Care v. Cpuc

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CALIFORNIANS FOR RENEWABLE No. 17-55297
ENERGY, a California Non-Profit
Corporation; MICHAEL E. BOYD; D.C. No.
ROBERT SARVEY, 2:11-cv-04975-
Plaintiffs-Appellants, SJO-JCG
and
OPINION
SOLUTIONS FOR UTILITIES, INC., a
California Corporation,
Plaintiff,
v.
CALIFORNIA PUBLIC UTILITIES
COMMISSION, an Independent
California State Agency; MICHAEL
R. PEEVEY, TIMOTHY ALAN SIMON,
MICHAEL R. FLORIO, CATHERINE J.K.
SANDOVAL, MARK J. FERRON, in
their individual and official
capacities as current Public Utilities
Commission of California Members,
Defendants-Appellees,
and
RACHEL CHONG, JOHN A. BOHN,
DIAN M. GRUENICH, NANCY E.
2 CARE V. CPUC
RYAN, in their individual capacities
as former Public Utilities
Commission of California Members;
SOUTHERN CALIFORNIA EDISON
COMPANY, a California Corporation,
Defendants.
Appeal from the United States District Court
for the Central District of California
S. James Otero, Senior District Judge, Presiding
Argued and Submitted February 6, 2019
Pasadena, California
Filed April 24, 2019
Before: Ronald M. Gould and Jacqueline H. Nguyen,
Circuit Judges, and Algenon L. Marbley, * District Judge.
Opinion by Judge Marbley;
Dissent by Judge Nguyen
*
The Honorable Algenon L. Marbley, District Judge for the United
States District Court for the Southern District of Ohio, sitting by
designation.
CARE V. CPUC 3
SUMMARY **
Energy Law
The panel affirmed in part and reversed in part the
district court’s judgment in favor of the California Public
Utilities Commission on small-scale solar energy producers’
claims that the CPUC’s programs did not comply with the
Public Utility Regulatory Policies Act and implementing
regulations promulgated by the Federal Energy Regulatory
Commission.
Reversing the district court’s summary judgment in
favor of CPUC, the panel held that PURPA requires utilities
to purchase electricity directly from “qualifying facilities,”
or “QFs,” meaning qualifying small power production
facilities or cogeneration facilities, and to pay QFs at a rate
equal to the utility’s “avoided cost.” In 2005, the Energy
Policy Act eliminated the must-purchase obligations for any
QF that FERC determined had nondiscriminatory access to
particular markets. In 2011, FERC released California
utilities from PURPA’s mandatory purchase obligations for
QFs over 20 MW and established a presumption that the
obligations would apply for QFs 20 MW or smaller, such as
plaintiffs. PURPA also includes an interconnection
requirement, obligating utilities to connect QFs to the power
grid.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4 CARE V. CPUC
In 2010, CPUC entered into the QF settlement, which,
among other things, established a standard contract for QFs
with capacity of 20 MW or less. Under California Assembly
Bill 1613, CPUC operated a separate program for combined
heat and power facilities. CPUC also operated the Feed-in-
Tariff or Renewable Market Adjusting Tariff program for
renewable generators with capacities of 3 MW or less, as
well as the Net Energy Metering Program (“NEM Program”)
for consumers with capacity of 1 MW or less. Plaintiffs
alleged that, through these programs, CPUC was not
enforcing (1) PURPA’s requirement that utilities pay QF’s
the “full avoided cost” and (2) PURPA’s interconnection
requirement.
First, plaintiffs argued that CPUC improperly calculated
avoided cost based on multiple sources of electricity, rather
than using “multi-tiered pricing” and calculating the avoided
costs for each type of electricity. The panel concluded that,
in light of two FERC orders interpreting avoided cost, when
a state, such as California, has a Renewables Portfolio
Standard and the utility is using a QF’s energy to meet this
“RPS,” the utility cannot calculate avoided cost based on
energy sources that would not also meet the RPS. Because
the district court did not read FERC’s order as requiring an
avoided cost based on renewable energy where energy from
QFs was being used to meet RPS obligations, it did not
consider whether utilities were fulfilling any of their RPS
obligations through the challenged CPUC programs. The
panel therefore remanded the case to the district court for a
determination in the first instance of whether CPUC’s
programs comply with this aspect of PURPA.
Second, plaintiffs argued that several CPUC programs
violated PURPA because they did not include capacity costs
as part of the full avoided cost. The panel held that if a QF
CARE V. CPUC 5
displaces a utility’s need for additional capacity, then the
utility is required to include capacity costs as part of avoided
cost. The panel concluded that neither the QF Settlement
contract price nor a NEM Program price violated PURPA.
The panel held that utilities do not violate PURPA in not
compensating QFs for Renewable Energy Credits.
Third, plaintiffs argued that the NEM Program violated
PURPA’s interconnection requirement. The panel held that
there was no violation because the regulations allow utilities
to charge QFs for connection fees.
The panel affirmed the district court’s dismissal of
claims for equitable damages and attorney fees. The panel
held that the Eleventh Amendment precluded equitable
damages because CPUC was an arm of the state. Plaintiffs
could not recover attorney fees because PURPA created no
attorney fee remedy.
The panel reversed and remanded on the issue of the
district court’s error in not interpreting FERC’s regulations
to require state utility commissions to consider whether an
RPS changed the calculation of avoided cost. The panel
affirmed the district court’s judgment in all other respects.
Dissenting in part, Judge Nguyen wrote that the district
court’s judgment should be affirmed in its entirety. She
wrote that CPUC’s programs did not conflict with PURPA,
and the majority’s misreading of the law undercut discretion
intended for the states and inflicted significant consequences
upon their energy policy.
6 CARE V. CPUC
COUNSEL
Meir J. Westreich (argued), Pasadena, California, for
Plaintiffs-Appellants.
Christine Jun Hammond (argued), Arocles Aguilar,
California Public Utilities Commission, San Francisco,
California, for Defendants-Appellees.
Peter J. Richardson, 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.
OPINION
MARBLEY, District Judge:
In 1978, Congress enacted the Public Utility Regulatory
Policies Act (“PURPA”). PURPA made several changes to
energy regulation, particularly to how utilities would interact
with small independent energy producers. PURPA charges
the Federal Energy Regulatory Commission (“FERC”) with
enacting implementing regulations. FERC’s regulations, in
turn, allow state regulatory agencies to determine exactly
how they will comply with PURPA and FERC’s regulations.
The relevant state agency here is the California Public
Utilities Commission (“CPUC”).
Californians for Renewable Energy (“CARE”) and two
of its members, Michael E. Boyd and Robert Sarvey, are
small-scale solar producers. They allege that CPUC’s
programs do not comply with PURPA. Specifically, they
CARE V. CPUC 7
argue that CPUC has incorrectly defined the amount that
PURPA requires utilities to pay qualifying facilities
(“QFs”). CARE argues that PURPA also allows equitable
damages and attorney fees.
