Winding Creek Solar LLC v. Peterman, Nos. 17-17531

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: McKEOWN, Circuit Judge
• Citation: 932 F.3d 861
• Parties: WINDING CREEK SOLAR LLC, Plaintiff-Appellant/ Cross-Appellee, v. Carla PETERMAN; Martha Guzman Aceves; Liane Randolph; Clifford Rechtschaffen; Michael Picker, in their official capacities as Commissioners of the California Public Utilities Commission, Defendants-Appellees/ Cross-Appellants.
• Decision Date: 29 July 2019
• Docket Number: Nos. 17-17531,17-17532

932 F.3d 861

WINDING CREEK SOLAR LLC, Plaintiff-Appellant/ Cross-Appellee,
v.
Carla PETERMAN; Martha Guzman Aceves; Liane Randolph; Clifford Rechtschaffen; Michael Picker, in their official capacities as Commissioners of the California Public Utilities Commission, Defendants-Appellees/ Cross-Appellants.

Nos. 17-17531
17-17532

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 13, 2019 San Francisco, California
Filed July 29, 2019

932 F.3d 862

Eric Lee Christensen (argued), Beveridge & Diamond, Seattle, Washington; Thomas Melone, Allco Renewable Energy Ltd., New York, New York; for Plaintiff-Appellant.

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

David Bender, Earthjustice, Madison, Wisconsin, for Amici Curiae Montana Environmental Information Center, Idaho Conservation League, and Vote Solar.

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: M. Margaret McKeown, William A. Fletcher, and Mary H. Murguia, Circuit Judges.

McKEOWN, Circuit Judge:

The district court observed that "[d]espite the complex regulatory and factual background" in this case, "the key legal issues turned out to be straightforward." We agree. The result here follows from straightforward application of a handful of regulatory requirements.

The Public Utility Regulatory Policies Act of 1978 ("PURPA"), 16 U.S.C. § 2601 et seq. , requires electric utilities to buy all the power produced by alternative energy generators known as Qualifying Cogeneration Facilities ("QFs"). 18 C.F.R. § 292.303(a). And it requires these utilities to pay the same rate they would have if they had obtained that energy from a source other than the QFs. 18 C.F.R. § 292.304. QFs are guaranteed their choice of this "avoided cost" rate as calculated either at the time of contracting or the time of delivery. 18 C.F.R. § 292.304(d)(2). Winding Creek Solar LLC is a QF that wants to develop a 1 MW solar generating facility in Lodi, California.

To regulate the terms under which electric utilities purchase power from QFs, the California Public Utilities Commission ("CPUC") established the Renewable Market Adjusting Tariff ("Re-MAT") program. Re-MAT violates PURPA’s requirements, because it caps the amount of energy utilities are required to purchase from QFs and because it sets a market-based rate, rather than one based on the utilities’ avoided cost. California does not offer a PURPA-compliant alternative. With no PURPA-compliant program available, PURPA preempts Re-MAT.

932 F.3d 863

BACKGROUND

I. THE PUBLIC UTILITY REGULATORY POLICIES ACT

In an effort to reduce American dependence on fossil fuels, Congress enacted Title II of PURPA to facilitate development of alternative energy sources. PURPA aims to eliminate "(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." Indep. Energy Producers Ass’n, Inc. v. Cal. Pub. Utils. Comm’n (IEP) , 36 F.3d 848, 850 (9th Cir. 1994).

Congress directed the Federal Energy Regulatory Commission ("FERC") to adopt "such rules as it determines necessary to encourage cogeneration and small power production." 16 U.S.C. § 824a-3(a). FERC’s regulations under PURPA define the criteria for certifying alternative energy producers as QFs. IEP , 36 F.3d at 851 ; 18 C.F.R. §§ 292.201 – .211. The regulations benefit QFs by requiring utilities to purchase the energy produced by QFs. IEP , 36 F.3d at 851 ; see also 16 U.S.C. § 824a-3(a). Two features of this regulatory scheme are relevant here.

First, the so-called "must take" provision requires utilities to purchase all of the energy a QF provides. The regulations mandate that "[e]ach electric utility shall purchase ... any energy and capacity which is made available from a qualifying facility ... [d]irectly to the electric utility." 18 C.F.R. § 292.303(a)(1).

Second, the pricing scheme requires utilities to pay QFs a rate derived from the utility’s "avoided costs." "Avoided costs" are the costs a utility would have incurred but for the purchase from a QF, either by purchasing the energy from some other source or by generating the energy itself. 18 C.F.R. § 292.101(b)(6). FERC regulations give QFs two options for calculating avoided costs. "[T]he rates for [energy] purchases shall, at the option of the [QF] ... be based on either: (i) [t]he avoided costs calculated at the time of delivery; or (ii) [t]he avoided costs calculated at the time the obligation is incurred." 18 C.F.R. § 292.304(d)(2) (emphasis added). In other words—and key to this appeal—PURPA allows QFs to choose whether the avoided-cost rate a utility pays will be calculated at the time of contracting or the time of delivery.

II. CALIFORNIA’S PURPA PROGRAMS

The CPUC implements PURPA programs in California. Californians for Renewable Energy v. Cal. Pub. Utils. Comm’n , 922 F.3d 929, 931 (9th Cir. 2019). In 2012, the CPUC created Re-MAT, one of several California programs regulating the terms of utilities’ contracts with alternative energy sources, such as wind farms or solar producers. Re-MAT was intended to establish competitive market-based rates for energy from alternative sources. QFs accepted to Re-MAT are assigned to a queue "on a first-come-first-served basis." Every two months, in what is essentially an auction, the utility serving a given area offers the QFs at the head of the queue contracts at a pre-defined Re-MAT price, which QFs can accept or reject. QFs that reject the contract keep their place in line until the next offering two months later.

Two additional features of Re-MAT are significant...