Winding Creek Solar LLC v. Peevey

• Decision Date: 06 December 2017
• Docket Number: Case No. 13–cv–04934–JD
• Citation: 293 F.Supp.3d 980
• Court: U.S. District Court — Northern District of California
• Parties: WINDING CREEK SOLAR LLC, Plaintiff, v. Michael PEEVEY, et al., Defendants.

293 F.Supp.3d 980

WINDING CREEK SOLAR LLC, Plaintiff,
v.
Michael PEEVEY, et al., Defendants.

Case No. 13–cv–04934–JD

United States District Court, N.D. California.

Signed December 6, 2017

293 F.Supp.3d 981

Thomas Melone, Michael J. Melone, c/o Allco Renewable Energy Limited, New York, NY, Ishan K. Bhabha, Matthew Eben Price, Jenner and Block LLP, Washington, DC, Jamie L. DuPree, Jaime G. Touchstone, Futterman DuPree Dodd Croley Maier LLP, San Francisco, CA, for Plaintiff.

Christine Jun Hammond, Darryl Gruen, Pouneh Ghaffarian, Traci Lynn Bone, Harvey Yale Morris, California Public Utilities Commission, San Francisco, CA, for Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW, AND ORDER ON SUMMARY JUDGMENT

JAMES DONATO, United States District Judge

Plaintiff Winding Creek Solar LLC has sued the Commissioners of the California Public Utilities Commission ("CPUC") for a declaration that three CPUC orders conflict with federal law and consequently violate the Supremacy Clause of the United States Constitution. The CPUC orders set up a procurement program called "Re–MAT" (short for "Renewable Market-Adjusting Tariff"), and regulate the terms on which utility companies like the Pacific Gas and Electric Company ("PG & E") must purchase power from alternative energy power production facilities like small wind farms and solar projects. Winding Creek intends to build such a solar project in Lodi, California, and it seeks a long-term contract to sell the energy from the proposed facility to PG & E. It sued because it believes the CPUC orders in dispute prevented it from getting a contract entitlement under the Public Utility Regulatory Policies Act ("PURPA").

This order brings to a close a case that has been fought hard over a number of years. After three rounds of motions to dismiss, the parties filed cross-requests for summary judgment which were heavily briefed and included submission of an amicus brief from PG & E and other third-party utility companies. Disputes over material facts compelled the Court to hold a one-day bench trial. Both sides presented witnesses and expert testimony, and filed substantial post-trial briefs. The Court makes these findings of fact and conclusions of law, and grants summary judgment in favor of Winding Creek.

BACKGROUND

To frame the rather technical dispute between the parties, the Court summarizes the statutory context set out in a prior order. Dkt. No. 60. Under the Federal Power Act ("FPA"), 16 U.S.C. §§ 791a et seq., the interstate commerce of electric energy at wholesale is subject to regulation by the Federal Energy Regulatory Commission ("FERC"). In 1978, Congress enacted the Public Utility Regulatory Policies Act ("PURPA"), which amended the FPA. PURPA was enacted to encourage the development of renewable sources of energy, and "thus to reduce American dependence on fossil fuels by promoting increased energy efficiency."

293 F.Supp.3d 982

Indep. Energy Producers Ass'n, Inc. v. Cal. Pub. Util. Comm'n , 36 F.3d 848, 850 (9th Cir. 1994). To that end, PURPA directs FERC to prescribe "such rules as it determines necessary to encourage cogeneration and small power production," including rules that require electric utilities to offer to "purchase electric energy from [qualifying cogeneration and small power production facilities]." 16 U.S.C. § 824a–3(a). The Court found in a prior order that plaintiff Winding Creek's proposed Lodi facility is a "qualifying small power production facility" under PURPA. Dkt. No. 75 at 9. PURPA requires State regulatory authorities such as CPUC to implement the rules prescribed by FERC. 16 U.S.C. § 824a–3(f)(1).

The outcome of this case turns on three key requirements under PURPA and its implementing FERC regulations. The first is what the parties have referred to as the "must-take obligation," see , e.g. , Dkt. No. 152 (Trial Tr.) at 127:8–128:9, which is industry short-hand for the proposition that PURPA requires FERC to encourage small power production with rules that "require electric utilities to offer to ... purchase electric energy from [qualifying] facilities." 16 U.S.C. § 824a–3(a). FERC's implementing regulations state 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). A few exceptions exist for this mandatory purchase obligation, but the parties agree that they do not apply here. Trial Tr. at 130:14–131:7 (CPUC witness Michael Colvin testifying that "the must-take obligation for 20 megawatts and under remains").