The district court dismissed CARE’s claims for equitable
damages and attorney fees and entered summary judgment
for CPUC on CARE’s PURPA challenges. We affirm in part
and reverse in part.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Statutory Background
Congress enacted PURPA “to encourage the
development of cogeneration and small power production
facilities, and thus to reduce American dependence on fossil
fuels by promoting increased energy efficiency.” Indep.
Energy Producers Ass’n, Inc. v. Cal. Pub. Utils. Comm’n
(“IEP”), 36 F.3d 848, 850 (9th Cir. 1994).
To achieve this objective, Congress sought to
eliminate two significant barriers to the
development of alternative energy sources:
(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.
Id.
PURPA created a new category of energy producers:
qualifying facilities. QFs can be either “small power
production facilit[ies] or “cogeneration facilit[ies].” 18 CFR
8 CARE V. CPUC
§§ 292.201 & 292.203. FERC has authority to define the
requirements for being a QF. 16 U.S.C. §§ 796(17)(C) &
(18)(B).
To address the barriers facing QFs, PURPA required
utilities to purchase electricity from QFs, i.e. the mandatory
purchase requirement, 16 U.S.C. § 824a-3(a), and to pay
QFs rates that “shall be just and reasonable to the electric
consumers of the electric utility and in the public interest.”
16 U.S.C. § 824a-3(b). Utilities must compensate QFs at a
rate equal to the utility’s “avoided cost.” 18 CFR
§ 292.304(d). “Avoided cost” is “the incremental cost[] 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(6).
State regulatory agencies have the responsibility of
calculating avoided cost, but FERC has set forth factors that
states should consider. 18 C.F.R. § 292.304(e). Those
factors are:
(1) the utility’s system cost data;
(2) the terms of any contract including the
duration of the obligation;
(3) the availability of capacity or energy from
a QF during the system daily and seasonal
peak periods;
(4) the relationship of the availability of
energy or capacity from the QF to the ability
of the electric utility to avoid costs; and
CARE V. CPUC 9
(5) the costs or savings resulting from
variations in line losses from those that would
have existed in the absence of purchases from
the QF.
Cal. Pub. Util. Comm’n (“CPUC”), 133 FERC ¶ 61,059,
61,265, 2010 WL 4144227 (2010). “Avoided cost rates may
also ‘differentiate among qualifying facilities using various
technologies on the basis of the supply characteristics of the
different technologies.’” Id. at ¶ 61,265–66 (quoting
18 C.F.R. § 292.304(c)(3)(ii)). Avoided cost can also
include the capacity costs that the utility avoids by
purchasing electricity from QFs. CPUC, at ¶ 26.
Congress changed this statutory scheme in 2005 with the
Energy Policy Act (“EPAct”). With EPAct, Congress
acknowledged that QFs no longer faced the same barriers
that prompted PURPA. EPAct thus eliminated the must-
purchase obligations for any QF that FERC determined had
“nondiscriminatory access to” particular markets as
specified in 16 U.S.C. § 824a-3(m). In 2011, FERC released
California utilities from PURPA’s mandatory purchase
obligations for QFs over 20 MW. Pac. Gas and Elec. Co.,
135 FERC ¶ 61234, 62305 (2011). FERC established a
presumption that the mandatory purchase obligation would
apply for QFs 20 MW or smaller unless the utility showed
that “each small QF . . . , in fact, has nondiscriminatory
access to the market.” New PURPA Section 210(m)
Regulations Available to Small Power Production and
Cogeneration Facilities (“Order 668”), 71 Fed. Reg. 64342,
64363 (Oct. 20, 2006). The facilities that CARE represents
produce less than 20 MW of energy.
In addition to mandatory purchase requirements,
PURPA requires utilities to connect QFs to the power grid.
10 CARE V. CPUC
The interconnection requirement goes hand-in-hand with the
mandatory purchase requirement for “[n]o purchase or sale
can be completed without an interconnection between the
buyer and seller.” Am. Paper Institute, Inc. v. Am. Elec.
Power Serv. Corp., 461 U.S. 402, 418 (1983). Using its
authority under PURPA, FERC promulgated a rule requiring
that “any electric utility shall make such interconnection
with any qualifying facility as may be necessary to
accomplish purchases or sales under [PURPA].” 18 C.F.R.
§ 292.303(c)(1). FERC’s rule also specifies that “[e]ach
qualifying facility shall be obligated to pay any
interconnection costs which the State regulatory authority
. . . may assess against the qualifying facility on a
nondiscriminatory basis with respect to other customers with
similar load characteristics.” 18 C.F.R. § 292.306(a).
B. The Challenged CPUC Programs
In the 1980s, CPUC required utilities to offer one of four
standard contracts if a QF requested one. These contracts
“differ[ed] primarily in the length of the contract, the
availability of capacity and energy from a QF, and the
avoided cost rate payments corresponding to such
availability.” IEP, 36 F.3d at 852. This program was
successful but did not “accurately reflect[] the avoided cost
of . . . utilities.” Solutions for Utilities, Inc. v. Cal. Pub.
Utilities Comm., CV 11-04975 SJO (JCGx), 2016 WL
7613906, at *5 (C.D. Cal. Dec. 28, 2016). CPUC
discontinued using these contracts in the mid-1980s because
of “QF oversubscription.” Id. The elimination of these
contracts and the subsequent search for a better mechanism
for compensating QFs sparked years of litigation. Rather
than use long-term pricing, CPUC moved to using short-run
pricing. State legislation in 1996 “set[] forth certain
elements to be included in setting [short-term avoided cost
CARE V. CPUC 11
(‘SRAC’)].” Order Instituting Rulemaking to Promote
Policy, Program Coordination and Integration in Electric
Utility Resource Planning, No. D.07-09-040, 2007 WL
2872674, at *9 (Cal. P.U.C. Sept. 20, 2007). Disputes,
however, continued.
This situation was finally resolved in 2010 with the
Qualifying Facility and Combined Heat and Power (“CHP”)
Program Settlement (“QF Settlement”). Solutions for
Utilities, Inc., 2016 WL 7613906, at *6. Among other
things, the QF Settlement established four standard
contracts. Id. One of these standard contracts was designed
specifically for QFs with capacity of 20 MW or less. Id.
Any QF 20 MW or smaller may avail itself of this contract,
regardless of where the QF sources its energy. This contract
sets the price paid to QFs based on both capacity and energy.
The price for capacity is a fixed rate while the price for
energy is variable, based on the Short Run Avoided Cost
(“SRAC”).
