Californians For Renewable Energy v. Ca Puco

• Citation: 922 F.3d 929
• Decision Date: 24 April 2019
• Docket Number: No. 17-55297,17-55297
• Parties: CALIFORNIANS FOR RENEWABLE ENERGY, a California Non-Profit Corporation; Michael E. Boyd ; Robert Sarvey, Plaintiffs-Appellants, and Solutions For Utilities, Inc., a California Corporation, Plaintiff, 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 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.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

922 F.3d 929

CALIFORNIANS FOR RENEWABLE ENERGY, a California Non-Profit Corporation; Michael E. Boyd ; Robert Sarvey, Plaintiffs-Appellants,

and

Solutions For Utilities, Inc., a California Corporation, Plaintiff,

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,andRachel 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.

No. 17-55297

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 6, 2019 Pasadena, California

Filed April 24, 2019

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, 103 S.Ct. 1921, 76 L.Ed.2d 22 (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 energy. The price for capacity is a fixed rate while the price for energy is variable, based on the Short Run Avoided Cost ("SRAC").

"Energy costs are the variable costs associated with the production of electric energy (kilowatt-hours). They represent the cost of fuel, and some operating and maintenance expenses. Capacity costs are the costs associated with providing the capability to deliver energy; they consist primarily of the capital costs of facilities."

Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of PURPA, ("Order 69") 45 Fed. Reg. 12,214, 12,216 (Feb. 25, 1980).

Separate from the QF Settlement, the California legislature, through Assembly Bill 1613, created the Combined Heat and Power Facilities Program on January 1, 2008. Solutions for Utilities, Inc. , 2016 WL 7613906, at *6. The CHP Program applies to CHP facilities with capacities under 20 MW. Id. Under this law, CPUC set up a different program for compensating CHPs based "on the Market Price Referent (‘MPR’), which is defined as the cost to design, build, and operate a 500 MW Combined cycle natural gas turbine generator (‘CCGT’)." Id.

CPUC also operates the Feed-in-Tariff ("FiT") or Renewable Market Adjusting Tariff ("Re-MAT") program. This program applies to renewable generators with capacities of 3 MW or less. Id. at 7. Under this program, utilities must purchase...