Winding Creek Solar LLC v. Carla Peterman , 932 F.3d 861 ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
WINDING CREEK SOLAR LLC, Nos. 17-17531
Plaintiff-Appellant/ 17-17532
Cross-Appellee,
D.C. No.
v. 3:13-cv-04934-
JD
CARLA PETERMAN; MARTHA
GUZMAN ACEVES; LIANE RANDOLPH;
CLIFFORD RECHTSCHAFFEN; OPINION
MICHAEL PICKER, in their official
capacities as Commissioners of the
California Public Utilities
Commission,
Defendants-Appellees/
Cross-Appellants.
Appeal from the United States District Court
for the Northern District of California
James Donato, District Judge, Presiding
Argued and Submitted February 13, 2019
San Francisco, California
Filed July 29, 2019
Before: M. Margaret McKeown, William A. Fletcher,
and Mary H. Murguia, Circuit Judges.
Opinion by Judge McKeown
2 WINDING CREEK SOLAR V. PETERMAN
SUMMARY *
Public Utilities
The panel affirmed the district court’s judgment after a
bench trial and summary judgment in favor of the plaintiff
in an action brought under the Public Utility Regulatory
Policies Act against Commissioners of the California Public
Utilities Commission.
PURPA requires electric utilities to buy all the power
produced by alternative energy generators known as
Qualifying Cogeneration Facilities (“QFs”) and to pay the
same rate they would have if they had obtained that energy
from a source other than the QFs. QFs are guaranteed their
choice of this “avoided cost” rate as calculated either at the
time of contracting or the time of delivery. Plaintiff was a
QF that wanted to develop a solar generating facility in
California.
To regulate the terms under which electric utilities
purchase power from QFs, the CPUC established the
Renewable Market Adjusting Tariff (“Re-MAT”) program.
The panel held that Re-MAT violated PURPA’s
requirements because it capped the amount of energy
utilities were required to purchase from QFs and because it
set a market-based rate, rather than one based on the utilities’
avoided cost. California did not offer a PURPA-compliant
alternative. The panel held that, with no PURPA-compliant
program available, PURPA preempted Re-MAT.
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
WINDING CREEK SOLAR V. PETERMAN 3
The panel further held that the district court did not abuse
its discretion to fashion equitable relief when it declined to
award plaintiff its preferred remedy of a particular contract.
COUNSEL
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.
4 WINDING CREEK SOLAR V. PETERMAN
OPINION
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.
WINDING CREEK SOLAR V. PETERMAN 5
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
6 WINDING CREEK SOLAR V. PETERMAN
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 here.
The amount of energy a utility must buy through Re-MAT
is capped. California’s three investor-owned utilities are
obligated to purchase only 750 MW through Re-MAT
statewide. This amount is divided among the utilities
according to their customers’ share of peak electricity
WINDING CREEK SOLAR V. PETERMAN 7
demand. And each utility is allowed to subtract from its
share any generation it is already obligated to purchase under
prior CPUC programs. As a result, PG&E, which serves the
Northern California area in which Winding Creek is located,
is obligated to purchase just 149.848 MW of energy from
QFs under Re-MAT. That obligation is then divided equally
among three types of generation: “baseload,” “non-peaking,
as-available,” and “peaking, as-available” (which includes
solar facilities such as Winding Creek).
Additionally, in any given two-month period, PG&E is
obligated to purchase no more than 5 MW from each
category of generation. Once PG&E reaches this limit—
meaning once purchasing the output of the next QF in line
would put it over the 5 MW cap—it can stop offering Re-
MAT contracts.
Also significant is the Re-MAT contract price. The
CPUC set the initial price at $89.23/MWh for peaking as-
available facilities like Winding Creek. Every two months
this price adjusts up, down, or stays the same based on QFs’
willingness to accept the prior offer price. If QFs will not
supply at least 1 MW to the regional utility, and there are at
least five unaffiliated QFs in the queue, the next contract
price adjusts up. If QFs supply at least 5 MW at the previous
offer price, the price adjusts down. And if QFs supply
between 1 and 5 MW at the offer price, or there are fewer
than five unaffiliated QFs in the queue, the price remains the
same. The price adjustment follows a formula set by the
CPUC.
The CPUC administers another PURPA program, the
Standard Contract, which is available as an alternative to Re-
MAT. See Winding Creek Solar LLC, 153 FERC ¶ 61027,
2015 WL 6083932 (Oct. 15, 2015). The Standard Contract
does not cap the amount of energy a utility is obligated to
8 WINDING CREEK SOLAR V. PETERMAN
buy. The Standard Contract offers an avoided-cost rate,
calculated using a six-variable formula. However, three of
the six variables (burner tip gas price, market heat rate, and
a location adjustment factor) are impossible to determine at
the time of contracting.
III. WINDING CREEK’S RE-MAT PARTICIPATION
Winding Creek was accepted into the Re-MAT program,
but because it was not placed near the top of the queue, the
company did not receive a contract offer at the initial
$89.23/MWh price. By the time Winding Creek received a
contract offer in March 2014, the price had dropped to
$77.23/MWh. Winding Creek rejected this offer and later,
lower offers because it could not develop a facility at such a
low price.