The second and third legal requirements that are critical to this case have to do with pricing. PURPA and FERC's regulations not only mandate that electric utilities must purchase energy and capacity from qualifying facilities, they also set certain required terms for those purchases. Under 18 C.F.R. § 292.304(b)(2), utilities must purchase energy and capacity from qualifying facilities at a rate that "equals the avoided costs" of the utility. Under the regulations, "avoided costs" means "the incremental costs 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(b)(6).

The regulations also require that qualifying facilities be given a choice in the pricing of the energy sales to the utilities. Under 18 C.F.R. § 292.304(d) :

Each qualifying facility shall have the option either:

(1) To provide energy as the qualifying facility determines such energy to be available for such purchases, in which case the rates for such purchases shall be based on the purchasing utility's avoided costs calculated at the time of delivery; or

(2) To provide energy or capacity pursuant to a legally enforceable obligation for the delivery of energy or capacity over a specified term, in which case the rates for such purchases shall, at the option of the qualifying facility exercised prior to the beginning of the term, be based on either:

(i) The avoided costs calculated at the time of delivery; or

(ii) The avoided costs calculated at the time the obligation is incurred.

The parties agree that section (d)(2) is the pertinent provision in this case because Winding Creek sought a "legally enforceable obligation for the delivery of energy or capacity over a specified term" to secure

293 F.Supp.3d 983

financing for its planned but unbuilt solar facility.

The Court's prior motion to dismiss orders settled the proper parties in the case, the facilities at issue and the plausible legal claims, all of which have mutated to some degree over the life of this case. Dkt. Nos. 39, 60, 75. The operative complaint is plaintiff's second amended complaint for declaratory and injunctive relief. Dkt. No. 61. Plaintiff is Winding Creek Solar LLC, an owner and developer of solar projects, and Allco Finance Limited is its only member. Id. ¶ 10. Defendants are the five Commissioners of the California Public Utilities Commission who were sued in their official capacities. Id. ¶¶ 11–15. The facility at issue is an unbuilt, 1.0–megawatt solar project that Winding Creek plans to construct in Lodi, California (the "Lodi facility"). Id. ¶¶ 10, 75. Winding Creek's only remaining legal claim is for "preemption" based on alleged violations of the Supremacy Clause (and not under 42 U.S.C. § 1983 ). Dkt. No. 75 at 10–11. The Supremacy Clause theory alleges conflicts between the challenged CPUC orders and PURPA. Id.

The three specific CPUC orders that plaintiff challenges are: D.12–05–035 (the "May 2012 Order"), D.13–01–041 (the "January 2013 Order") and D.13–05–034 (the "May 2013 Order"). Dkt. No. 61 ¶ 6. As Winding Creek alleges, these orders set the terms on which California's investor-owned utilities such as PG & E must enter into long-term, fixed-price contracts with qualifying facilities such as Winding Creek's Lodi facility. Id. ¶¶ 1, 6. The overall procurement program established by these orders is known as the "Re–MAT Program," see , e.g. , id. ¶ 45 (the "Renewable Market–Adjusting Tariff" or " ‘Re–MAT’ for short"), and Winding Creek focuses its attack on two aspects of the program. It challenges the 750–megawatt statewide cap that the program places on the electric utilities' collective obligation to purchase electricity from qualifying facilities. Id. ¶¶ 7, 50–54. It also alleges that "the Orders provide for a purchase price that is different than the utilities' avoided costs." Id. ¶ 8. Winding Creek asserts that both of these aspects of the Re–MAT program conflict with PURPA and the regulations enacted by FERC pursuant to PURPA. See id. ¶¶ 78–101.

Both sides filed for summary judgment (Dkt. Nos. 89, 90) following the Court's third motion to dismiss order, which granted in part and denied in part defendants' motion to dismiss without further leave to amend. Dkt. No. 75. Tracking its complaint, Winding Creek sought summary judgment on the grounds that the Re–MAT Program violates PURPA because (i) it caps the amount of electricity that utilities must purchase from qualifying facilities, and (ii) the rate offered under the program is not based on the...