewable Energy, a California Non-Profit Corporation; Michael E. Boyd; Robert Sarvey, Plaintiffs-Appellants,
v.
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.

          Argued and Submitted February 6, 2019 Pasadena, California

          Appeal 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

          Meir J. Westreich (argued), Pasadena, California, for Plaintiffs-Appellants.

          Christine Jun Hammond (argued), Arocles Aguilar, California Public Utilities Commission, San Francisco, California, for Defendants-Appellees.

          Peter 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.

         SUMMARY [**]

         Energy Law

         The 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 Regulatory Commission.

         Reversing 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.

         In 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 interconnection requirement.

         First, 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.

         Second, 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.

         Third, 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.

         The 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.

         The 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 respects.

         Dissenting 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.

          OPINION

          MARBLEY, DISTRICT JUDGE.

         In 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 Commission ("CPUC").

         Californians 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.

         The 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.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         A. Statutory Background

         Congress 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 authorities.

Id.

         PURPA 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).

         To 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. § 292.101(6).

         State 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 are:

(1) the utility's system cost data;
(2) the terms of any contract including the duration of the obligation;
(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.

         Congress 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.

         In 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).

         B. The Challenged CPUC Programs

         In the 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, however, continued.

         This 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 and ...


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