Winding Creek initially challenged the Re-MAT
program before FERC. See Winding Creek Solar LLC,
144 FERC ¶ 61122, 2013 WL 4053221 (Aug. 12, 2013);
Winding Creek Solar LLC, 151 FERC ¶ 61103, 2015 WL
2151303 (May 8, 2015) ; Winding Creek Solar LLC,
153 FERC ¶ 61027. After various orders and notices of
intent not to act, Winding Creek filed suit in district court.
Following a one-day bench trial, the district court granted
summary judgment in favor of Winding Creek but declined
to grant Winding Creek its preferred remedy: a contract with
PG&E at the initial $89.23/MWh price.
ANALYSIS
We review de novo the district court’s grant of summary
judgment. FTC v. Stefanchik, 559 F.3d 924, 927 (9th Cir.
2009). Findings of fact following a bench trial are reviewed
for clear error. See Husain v. Olympic Airways, 316 F.3d
829, 835 (9th Cir. 2002), aff’d 540 U.S. 644 (2004).
WINDING CREEK SOLAR V. PETERMAN 9
Like the district court, we believe the conclusion to be
drawn from this web of regulations is not complicated:
California’s Re-MAT program violates, and is therefore
preempted by, PURPA. See La. Pub. Serv. Comm’n v. FCC,
476 U.S. 355, 368–69 (1986) (explaining that state
regulations that conflict with federal regulations are
preempted under the Supremacy Clause).
Re-MAT violates PURPA in two ways. To begin, Re-
MAT’s cap on the amount of energy utilities must purchase
from QFs is impermissible under PURPA’s must-take
provision. Under Re-MAT, PG&E is required to purchase
no more than 5 MW of energy from each of the three
categories of alternative energy sources in any two-month
period. And each utility must purchase only a fraction of the
750 MW statewide cap from each category of generators.
As a result, a utility could purchase less energy than a QF
makes available, an outcome forbidden by PURPA.
18 C.F.R. § 292.303(a)(1).
Re-MAT’s pricing scheme also runs afoul of PURPA.
PURPA requires a utility to pay QFs at an avoided-cost rate:
the rate the utility would have incurred obtaining energy
from a source other than the QFs. 18 C.F.R.
§ 292.101(b)(6). True, state agencies may take a variety of
factors into account when calculating avoided cost. See
18 C.F.R. §§ 292.302(b), 292.304(e). But the Re-MAT
price, which is arbitrarily adjusted every two months
according to the QFs’ willingness to supply energy at the
pre-defined price, strays too far afield from a utility’s but-for
costs to satisfy PURPA.
The CPUC argues that Re-MAT’s noncompliance with
PURPA is not consequential because QFs may instead sell
energy to utilities through the Standard Contract. It is true
that FERC has concluded that an alternative program may
10 WINDING CREEK SOLAR V. PETERMAN
exist if a state otherwise satisfies its obligations to QFs under
PURPA. See Winding Creek Solar LLC, 151 FERC
at ¶ 61103 (“[A]s long as a state provides QFs the
opportunity to enter into long-term legally enforceable
obligations at avoided-cost rates, a state may also have
alternative programs that . . . limit how many QFs, or the
total capacity of QFs, that may participate in the [alternative]
program.”). The Supreme Court has recently reiterated
when courts must defer to agencies’ interpretations of their
own regulations. Kisor v. Wilkie, — U.S. —, No. 18-15, slip
op. at 11–19 (June 26, 2019). But we need not decide if
FERC’s regulatory interpretation is due deference under
Auer v. Robbins, 519 U.S. 452 (1997), because, either way,
the result is the same.
Even under FERC’s interpretation, the Standard
Contract cannot save Re-MAT because the Standard
Contract also violates PURPA. PURPA mandates that QFs
be given a choice between calculating the avoided-cost rate
at the time of contracting or at the time of delivery.
18 C.F.R. § 292.304(d)(2). The Standard Contract provides
only one formula for calculating avoided cost, and that
formula relies on variables that are unknown at the time of
contracting. The Standard Contract violates PURPA
because it fails to give QFs the option to calculate avoided
cost at the time of contracting. This infirmity is plain from
the face of the regulations, so we do not defer to FERC’s
unreasoned conclusion to the contrary. See Kisor, slip op. at
13, 17 (holding that Auer deference is only appropriate if the
regulation being interpreted is “genuinely ambiguous” and
the agency’s interpretation “reflect[s] fair and considered
judgment” (internal quotation marks omitted)).
The bottom line is that two wrongs don’t make a right.
Because neither option offered by the CPUC is PURPA-
WINDING CREEK SOLAR V. PETERMAN 11
compliant, California’s regulatory scheme is preempted by
federal law.
Finally, the district court did not abuse its broad
discretion to fashion equitable relief by declining to grant
Winding Creek a contract with PG&E at the initial
$89.23/MWh price. See Labor/Cmty. Strategy Ctr. v. L.A.
Cty. Metro. Transp. Auth., 263 F.3d 1041, 1048 (9th Cir.
2001). Indeed, it would be inappropriate to order a non-party
to contract with Winding Creek under a modified version of
the very program the court had just determined to be
preempted by federal regulation. It is not the court’s job to
fashion a new contract to Winding Creek’s liking. See Allco
Renewable Energy Ltd. v. Mass. Elec. Co., 875 F.3d 64, 74
(1st Cir. 2017) (noting that federal courts are neither
statutorily authorized nor competent to set avoided-cost
rates). 1
AFFIRMED.
1
The CPUC’s unopposed motion for judicial notice (Dkt. 47) is
GRANTED.