Cherokee Cnty. Cogeneration Partners, LLC v. Fed. Energy Regulatory Comm'n
| Decision Date | 15 July 2022 |
| Docket Number | 21-1163,C/w 21-1176 |
| Citation | 40 F.4th 638 |
| Parties | CHEROKEE COUNTY COGENERATION PARTNERS, LLC, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Duke Energy Carolinas, LLC, Intervenor |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Paul W. Hughes argued the cause for petitioner. With him on the briefs were Neil L. Levy, David G. Tewksbury, and Andrew Lyons-Berg.
Lona T. Perry, Deputy Solicitor, Federal Energy Regulatory Commission, argued the cause for respondent. On the brief were Matthew R. Christiansen, General Counsel, Robert H. Solomon, Solicitor, and Elizabeth E. Rylander, Attorney.
Misha Tseytlin argued the cause for intervenor Duke Energy Carolinas, LLC in support of respondent. With him on the brief was Kevin M. LeRoy. Christopher R. Jones and Amie V. Colby entered appearances.
Before: Wilkins and Rao, Circuit Judges, and Silberman, Senior Circuit Judge.
Petitioner, Cherokee County Cogeneration Partners, LLC, seeks review of the Federal Energy Regulatory Commission's determination that FERC lacked jurisdiction over Petitioner's Federal Power Act section 205 rate filing which sought compensation for its provision of reactive service.
Before we reach the question of FERC's jurisdiction—let alone the merits—we are obliged to consider our own jurisdiction. While we clearly have jurisdiction over the petitions, we lack authority to consider Petitioner's arguments because they were not adequately presented in its petition for rehearing. Because there are no arguments that are properly before us, we deny the petitions for review.
The Federal Power Act gives FERC jurisdiction over the rates for the transmission of electric energy and sale of electric energy at wholesale in interstate commerce. 16 U.S.C. § 824(a) - (b). FERC reviews those rates to ensure they are "just and reasonable" and that they do not "grant any undue preference or advantage" or "subject any person to any undue prejudice or disadvantage." 16 U.S.C. § 824d(a), (b), (e).
But there are exceptions to FERC's jurisdiction. In 1978, Congress enacted the Public Utility Regulatory Policies Act (PURPA) "to encourage the development of cogeneration and small power production facilities" to reduce demand for traditional fossil fuels. FERC v. Mississippi , 456 U.S. 742, 750, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982). To support that goal, PURPA directed FERC to exempt such qualifying facilities from the Federal Power Act by developing implementing regulations. 16 U.S.C. § 824a-3(e)(1). It also required state regulatory authorities to adopt rules implementing PURPA and FERC's regulations. 16 U.S.C. § 824a-3(f)(1).
Accordingly, FERC promulgated a regulation that exempts cogeneration and small power production facilities that are "qualifying facilities" from sections 205 and 206 of the Federal Power Act when certain conditions are met. Under that regulation, "sales of energy or capacity ... made pursuant to a state regulatory authority's implementation of section 210 [of PURPA] shall be exempt from scrutiny under sections 205 and 206." 18 C.F.R. § 292.601(c)(1) ("the cogeneration regulation"). In other words, FERC does not have jurisdiction over those sales. The interpretation of this regulation is at the center of the dispute before us.
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Petitioner, Cherokee, owns a qualifying cogeneration facility in South Carolina.1 Intervenor, Duke Energy Carolinas, LLC, is a public utility that sells wholesale and retail electric service to customers in North Carolina and South Carolina. Petitioner sells the entirety of its generated capacity and energy to Duke "under a Power Sales Agreement (PPA) pursuant to PURPA." Cherokee Cty. Cogeneration Partners, LLC , Order Dismissing Rate Filing, 175 FERC ¶ 61,002 at P 3 (Apr. 2, 2021) ("Dismissal Order"). Petitioner and Duke are also parties to a Large Generator Interconnection Agreement ("Interconnection Agreement") which provides the terms of the interconnection between Duke's transmission system and Petitioner's facility.
The two components of electrical power in an alternating current system are "real" power and "reactive" power. Real power "causes electrical equipment to perform work." Reactive power creates a stable voltage so that real power can be transmitted through the power system. See Ala. Power Co. v. FERC , 220 F.3d 595, 596–97 (D.C. Cir. 2000). Under the Interconnection Agreement, Petitioner is required to provide reactive service for Duke's transmission system and Duke is required "to pay Cherokee for reactive power to the extent [Duke] pays its own or affiliated generators for Reactive Service." Dismissal Order at P 4. The parties agree that the provision of reactive service is not controlled by the Power Sales Agreement. Dismissal Order at PP 10, 12.