“Energy costs are the variable costs
associated with the production of electric
energy (kilowatt-hours). They represent the
cost of fuel, and some operating and
maintenance expenses. Capacity costs are
the costs associated with providing the
capability to deliver energy; they consist
primarily of the capital costs of facilities.”
Small Power Production and Cogeneration Facilities;
Regulations Implementing Section 210 of PURPA, (“Order
69”) 45 Fed. Reg. 12,214, 12,216 (Feb. 25, 1980).
12 CARE V. CPUC
Separate from the QF Settlement, the California
legislature, through Assembly Bill 1613, created the
Combined Heat and Power Facilities Program on January 1,
2008. Solutions for Utilities, Inc., 2016 WL 7613906, at *6.
The CHP Program applies to CHP facilities with capacities
under 20 MW. Id. Under this law, CPUC set up a different
program for compensating CHPs based “on the Market Price
Referent (‘MPR’), which is defined as the cost to design,
build, and operate a 500 MW Combined cycle natural gas
turbine generator (‘CCGT’).” Id.
CPUC also operates the Feed-in-Tariff (“FiT”) or
Renewable Market Adjusting Tariff (“Re-MAT”) program.
This program applies to renewable generators with
capacities of 3 MW or less. Id. at 7. Under this program,
utilities must purchase electricity at the program-specified
rates “until the [utility] meets its proportionate share of a
statewide cap of 750 [MWs] cumulative rated generation
capacity.” Id. The Re-MAT price is calculated using three
pricing values. First, the Re-MAT takes “the weighted
average contract price of [three California utility’s] highest
priced executed contract resulting from the CPUC's auction
held in November 2011 for three different product types.”
Id. Second, Re-MAT uses “a two-month price adjustment
‘based on the market response.’” Id. Finally, the
participating power producer receives “a ‘time-of-delivery
adjustment’ based on the generator’s actual energy delivery
profile and the individual utility’s time-of-delivery factors.”
Id. As CARE describes it, CPUC assumes that market bids
take account of capacity costs.
The last CPUC program at issue is the Net Energy
Metering (“NEM”) Program. The NEM Program was
established by state statute, Assembly Bill 920, and took
effect in January 2011. Solutions for Utilities, Inc., 2016 WL
CARE V. CPUC 13
7613906, at *7. This program is limited to consumers with
capacity of 1 MW or less. Id. The NEM Program calculates
how much electricity a consumer uses and how much
electricity a consumer generates over a twelve-month period.
If the consumer generates more electricity than it uses, then
the excess electricity goes back into the electrical grid. Id.
The utility pays the consumer for this electricity based on the
default load aggregation point (“DLAP”) price. DLAP is
“an hourly day-ahead electricity market price,” in other
words, what “the utility is paying one day out in the
marketplace.” Id. DLAP does not include capacity costs,
even as defined by CPUC.
California has also enacted a Renewables Portfolio
Standard (“RPS”). The first RPS, enacted in 2002, required
utilities to source 33% of their electricity from renewable
sources by the end of 2020. Those standards have since been
increased to require 50% of a utility’s electricity to be from
renewable sources by 2030. CPUC represents that “CPUC-
regulated utilities have met their 2020 targets and are on
track to reach their [2030] targets.” 1 Most of these goals
have been met by purchasing energy from producers with
capacity over 20 MW.
II. Procedural Background
A. CARE v. CPUC I
CARE and Solutions for Utilities Inc. (“SFUI”) sued
CPUC and Southern California Edison Company (“SCE”) in
2011. That suit alleged violations of PURPA and violations
of § 1983 based on allegations of suppressing SFUI’s and
1
CPUC’s brief states that utilities are on track for their 2050 targets,
but it appears that should actually refer to the 2030 targets.
14 CARE V. CPUC
CARE’s First Amendment rights. The district court
dismissed the § 1983 claims and CARE’s PURPA violation
claim but left SFUI’s PURPA claim. The district court also
entered summary judgment for CPUC and SCE, finding that
SFUI did not have standing to bring its PURPA claim.
CARE appealed. This Court affirmed dismissal of the
§ 1983 claims but reversed and remanded on CARE’s
PURPA claim, finding that the CARE Plaintiffs had met
PURPA’s administrative exhaustion requirement. Solutions
for Utilities, Inc., 2016 WL 7613906, at *2.
B. The Current Action
CARE moved for leave to file a fourth amended
complaint on March 8, 2016. The district court denied
CARE’s motion for leave to file without prejudice. In that
order, the district court found that CARE could not amend
its complaint to assert a claim for equitable damages and
attorney fees. CARE then filed an amended complaint on
April 14, 2016. CPUC moved for summary judgment. On
December 28, 2016, the district court granted summary
judgment for CPUC on all claims. This appeal followed.
III. JURISDICTION AND STANDARD OF REVIEW
The district court denied CARE’s Motion for Leave to
File Fourth Amended Complaint. In that order, the district
court found that damages and attorney fees were not
available under PURPA. This Court reviews a “denial of a
motion to amend a complaint . . . for an abuse of discretion.”
Chodos v. West Publishing Co., 292 F.3d 992, 1003 (9th Cir.
2002). A denial of leave to file is “strictly reviewed, in light
of the strong policy permitting amendment.” Moore v.
Kayport Package Express, Inc., 885 F.2d 531, 537–38 (9th
Cir. 1989) (quoting Thomas-Lazear v. Federal Bureau of
Investigation, 851 F.3d 1202, 1206 (9th Cir. 1988)). The
CARE V. CPUC 15
“district court does not err in denying leave to amend where
the amendment would be futile, or where the amended
complaint would be subject to dismissal.” Saul v. United
States, 928 F.2d 829, 843 (9th Cir. 1991) (citations omitted).
If the district court is correct in making a finding that “there
was no possibility of stating a cause of action . . . . the
dismissal would not be an abuse of discretion.” Shermoen v.
United States, 982 F.2d 1312 (9th Cir. 1992).
The district court next granted summary judgment for
CPUC on CARE’s PURPA challenges. This Court reviews
summary judgment orders de novo. Sonner v. Schwabe
North America, Inc., 911 F.3d 989 (9th Cir. 2018). This
Court “[v]iewing the evidence in the light most favorable to
the nonmoving party . . . must determine whether there are
any genuine issues of material fact and whether the district
court correctly applied the relevant substantive law.”
Devereaux v. Abbey, 263 F.3d 1070, 1074 (9th Cir. 2001)
(en banc) (citing Lopez v. Smith, 203 F.3d 1122, 1131 (9th
Cir. 2000) (en banc)). On summary judgment, “it is not our
task . . . to scour the record in search of a genuine issue of
triable fact.” Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir.
1996) (quoting Richards v. Combined Ins. Co., 55 F.3d 247,
251 (7th Cir. 1995)). Rather, “[w]e rely on the nonmoving
party to identify with reasonable particularity the evidence
that precludes summary judgment.” Id.
