In a decision issued last week, the U.S. District Court for the Northern District of California granted summary judgment in favor of Winding Creek Solar LLC (“Winding Creek”). Winding Creek had alleged that certain California Public Utilities Commission (CPUC) renewable energy programs conflict with the Public Utility Regulatory Policies Act of 1978 (PURPA).1 Unless the decision is overturned on appeal, the CPUC likely will have to revise one or more of its PURPA programs or develop a new program from scratch that is consistent with federal law.
Congress enacted PURPA to promote the use of domestic renewable energy resources. The law requires electric utilities, under certain circumstances, to purchase power produced from small generating facilities called “Qualifying Facilities,” or “QFs.”2 PURPA directs the Federal Energy Regulatory Commission (FERC) to prescribe rules to carry out this objective.
One such rule prescribed by FERC requires that QFs be given a choice in the pricing and delivery options for their PURPA sales. Under 18 C.F.R. § 292.304(d) (2017), each QF has the option to (1) provide energy as the QF determines, in which case the rate for such sales shall be based on the purchasing utility’s “avoided costs”3 calculated at the time of delivery; or (2) provide energy pursuant to a legally enforceable obligation over a specified term, in which case the rate for such sales shall be based on either (i) avoided costs calculated at the time of delivery or (ii) avoided costs calculated when the obligation is incurred. PURPA directs each state regulatory authority to implement FERC’s rules for the electric utilities over which the state authority has jurisdiction.4
Winding Creek Decision
Winding Creek sued the CPUC commissioners in their official capacities, challenging California’s Renewable Market-Adjusting Tariff (Re-MAT) procurement program. Re-MAT, which became operational in 2013, provides a feed-in tariff for renewable generating facilities up to three megawatts (MW) in size. It requires California utilities such as Pacific Gas and Electric Company (PG&E) to purchase power from QFs under long-term contracts at prices established through a complex administrative process. California’s utilities may purchase no more than 750 MW of generation, collectively, through the Re-MAT program.
Winding Creek argued in its suit that two aspects of the Re-MAT program prevent Winding Creek from obtaining a contract consistent with its entitlement under PURPA. First, Winding Creek argued that the state-wide 750 MW cap is inconsistent with PURPA and FERC’s implementing regulations, which require utilities to buy all of the energy offered by QFs.5 Winding Creek also challenged the program’s pricing mechanism, which Winding Creek argued differed from the “avoided cost” methodology established in FERC’s regulations.
The State of California’s primary defense was that another California program, the Standard Contract for QFs that are 20 MW or less (“Standard Contract”), satisfies the requirements of PURPA, and therefore the CPUC may implement additional non-compliant programs.6 Indeed, FERC held in its order declining Winding Creek’s request for a PURPA enforcement action that a state may offer rates and terms for QFs that differ from the PURPA rules so long as the state offers another PURPA-compliant option.7
The problem with that argument, the court held, is that the Standard Contract also does not comply with PURPA.8 While the Standard Contract program imposes no limit on the total procurement quantity, as the Re-MAT program does, it fails to offer both of the pricing options that FERC’s PURPA regulations require. Specifically, the Court determined that the program fails to offer a rate based on the utility’s avoided costs calculated at the time of delivery.
The court stopped short of granting the full relief sought by Winding Creek, however. Winding Creek had asked the court to direct the CPUC to award Winding Creek a contract worth $89.23 per MWh (Megawatt Hours)—the price offered in PG&E’s initial Re-MAT program period. The court instead held that Winding Creek will need to pursue any such “as-applied” challenge in a state forum.9
The court’s decision, nevertheless, means that, at least for small QFs under 20 MW, California does not have an existing program that is PURPA-compliant. California may decide to appeal the decision, but the ruling, if upheld, would likely result in the CPUC taking some action to bring the Standard Contract program into compliance with PURPA.
1 Winding Creek Solar LLC v. Peevey, No. 13-cv-04934-JD (N.D. Cal. Dec. 6, 2017) (“Winding Creek Decision”).
2 See, e.g., FERC, What is a Qualifying Facility?, https://www.ferc.gov/industries/electric/gen-info/qual-fac/what-is.asp (last visited Dec. 11, 2017).
3 “Avoided costs” are the costs that would have been paid by the electric utilities either to generate the electricity themselves or purchase it from another source.
4 16 U.S.C. § 824a-3(f)(1) (2012).
5 See 16 U.S.C. § 824a-3(a); 18 C.F.R. § 292.303(a)(1).
6 California has several programs available for QFs, but Winding Creek’s facility only qualified for the Re-MAT and Standard Contract programs.
7 See Winding Creek Solar LLC, 151 FERC ¶ 61,103, at PP 6-7 (2015).
8 Winding Creek Decision at 14-18.
9 Id. at 19-20.