Exelon Wind 1, L.L.C. v. Nelson

• Decision Date: 08 September 2014
• Docket Number: No. 12–51228.,12–51228.
• Parties: EXELON WIND 1, L.L.C., formerly known as JD Wind 1, L.L.C.; Exelon Wind 2, L.L.C., formerly known as JD Wind 2, L.L.C.; Exelon Wind 3, L.L.C., formerly known as JD Wind 3, L.L.C.; Exelon Wind 4, L.L.C., formerly known as JD Wind 4, L.L.C.; Exelon Wind 5, L.L.C., formerly known as JD Wind 5, L.L.C.; Exelon Wind 6, L.L.C., formerly known as JD Wind 6, L.L.C., Plaintiffs–Appellees, v. Donna L. NELSON, in her official capacity as Chairman of the Public Utility Commission of Texas; Kenneth W. Anderson, Jr., in his official capacity as Commissioner of the Public Utility Commission of Texas; Rolando Pablos, in his official capacity as Commissioner of the Public Utility Commission of Texas, Defendants–Appellants, Southwestern Public Service Company; Occidental Permian, Limited, Intervenors–Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

766 F.3d 380

EXELON WIND 1, L.L.C., formerly known as JD Wind 1, L.L.C.; Exelon Wind 2, L.L.C., formerly known as JD Wind 2, L.L.C.; Exelon Wind 3, L.L.C., formerly known as JD Wind 3, L.L.C.; Exelon Wind 4, L.L.C., formerly known as JD Wind 4, L.L.C.; Exelon Wind 5, L.L.C., formerly known as JD Wind 5, L.L.C.; Exelon Wind 6, L.L.C., formerly known as JD Wind 6, L.L.C., Plaintiffs–Appellees,

v. Donna L. NELSON, in her official capacity as Chairman of the Public Utility Commission of Texas; Kenneth W. Anderson, Jr., in his official capacity as Commissioner of the Public Utility Commission of Texas; Rolando Pablos, in his official capacity as Commissioner of the Public Utility Commission of Texas, Defendants–Appellants,Southwestern Public Service Company; Occidental Permian, Limited, Intervenors–Appellants.

No. 12–51228.

United States Court of Appeals, Fifth Circuit.

Sept. 8, 2014.

Thomas K. Anson, Esq., Jonathan Derek Quick, Esq., Strasburger & Price, L.L.P., Austin, TX, Judith R. Blakeway, Strasburger Price Oppenheimer Blend, San Antonio, TX, for Plaintiffs–Appellees.

Andrew S. Oldham, Deputy Solicitor General Office of the Attorney General, Office of the Solicitor General, John Richard Hulme, Esq., Assistant Attorney General, Office of the Attorney General, Austin, TX, for Defendants–Appellants.

Ron H. Moss, Esq., Attorney, Winstead, P.C., Stephen E. Fogel, Xcel Energy Service, Incorporated, F. Michael Stenglein, King & Spalding, L.L.P., Austin, TX, Ashley Charles Parrish, Esq., King & Spalding, L.L.P., Washington, DC, for Intervenors–Appellants.

Appeals from the United States District Court for the Western District of Texas.

Before SMITH, PRADO, and ELROD, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

This appeal addresses the Texas Public Utilities Commission's (PUC) interpretationand implementation of a federal statutory and regulatory scheme governing the purchase of energy between public utilities and certain energy production facilities known as Qualifying Facilities. Appellees are qualifying wind generation facilities collectively known as Exelon that challenged a state rule and order which prohibited Exelon from forming Legally Enforceable Obligations when selling power. The district court determined that it had jurisdiction to hear Exelon's claims and then granted summary judgment to Exelon. We disagree. We VACATE the portion of the judgment regarding Exelon's challenge to the PUC's order and direct the district court to dismiss for want of subject matter jurisdiction. As to the remaining claims challenging the PUC's rule, we REVERSE and REMAND because the PUC acted within its discretion and properly implemented the federal regulation at issue here.

I.

Congress enacted the Public Utilities Regulatory Policies Act of 1978 (PURPA) to reduce the dependence of electric utilities on foreign oil and natural gas and to control consumer costs. Congress sought to do so in part by encouraging development of alternative energy sources. See FERC v. Mississippi, 456 U.S. 742, 745, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982); Power Res. Grp. v. Pub. Util. Comm'n, 422 F.3d 231, 233 (5th Cir.2005) [hereinafter Power Resource III ].¹ PURPA directs the Federal Energy Regulatory Commission (FERC) to promulgate regulations to promote energy purchases from cogeneration and small power production facilities, including renewable energy providers such as wind and solar generators. These energy providers are known as Qualifying Facilities. See16 U.S.C. §§ 796(17), 824a–3(a); 18 C.F.R. §§ 292.101(b)(1), 292.203. While Congress sought to promote energy generation by Qualifying Facilities, it did not intend to do so at the expense of the American consumer. PURPA thus strikes a balance between these two interests. For example, PURPA requires utilities to purchase power generated by Qualifying Facilities, but also mandates that the rates that utilities pay for such power “shall be just and reasonable to the electric consumers of the electric utility and in the public interest.” 16 U.S.C. § 824a–3(a)(2), (b)(1).