This case arises because Petitioner seeks compensation for the reactive service it provides to Duke's transmission system. Petitioner filed a proposed rate schedule for its reactive service with FERC pursuant to section 205 of the Federal Power Act. 16 U.S.C. § 824d. Petitioner argued that, under the comparability requirement, since Duke pays its own generators for reactive power, it must pay Petitioner for the same service. "The comparability requirement is the requirement, established in Order No. 2003, that the transmission provider must pay the interconnection customer for reactive power ... if the transmission provider pays its own or affiliated generators for such service." Dismissal Order at P 12 n.27 (citing Order No. 2003-A, 106 FERC ¶ 61,220 at P 416 (March 5, 2004)).
Duke intervened and claimed that FERC lacked jurisdiction over Petitioner's section 205 filing. Duke contended that Petitioner's facility is a qualifying facility selling energy or capacity to Duke pursuant to South Carolina's implementation of PURPA. Thus, Duke argued, under the cogeneration regulation, Petitioner's proposed rate filing was exempt from scrutiny under section 205.
The Commission dismissed Petitioner's rate filing for lack of jurisdiction. FERC stated that Petitioner's "only asserted basis for entitlement to compensation for Reactive Service is the [Interconnection Agreement]." Dismissal Order at P 16. Relying on Order No. 2003, FERC noted that where a "utility is obligated to interconnect under Section 292.303 of the Commission's Regulations, that is, when it purchases the [qualifying facility's] total output, the relevant state authority exercises authority over the interconnection and the allocation of interconnection costs." Order No. 2003, 104 FERC ¶ 61,103 at P 813 (July 24, 2003). As noted, in this case, Duke purchased all of Petitioner's output. Therefore, FERC concluded it did not have jurisdiction over the Interconnection Agreement. Dismissal Order at PP 16–18. And because FERC determined that the Interconnection Agreement was the "only" asserted basis for compensation, it dismissed Petitioner's rate filing. Dismissal Order at P 16.
Petitioner sought rehearing, arguing that the Interconnection Agreement was not the only basis for entitlement to compensation. Rather, Petitioner contended that "[t]he principal basis for Cherokee's entitlement to compensation is the Commission's well-established comparability standard," and thus that the jurisdictional status of the Interconnection Agreement "has no bearing whatsoever on the Commission's jurisdiction over Reactive Service that Cherokee provides to [Duke]." JA 349, 352.
Petitioner filed a timely petition for review. The next day, FERC issued a substantive order explaining its denial. FERC reiterated its conclusion that the Interconnection Agreement is not subject to its jurisdiction. It also concluded that it lacked jurisdiction over Petitioner's freestanding claim for compensation under the comparability requirement because Petitioner's rate filing was exempt from FERC scrutiny under the cogeneration regulation. In particular, the rehearing order determined that reactive service was "energy or capacity" within the meaning of that regulation. Cherokee Cty. Cogeneration Partners, LLC , Order Addressing Arguments Raised on Rehearing, 176 FERC ¶ 61,069 at PP 14–16 (Aug. 3, 2021) ("Rehearing Order"). Accordingly, FERC determined that Petitioner's comparability standard argument was "moot." Rehearing Order at P 18. Petitioner filed a supplemental petition for review.
Petitioner contends that FERC's dismissal of its section 205 rate filing is arbitrary and capricious (unreasonable). The exemption from FERC jurisdiction provided by the cogeneration regulation, Petitioner claims, is inapplicable here. That's for two reasons. (1) Petitioner's provision of reactive service is not made pursuant to a state regulatory authority's implementation of PURPA. And, to compound the Commission's error, FERC failed to even respond to this argument in its rehearing order. (2) Alternatively, reactive service is not "energy or capacity." Thus, Petitioner contends that FERC erred in concluding that it lacked jurisdiction.
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FERC brings two arguments that challenge our own jurisdiction. Neither have any merit.
First, FERC contends that we lack jurisdiction to review FERC's "declaratory" ruling under PURPA. It relies on a line of cases which holds that we don't review FERC orders that simply state how FERC interprets its own regulations because "to review [such] orders issued under § 210 of the PURPA ... would disrupt the enforcement scheme carefully elaborated in § 210." Indus. Cogenerators v. FERC , 47 F.3d 1231, 1234 (D.C. Cir. 1995) ; see also, e.g. , Midland Power Coop. v. FERC , 774 F.3d 1, 5–6 (D.C. Cir. 2014). We review such declaratory orders only after a qualifying facility or FERC brings an enforcement action in district court and appeals. Xcel Energy Servs. Inc. v. FERC , 407 F.3d 1242, 1244 (D.C. Cir. 2005) ;...
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