We recognize that FERC intended to leave states with
discretion in implementing its regulations under PURPA.
Order 69, 45 Fed. Reg. at 12226 (stating that a state’s
implementation of avoided cost is satisfactory if it
“reasonably accounts for the utility’s avoided costs” and
encourages “small power production.”). But a state’s broad
authority in determining how to implement PURPA, IEP,
36 F.3d at 856, and the corresponding deference due state
16 CARE V. CPUC
utility regulators, does not mean that we abdicate our
responsibility to ensure that the state program complies with
PURPA. See, e.g., Exelon Wind 1, L.L.C. v. Nelson,
766 F.3d 380, 394 (5th Cir. 2014) (explaining that a state is
owed deference in PURPA implementation); Allco
Renewable Energy Limited v. Massachusetts Electric
Company, 208 F. Supp. 3d 390, 399 (D. Mass. 2016) (noting
that a state cannot implement a program that conflicts with
PURPA).
IV. ANALYSIS
CARE alleges that CPUC is not enforcing PURPA’s
requirement that utilities pay QFs the “full avoided cost” and
that utilities must connect QFs to the power grid
(“mandatory inter-connection”). CARE challenges several
of CPUC’s programs based on three theories. First, CARE
argues that avoided cost cannot be based on the cost for
multiple energy sources. Second, CARE argues that avoided
cost must also include capacity costs. Third, CARE argues
that the NEM Program violates PURPA’s mandatory
interconnection requirements. CARE also appeals the
district court’s dismissal of the equitable damages and
attorney fees claims under PURPA.
A. Calculating full avoided cost based on a mix of
energy sources
CARE argues that CPUC improperly calculates avoided
cost based on multiple sources of electricity, rather than
calculating the avoided cost for each type of electricity
(“multi-tiered pricing”). CARE argues that if a utility
purchases energy from natural gas producers, coal
producers, and solar producers, the utility would be required
to calculate an avoided cost for natural gas, an avoided cost
for coal, and an avoided cost for solar; rather than calculating
CARE V. CPUC 17
a single avoided cost based on all the energy sources. CARE
argues that several CPUC programs impermissibly base
avoided cost on the cost of a natural gas benchmark, rather
than a renewables benchmark. CPUC argues that states have
discretion in determining how they will comply with
PURPA and that, thus, while FERC has said that multi-tiered
pricing is permissible, it is not mandatory. While we do not
think that PURPA requires utilities to always use multi-
tiered pricing, we find that summary judgment was
improperly granted here.
In 1995, FERC issued two orders that interpreted
“avoided cost.” 2 In N. Little Rock, FERC stated that
“avoided costs are determined . . . by all alternatives
available to the purchasing utility . . . [and] include[s] all
supply alternatives.” N. Little Rock Cogeneration, L.P. and
Power Sys., Ltd. v. Entergy Servs., Inc. (“N. Little Rock”),
72 FERC ¶ 61263, 62173, 1995 WL 556544 (Sept. 19,
1995). Similarly, in SoCal Edison, FERC stated that avoided
cost must “reflect prices available from all sources able to
sell to the utility whose avoided costs are being determined.”
Re Southern California Edison Co. (SoCal Edison),
70 FERC ¶ 61215, 61676 (1995), reconsideration denied,
71 FERC ¶ 61269 (1995).
FERC issued an important qualification to this “all
sources” requirement in CPUC, 133 FERC ¶ 61,059. In
CPUC, FERC clarified that “if a state required a utility to
2
The district court found that these FERC decisions are entitled to
Chevron deference. Chevron and its progeny concern deference to
agencies when they interpret and apply their own statutes and
regulations. Because we are not reviewing FERC’s decisions directly,
we need not decide what deference, if any, is owed the FERC decisions.
We cite these FERC decisions merely as persuasive interpretations from
the agency most familiar with interpreting and applying PURPA.
18 CARE V. CPUC
purchase 10 percent of its energy needs from renewable
resources, then a natural gas-fired unit, for example, would
not be a source ‘able to sell’ to that utility for the specified
renewable resources segment of the utility's energy needs,
and thus would not be relevant to determining avoided costs
for that segment of the utility's energy needs.” Id. at ¶ 61267.
California has an RPS. The district court dispensed with the
argument that an RPS changes the avoided cost calculation,
reading the language in CPUC as permissive rather than
mandatory.
The district court erred in reading FERC’s
pronouncement in such a way. Although FERC initially
stated in CPUC that a “state may take into account
obligations imposed by the state that, for example, utilities
purchase energy from particular sources of energy,” CPUC,
133 FERC at ¶ 61266 (emphasis added), later in CPUC,
FERC reiterated that when a state has a requirement that
utilities source energy from a particular type of generator,
“generators with those characteristics constitute the sources
that are relevant to the determination of the utility's avoided
cost for that procurement requirement.” Id. at ¶ 61267.
Thus, where a state has an RPS and the utility is using a QF’s
energy to meet the RPS, the utility cannot calculate avoided
costs based on energy sources that would not also meet the
RPS.
This reading of FERC’s regulations is consistent with
other FERC pronouncements. In FERC’s final rule
implementing Section 210 of PURPA (“Order 69”), FERC
explained that if purchasing energy from a QF allowed a
utility to forego energy purchases, then the cost of energy
was to be included in the avoided cost. But “if a purchase
from a qualifying facility permits the utility to avoid the
addition of new capacity, then the avoided cost of the new
CARE V. CPUC 19
capacity . . . should be used.” Order 69, 45 Fed. Reg.
at 12216. In other words, FERC interpreted PURPA to
require an examination of the costs that a utility is actually
avoiding. This comports with PURPA’s goal to put QFs on
an equal footing with other energy providers. Where a utility
uses energy from a QF to meet the utility’s RPS obligations,
the relevant comparable energy sources are other renewable
energy providers, not all energy sources that the utility might
technically be capable of buying energy from.
The dissent misreads the majority opinion when it says
we require pricing based on each type of energy source for
all avoided cost calculations. We do not hold that the
avoided cost must be calculated for each individual type of
energy. We hold only that where a utility uses energy from
a QF to meet a state RPS, the avoided cost must be based on
the sources that the utility could rely upon to meet the RPS.
If the CPUC chooses to calculate an avoided cost for each
type of energy source, it may do so. But it may just as
permissibly aggregate all sources that could satisfy its RPS
obligations. And if a QF is not aiding a utility in meeting its
RPS obligations, the avoided cost in that context need not be
limited to RPS energy sources. Neither does this opinion
hold that CPUC’s programs are de facto impermissible under
PURPA. Because we hold that the district court
misinterpreted PURPA’s requirements, we remand for the
district court to make such a determination in the first
instance.