“State regulatory agencies, such as the PUC, are directed to adopt rules which comply with FERC's regulations and implement PURPA.” Power Resource III, 422 F.3d at 233 (citing 16 U.S.C. § 824a–3(f)). In other words, PURPA orders the states to implement a federal law. This unusual mandate differs from many other statutory regimes, where the states are given the option to either implement the federal law themselves or else have the federal government directly enforce the law. See New York v. United States, 505 U.S. 144, 167–68, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992) (citing the Clean Water Act, Occupational Safety and Health Act, and Resource Conversation and Recovery Act and explaining that “where Congress has the authority to regulate private activity under the Commerce Clause, we have recognized Congress' power to offer States the choice of regulating that activity according to federal standards or having state law pre-empted by federal regulation”).

As the Supreme Court has noted, the mandatory nature of PURPA's directive to states raises “troublesome” Tenth Amendment concerns. FERC v. Mississippi, 456 U.S. at 759, 102 S.Ct. 2126. In FERC v. Mississippi, the Supreme Court was able to avoid those concerns by explaining that FERC's regulations allow the states to implement PURPA simply by adjudicating disputes arising under the statute. Id. at 760, 102 S.Ct. 2126. The Supreme Court found PURPA acceptable because it does not require states to pass regulations implementing FERC's regulations; instead, states have the option of “resolving disputes on a case-by-case basis” by opening up their courts to adjudicate such claims. Id. at 751, 760, 102 S.Ct. 2126. Texas has opted to have the PUC implement FERC's regulations through rulemaking, rather than case-by-case adjudication.²

FERC provides state regulatory authorities like the PUC “great latitude in determining the manner of implementation of the Commission's rules, provided that the manner chosen is reasonably designed to implement the requirements” of FERC regulations. SeeRegulations Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, 45 Fed.Reg. 12214, 12230–31 (Feb. 25, 1980). At issue here is one of the rules that the PUC promulgated to implement a FERC regulation.

This FERC regulation provides Qualifying Facilities with two ways to sell power to utilities. See18 C.F.R. § 292.304(d) (FERC's Regulation). Under subsection (d)(1) of FERC's Regulation, a Qualifying Facility may only provide power to the utility on an “as-available” basis, and must price the power at the “time of delivery.” Id. § 292.304(d)(1). Immediately following (d)(1) is another subsection of FERC's Regulation, which allows a Qualifying Facility to sell its power pursuant to a Legally Enforceable Obligation. Id. § 292.304(d)(2). A Qualifying Facility that chooses to sell through a Legally Enforceable Obligation has two options for how it prices its power: It may calculate the price at the moment of delivery, just as under subsection (d)(1), or it may choose to fix the price “at the time the obligation is incurred.” Id. In other words, Qualifying Facilities that form Legally Enforceable Obligations are able to select between the current (as-available) and past (time of obligation) market prices for power.

The PUC's rule implementing FERC's Regulation permits only a Qualifying Facility that generates “firm power” to enter into a Legally Enforceable Obligation. 16 Tex. Admin. Code § 25.242(c) (PUC Rule 25.242). The PUC defines “firm power” as “power or power-producing capacity [from a Qualifying Facility] that is available pursuant to a legally enforceable obligation for scheduled availability over a specified term.” Id. § 25.242(c)(5). The PUC defines non-firm power from a Qualifying Facility as “[p]ower provided under an arrangement that does not guarantee scheduled availability, but instead provides for delivery as available.” Id. § 25.242(c)(9). In other words, only those Qualifying Facilities able to forecast when they will deliver energy to the utility—and capable of delivering the specified amount of energy at the scheduled time—are eligible to take advantage of the pricing options in subsection (d)(2) of FERC's Regulation.By contrast, Qualifying Facilities with non-firm power that cannot guarantee such delivery may charge the utility only the current or “as-available” market price for the power.

Exelon is a Qualifying Facility, but cannot supply firm power, due in part to the nature of wind generation. Wind is a notoriously fickle energy source, as it blows intermittently and the power it generates is difficult to store.³ Technological advancements have made it possible for some wind farms to provide more consistent service, but Exelon lacks such technology, and the winds in the Texas Panhandle, where Exelon's facilities are located, do not blow in a predictable pattern. Because it is subject to the whims of these winds, Exelon cannot guarantee that a particular amount of energy will be available at a particular time.

Southwestern Public Service Company (Southwestern) is a utility company that is required under PURPA to buy all of Exelon's wind-generated energy. See 16 U.S.C. § 8241–3(a)(3). At various times in 2005 and 2006, Exelon sent letters to Southwestern demanding that Southwestern purchase Exelon's energy output for the next twenty years, and purported to create Legally Enforceable Obligations with Southwestern. Exelon further demanded that Southwestern pay Exelon amounts that ranged from approximately $0.035 per kilowatt-hour to more than $0.090 per kilowatt-hour for the first nine years of that twenty-year term. Southwestern refused to accept Exelon's terms. According to Southwestern, these rates were much higher than the as-available prices offered by other generators. Southwestern asserted that Exelon could not form a Legally Enforceable...