Because the district court did not read CPUC as
requiring an avoided cost based on renewable energy where
energy from QFs was being used to meet RPS obligations, it
did not consider whether utilities are fulfilling any of their
RPS obligations through the challenged CPUC programs.
We therefore remand the case to the district court for a
20 CARE V. CPUC
determination in the first instance of whether CPUC’s
programs comply with this aspect of PURPA.
B. Excluding capacity costs from a full avoided cost
calculation
CARE next contends that several CPUC programs
violate PURPA because they do not include capacity costs
as part of the full avoided cost. In granting summary
judgment for CPUC, the district court reasoned that PURPA
did not require state regulatory agencies to take into account
capacity costs. Rather, the regulations required state utility
regulators to consider capacity costs only “to the extent
practicable.” 18 C.F.R. § 292.304(e). The district court
found no genuine dispute of material fact that NEM
participants were not being paid avoided cost, nor were
utilities required to include capacity costs because NEM
customers did not provide capacity to the utility. Finally, the
district court found that avoided cost did not require the use
of long-run avoided cost (“LRAC”) as opposed to SRAC.
It would go too far to say that state regulatory agencies
are never required to include capacity costs in an avoided
cost calculation. The FERC regulations set forth factors for
states to consider in setting avoided cost but states that those
factors, including capacity, “shall, to the extent practicable,
be taken into account.” 18 C.F.R. § 292.304(e). FERC has
“made clear that an avoided cost rate need not include
capacity costs (as distinct from energy costs) where a QF
does not ‘permit the purchasing utility to avoid the need to
construct a generating unit, to build a smaller, less expensive
plant, or to reduce firm power purchases from another
utility.’” City of Ketchikan, Alaska, 94 FERC ¶ 61293, 2001
WL 275023, at *6 (2001) (quoting Order No. 69, FERC
Stats. & Regs., Regs. Preambles 1977–1981 ¶ 30,128
at 30,865. FERC Order 69, however, clarifies that capacity
CARE V. CPUC 21
costs are required in some circumstances. Specifically,
FERC stated:
[i]f a qualifying facility offers energy of
sufficient reliability and with sufficient
legally enforceable guarantees of
deliverability to permit the purchasing
electric utility to avoid the need to construct
a generating unit, to build a smaller, less
expensive plant, or to reduce firm power
purchases from another utility, then the rates
for such a purchase will be based on the
avoided capacity and energy costs.
Order 69, 45 FERC at 12216.
Thus, a QF would not be entitled to capacity costs unless
it actually displaced the utility’s need for additional capacity.
If a QF displaces the utility’s need for additional capacity,
however, the utility is required to include capacity costs as
part of avoided costs.
1. The QF Settlement Contract price
CARE challenges the QF Settlement contract price
because it does not include capital costs as part of capacity
costs. 3 As CARE acknowledges, the QF standard contract
does include capacity costs. Although CARE argues that
capital costs, as distinct from capacity costs, are required,
3
Amici Curiae Community Renewable Energy Association and
Northwest and Intermountain Power Producers Coalition urge this Court
to find that PURPA requires long-term contracts based on a fixed rate.
As CARE is challenging the exclusion of capacity costs, rather than
whether a rate is long-term or short-term per se, we do not address
whether PURPA requires long-term pricing.
22 CARE V. CPUC
CARE has not shown how capital costs differ from capacity
costs except for a statement at oral argument that capacity
costs are essentially a subset of capital costs. CARE presents
no evidence as to why capacity costs, without capital costs,
do not accurately reflect a utility’s avoided cost. CARE has
pointed to “mere conclusory allegations made in [CARE’s]
own affidavits.” Keenan, 91 F.3d at 1279. This is not
enough to raise a genuine issue of material fact. Thus,
summary judgment was appropriate on this question.
2. The NEM Program
CARE next challenges the DLAP price used in the NEM
Program because DLAP does not include capacity costs.
CPUC acknowledges that NEM participants are not
compensated for avoided capacity but argues that
participants in the NEM program are not owed capacity costs
because they do not provide any capacity for utilities. CPUC
also asserts that net metering programs are not PURPA
programs. 4
NEM programs are not, as a general matter, state
programs categorically exempt from PURPA. In the very
CPUC decision implementing the NEM program, CPUC
acknowledged that if customers are compensated in the form
of a credit on their utility bill, PURPA does not apply. But
if the utility is making a separate payment to customers,
4
CARE argued at oral argument that CARE’s members have
repeatedly been denied a standard contract and instead been placed in the
NEM program. Such an argument veers into the category of an as-
applied challenge that can only be brought in state court. Allco
Renewable Energy Limited v. Massachusetts Electric Company,
208 F. Supp. 3d 390, 396 (D. Mass. 2016) (citing Exelon Wind 1, LLC,
766 F.3d at 388).
CARE V. CPUC 23
PURPA applies and the payment must be the full avoided
cost.
CPUC is not required to take capacity costs into account
in the NEM program. PURPA requires utilities to
compensate QFs for capacity costs only when purchasing
energy from the QF allows the utility to forgo spending its
own money on capacity. FERC has explained that capacity
costs are required when “a qualifying facility offers energy
of sufficient reliability and with sufficient legally
enforceable guarantees of deliverability to permit the
purchasing electric utility” to forgo capital investments.
Order 69, 45 FERC at 12216 (emphasis added).
The energy that customers provide to utilities through the
NEM Program does not have “sufficient legally enforceable
guarantees of deliverability” because customers are not
legally required to provide the utility with energy. If, at the
end of twelve months, a customer has used more energy than
it produced, the customer simply would not provide any
energy to the utility. This scenario does not allow utilities to
forgo spending on capacity elsewhere because the utility
cannot know in advance how much surplus energy NEM
participants will provide, and CARE has failed to make any
showing that NEM decreases utilities’ spending on capacity.
Thus, this aspect of the NEM program does not violate
PURPA.
3. The Re-MAT and CHP Programs
CARE has given perfunctory treatment to any possible
challenge to the Re-MAT and CHP programs, stating only
that CPUC operates these programs and that “[a]ll of these
programs have one thing in common. Plainly and simply,
there is no component for actual avoided capacity costs.”
Given CARE’s bare-bones assertion of the programs’
24 CARE V. CPUC
deficiencies, we decline to speculate as to why CARE
believes that these programs allow utilities to forgo capacity
spending and will not address these programs on appeal. See
Navajo Nation v. U.S. Forest Serv., 535 F.3d 1058, 1079
n.26 (9th Cir. 2008) (en banc) (“It is well-established that a
bare assertion in an appellate brief, with no supporting
argument, is insufficient to preserve a claim on appeal.”). To
the extent, however, that CARE challenges either program
for basing capacity costs on a new natural gas facility, rather
than renewable energy facilities, the district court should
consider such a challenge on remand, consistent with our
holdings above regarding avoided cost and capacity cost in
the context of an RPS.
4. Renewable Energy Credits (“RECs”)
CARE next challenges whether CPUC can allow utilities
to condition energy purchases from QFs on transfers of the
QF’s RECs to the utility. As CARE acknowledged in its
brief, RECs are not covered under PURPA; rather, they are
considered state programs and do not factor into the avoided
cost determination. See American Ref-Fuel Co., 105 FERC
¶ 61,004, 61,008 (2003); CGE Fulton, LLC, 70 FERC
¶ 61,290 (1995), reconsideration denied, 71 FERC ¶ 61,232
(1995); SoCal Edison, 71 FERC at ¶ 62,080. CARE argues,
nonetheless, that RECs are valuable to utilities that do not
comply with California’s greenhouse gas emission standards
(and could thus use the RECs to become compliant) and that
allowing utilities to require that QFs give RECs to utilities
reduces the cost that QFs receive to below full avoided cost.
CPUC argues, and CARE appears to acknowledge, that QFs
are compensated for RECs under the NEM program.
CARE cites no legal authority in support of its argument
that the value of RECs should be considered as reducing the
cost that utilities pay QFs. Given FERC’s treatment of RECs
CARE V. CPUC 25
as outside the purview of PURPA, however, utilities do not
violate PURPA in not compensating QFs for RECs.
C. CPUC’s NEM program and PURPA’s “must
purchase” requirements
CARE alleges that the NEM program violates the
mandatory interconnection requirement of PURPA. PURPA
requires that utilities “shall make such interconnection with
any [QF] as may be necessary to accomplish purchases or
sales under this subpart.” 18 C.F.R. § 292.303(c). FERC
regulations place the burden of paying the cost to connect to
the power grid on the QF. 18 C.F.R. § 292.306 (a).
The NEM program does not violate PURPA’s
mandatory interconnection requirements. Participants in the
NEM program are, by definition, connected to the utility’s
infrastructure. CARE objects to the NEM Program being
“imposed unilaterally.” While QFs can choose to be
compensated based on energy pricing “at the time of
delivery” or based on energy pricing at the time a contract is
made, 18 CFR § 292.304(d)(2), the interconnection
provisions of PURPA merely mandate that utilities connect
QFs when needed to comply with PURPA. CARE
challenges the imposition of fees, but the regulations
specifically allow utilities to charge QFs for the connection
fees. Thus, the NEM Program does not violate PURPA.
D. Equitable damages and attorney fees
The district court denied CARE’s motion for leave to
amend its complaint to add a request for equitable damages
and attorney fees. The district court found that CARE had
not shown that justice so required equitable damages and
said that it would “likely conclude” that PURPA does not
authorize damages. The district court concluded that suits
26 CARE V. CPUC
against Commissioners in their official capacity can only
seek “prospective injunctive relief” and that Commissioners
had absolute immunity. The district court found attorney
fees unavailable because PURPA does not have a fee-
shifting provision. We affirm.
As this Court previously noted on appeal, “PURPA has
a comprehensive remedial scheme.” Solutions for Utilities,
Inc. v. Cal. Pub. Utilities Comm’n, 596 F. App’x 571, 572
(9th Cir. 2015). PURPA allows for suits in federal courts
and authorizes “such injunctive or other relief as may be
appropriate.” 16 U.S.C. § 824a-3(h)(2)(B). This Circuit has
yet to rule on whether PURPA authorizes equitable
damages. We find it unnecessary to reach that issue,
however, because the Eleventh Amendment precludes such
damages here.
We have previously held that CPUC is immune from suit
“as an arm of the state” based on the Supreme Court’s
determination in Will v. Michigan Dep’t of State Police,
491 U.S. 58 (1989) that “Congress did not intend states to be
subject to suit under Section 1983.” Sable Commc’ns of
Cal., Inc. v. Pac. Tel. & Tel. Co., 890 F.2d 184, 191 (9th Cir.
1989). As an arm of the state, CPUC is protected by the
Eleventh Amendment. Air Transportation Ass’n of America
v. Public Utilities Comm’n of Cal., 833 F.2d 200, 204 (9th
Cir. 1987). The Eleventh Amendment bars citizens from
suing their own states in federal court. Edelman v. Jordan,
415 U.S. 651, 663 (1974). A state need not be a “named
party to the action.” Id. Ordinarily, the Eleventh
Amendment would bar suit against CPUC for any purposes.
The Supreme Court rejected a claim similar to CARE’s
claim for equitable damages in Edelman. There, the Court
found that an award of “retroactive benefits,” essentially
what CARE seeks here, would be in essence “an award of
CARE V. CPUC 27
damages against the State,” Edelman, 415 U.S. at 668, and
therefore barred by the Eleventh Amendment. Id. at 677.
Thus, the Eleventh Amendment bars CARE’s claim for
equitable damages. CARE can, however, sue CPUC under
the Ex Parte Young exception to the Eleventh Amendment,
that allows for “prospective injunctive relief only.”
Edelman, 415 U.S. at 677. CARE’s reliance on Albemarle
v. Moody, 422 U.S. 405 (1975), is to no avail, as Albemarle
was a suit against private employers, not a state or state
agency. CPUC Commissioners in their individual capacity
have absolute immunity for “acting in a legislative
capacity.” Lake Country Estates, Inc. v. Tahoe Regional
Planning Agency, 440 U.S. 391, 405–06 (1979).
CARE next argues that the lack of statutory authorization
for attorney fees is no bar to their recovery. Attorney fees
are not necessarily barred by the Eleventh Amendment.
Hutto v. Finney, 437 U.S. 678, 690–93 (1978). Hutto is
distinguishable from CARE’s claims because the district
court in Hutto first found bad faith before imposing attorney
fees, making such fees analogous to fines for civil contempt.
Here, CARE alleges no bad faith. Hutto additionally
examined the availability of attorney fees under 42 U.S.C.
§ 1988, finding that “Congress has plenary power to set
aside the States’ immunity from retroactive relief in order to
enforce the Fourteenth Amendment.” Id. at 693. But unlike
§ 1988, PURPA creates no attorney fee remedy.
CARE argues that it is entitled to attorney fees under a
private attorney general theory. CARE cannot claim
attorney fees, however, under that theory. Under a private
attorney general theory, a plaintiff could recover attorney
fees if the plaintiff: (1) advanced “the interests of a
significant class of persons by (2) effectuating a strong
congressional policy.” Brandenburger v. Thompson,
28 CARE V. CPUC
494 F.2d 885, 888 (9th Cir. 1974). CARE seeks to vindicate
the interests of, at a minimum, other solar producers, if not
all renewable energy producers. And PURPA evinces a
strong policy of encouraging small energy producers. But
the Supreme Court long ago foreclosed awarding attorney
fees under the private attorney general theory without
statutory authorization. See Alyeska Pipeline Serv. Co. v.
Wilderness Soc’y, 421 U.S. 240, 269–70 (1975). As the
Supreme Court made clear in Alyeska Pipeline, Congress
may authorize attorney fees in federal statutes. Without such
statutory authorization, however, the judiciary would be
determining which statutory objectives are important
enough to merit shifting the burden of attorney fees. Id. at
263–64. That is a policy question not suited for judicial
resolution. Id. at 269–70. Therefore, we cannot impose
attorney fees under the private attorney general theory as
PURPA makes no provision for such fees.
CARE relies on Hall v. Cole, 412 U.S. 1 (1973), to argue
for attorney fees under the “private attorney general” theory.
Hall, however, concerned the “common benefit” theory of
attorney fees rather than the private attorney general theory.
The common benefit theory does not apply to CARE, as that
theory requires a common fund from which to compensate
plaintiffs. In other words, that theory operates to spread the
cost of litigation among the beneficiaries of the litigation; it
does not shift the fees from the plaintiff to the defendant. See
Alyeska Pipeline Serv. Co., 421 U.S. at 257–59. Although
CARE protests that it is left without a remedy, that is a
complaint for Congress, not the courts.
CONCLUSION
The district court erred in not interpreting FERC’s
regulations to require state utility commissions to consider
whether an RPS changed the calculation of avoided cost.
CARE V. CPUC 29
This case is reversed and remanded on that issue. In all other
respects, the decision below is affirmed.
AFFIRMED IN PART and REVERSED IN PART.
NGUYEN, Circuit Judge, dissenting in part:
Under the Public Utility Regulatory Policies Act of 1978
(“PURPA”) and its implementing rules and regulations,
states “play the primary role in calculating avoided costs,”
and are afforded “a great deal of flexibility” in doing so.
Indep. Energy Producers Ass’n v. Cal. Pub. Utils. Comm’n,
36 F.3d 848, 856 (9th Cir. 1994) (quoting Administrative
Determination of Full Avoided Costs, 4 FERC Statutes &
Regs. ¶ 32,457, at 32,173 (proposed Mar. 16, 1988)). While
“a state cannot implement a program that conflicts with
PURPA,” Maj. Op. at 16 (construing Allco Renewable
Energy Ltd. v. Mass. Elec. Co., 208 F. Supp. 3d 390, 399 (D.
Mass. 2016)), the majority identifies no such conflict in any
of the programs at issue here. Because the majority’s
misreading of the law substantially undercuts the discretion
intended for the states and inflicts significant consequences
upon their energy policy, I dissent.
I.
A.
Start with the statute itself. PURPA instructs the Federal
Energy Regulatory Commission (the “FERC”), “after
consultation with representatives of Federal and State
regulatory agencies,” to develop rules that “require electric
utilities to offer to . . . purchase electric energy from
[qualifying small power production] facilities” (“QFs”).
30 CARE V. CPUC
16 U.S.C. § 824a-3(a). PURPA says little about the rates
that utilities must pay for such energy other than that they
“shall be just and reasonable to the electric consumers of the
electric utility and in the public interest,” “shall not
discriminate against [QFs],” and cannot “exceed[] the
incremental cost to the electric utility of alternative electric
energy.” Id. § 824a-3(b). As FERC interprets these
directives, utilities must compensate QFs based on the
utilities’ “avoided costs,” 18 C.F.R. § 292.304(d), which
FERC defines as “the incremental costs to an electric utility
of electric energy or capacity or both which, but for the
purchase from the [QF] or [QFs], such utility would generate
itself or purchase from another source.” 18 C.F.R.
§ 292.101(b)(6).
The flexibility afforded to state regulatory authorities
and utilities in determining avoided costs is evident in the
regulation providing ratemaking guidance. It directs
ratemakers to take certain factors into account “to the extent
practicable.” 1 18 C.F.R. § 292.304(e). These factors are
framed at an extremely high level of generality to allow
states to exercise wide discretion in balancing them.
1
The factors are (1) data regarding a utility’s estimation of avoided
costs and costs of planned additional capacity; (2) “[t]he availability of
capacity or energy from a [QF]”; (3) “[t]he relationship of the availability
of energy or capacity from the [QF] . . . to the ability of the electric utility
to avoid costs, including the deferral of capacity additions and the
reduction of fossil fuel use,”; and (4) “[t]he costs or savings resulting
from variations in line losses from those that would have existed in the
absence of purchases from a [QF], if the purchasing electric utility
generated an equivalent amount of energy itself or purchased an
equivalent amount of electric energy or capacity.” Id. §§ 292.304(e),
292.302(b)–(d).
CARE V. CPUC 31
None of this statutory and regulatory language suggests
that utilities must compensate individual QFs based on the
costs that the utility would otherwise have incurred by
purchasing the same type of energy. For example, a QF
selling energy generated from photovoltaic cells is not
entitled to receive a rate based on the utility’s cost of
procuring solar energy from another source. Indeed, the
regulations suggest the opposite—that utilities can aggregate
energy sources when determining avoided costs. See
18 C.F.R. § 292.101(b)(6) (looking to costs avoided by
purchasing “from the [QF] or [QFs]”); see also id.
§ 292.304(e)(2)(vi) (directing ratemakers to consider “[t]he
individual and aggregate value of energy and capacity from
[QFs] on the electric utility’s system”).
B.
In concluding that a utility using energy from QFs to
satisfy state-mandated renewable energy targets “cannot
calculate avoided costs based on energy sources that would
not also meet [those targets],” Maj. Op. at 18, the majority
relies on a single sentence from a FERC order that it
misinterprets. See Cal. Pub. Utils. Comm’n (“CPUC”),
133 FERC ¶ 61,059, 61,261 (2010). In CPUC, the question
was not whether utilities must calculate avoided costs in that
manner but whether they could do so consistently with
PURPA and FERC regulations. Specifically, CPUC sought
clarification that utilities setting avoided cost rates could
consider factors other than those set forth in 18 C.F.R.
§ 292.304(e) (the “avoided cost factors”) and that avoided
costs “need not be the lowest possible avoided cost and can
properly take into account real limitations on ‘alternate’
sources of energy imposed by state law.” CPUC, 133 FERC
at ¶ 61,262.
32 CARE V. CPUC
Then, as now, the ratemaking regulation required each
electric utility to establish “standard rates” for energy
purchases from QFs that are “consistent with” the avoided
cost factors. 18 C.F.R. § 292.304(c)(3)(i). In addition,
standard rates “[m]ay differentiate among qualifying
facilities using various technologies on the basis of the
supply characteristics of the different technologies.” Id.
§ 292.304(c)(3)(ii) (emphasis added). However, the
regulation is not clear whether supply characteristics can be
considered only when determining standard rates or whether
they can be considered in determining avoided costs
generally. FERC explained that supply characteristics can
be considered generally. See CPUC, 133 FERC at
¶¶ 61,265–66.
[I]n determining the avoided cost rate, just as
a state may take into account the cost of the
next marginal unit of generation, so as well
the state may take into account obligations
imposed by the state that, for example,
utilities purchase energy from particular
sources of energy or for a long duration.
Therefore, the CPUC may take into account
actual procurement requirements, and
resulting costs, imposed on utilities in
California.
Id. at ¶ 61,266 (emphases added).
FERC stressed that “states are allowed a wide degree of
latitude in establishing an implementation plan for
[determining avoided cost rates], as long as such plans are
consistent with [FERC] regulations.” Id. at ¶ 61,266
(quoting Am. REF-FUEL Co. of Hempstead, 47 FERC
¶ 61,161, 61,533 (1989)). Because “the determinations that
CARE V. CPUC 33
a state commission makes to implement [PURPA’s] rate
provisions . . . are by their nature fact-specific and include
consideration of many factors,” FERC was “reluctant to
second guess the state commission’s determinations.” Id.
The majority cherry picks a sentence from CPUC to
reach its result. That sentence concerns a different decision
“support[ing] the proposition that, where a state requires a
utility to procure a certain percentage of energy from
generators with certain characteristics, generators with those
characteristics constitute the sources that are relevant to the
determination of the utility’s avoided cost for that
procurement requirement.” Id. at ¶ 61,267 (construing S.
Cal. Edison Co. (“SoCal Edison”), 70 FERC ¶ 61,215
(1995)).
The problem, CPUC explained, was that “there is
language in the SoCal Edison proceeding that would seem to
permit state commissions to base avoided costs on ‘all
sources able to sell to the utility,’ and other language that
requires a state commission to take into account ‘all
sources’” without qualifying language. Id. CPUC clarified
that avoided costs calculations do not have to take into
account all alternative sources; rather FERC was “permitting
states to set a utility’s avoided costs based on all sources able
to sell to that utility.” Id. (emphasis added).
Nothing in CPUC implies that states are required to
consider supply characteristics. To the contrary, both in
CPUC and the regulations it interprets, the repeated use of
terms such as “may,” “permits,” and “consistent with” all
suggest that it is a matter of state discretion.
The majority’s only other interpretive support is FERC’s
statement that “if a purchase from a [QF] permits the utility
to avoid the addition of new capacity,” i.e., new generation
34 CARE V. CPUC
facilities, “then the avoided cost of the new capacity and not
the average embedded system cost of capacity should be
used.” Regulations Implementing PURPA Section 210,
45 Fed. Reg. 12,214, 12,216 (Feb. 25, 1980). But this has
nothing to do with consideration of supply characteristics
when determining avoided energy costs. Rather, it explains
why avoided costs should be based on a utility’s
“incremental cost” of obtaining alternative energy,
16 U.S.C. § 824a-3(b), rather than the utility’s average cost.
“Under the principles of economic dispatch, utilities
generally turn on last and turn off first their generating units
with the highest running cost,” so by purchasing energy from
a QF, an economically efficient utility “can avoid operating
its highest-cost units.” Regulations Implementing PURPA
Section 210, 45 Fed. Reg. at 12,216.
If anything, this discussion undermines the majority’s
position. It illustrates “[o]ne way of determining the avoided
cost,” id., implying that there are others and, more generally,
that states have discretion in their calculations. See id.
at 12,226 (“[T]o the extent that a method of calculating the
value of capacity from [QFs] reasonably accounts for the
utility’s avoided costs, and does not fail to provide the
required encouragement of cogeneration and small power
production, it will be considered as satisfactorily
implementing [FERC] rules.”).
“The question . . . is what costs the electric utility is
avoiding. Under [FERC] regulations, a state may determine
that capacity is being avoided . . . to determine the avoided
cost rate.” CPUC, 133 FERC at ¶ 61,266 (emphasis added).
The majority usurps the state’s prerogative.
CARE V. CPUC 35
II.
This is the wrong case to be deciding these issues in a
published decision, which will inflict significant
consequences on energy policy throughout our circuit.
Plaintiffs’ briefing, both here and in the district court, is
impenetrable. For example, this is plaintiffs’ summary of
the argument that the majority finds meritorious:
[T]hey[ 2] manipulate the “multi-tiered
structure” for pricing, which refers to
pegging avoided cost calculations between
similar energy sources, which means both in
terms of the energy production and, again,
capital [capacity] costs. They push for multi-
tiered pricing when it serves the utilities,
when crafting different contracts for different
energy producers; and not when it does not
suit them, when renewable energy producers
object to an avoided cost computation based
on the cheapest source that the utilities can
invoke. In either case, the governing
rationale is the same: one purpose of PURPA
is to expand total capacity and encourage new
sources, with policy objectives that include
avoidance of risks of shortages, and those
objectives are not served by relegating all
cost calculations to the cheapest available
source which is likely to be existing, aged
production facilities.
2
Plaintiffs are perhaps referring to the CPUC and electric utilities,
though it is unclear.
36 CARE V. CPUC
From that, the majority divines an argument “that CPUC
improperly calculates avoided cost based on multiple
sources of electricity, rather than calculating the avoided
cost for each type of electricity (‘multi-tiered pricing’).”
Maj. Op. at 16.
To the extent plaintiffs have an argument, they seem to
be complaining that the CPUC is inconsistent about
implementing multi-tiered pricing in a way that always
benefits the utilities—not, as the majority seems to assume,
that multi-tiered pricing is always required or, for that
matter, desirable. Neither the majority nor plaintiffs explain
which CPUC programs fail to calculate avoided costs by
supply source, let alone how. The majority leaves it to the
district court to make plaintiffs’ argument for them in the
first instance. I do not envy its task.
Even under the majority’s interpretations, I see no
obvious problem if plaintiffs’ utility considers sources other
than solar energy when calculating the costs it avoids by
purchasing energy from solar QFs like plaintiffs. Plaintiffs
participate in the Net Energy Metering (“NEM”) program
which, as the majority acknowledges, means that they have
no contractual obligation to sell any amount of electricity to
the utility. Maj. Op. at 22. This is a relevant consideration
in determining a utility’s avoided costs, see 18 C.F.R.
§ 292.304(e)(2), because it affects the QF’s reliability as a
source of solar energy. See Regulations Implementing
PURPA Section 210, 45 Fed. Reg. at 12,226 (“[T]he value
of the service from the [QF] to the electric utility may be
affected by the degree to which the [QF] ensures by contract
or other legally enforceable obligation that it will continue
to provide power.”). The CPUC could reasonably find that
NEM participants’ inherent unreliability in providing solar
energy makes them unsuitable as capacity sources to meet a
CARE V. CPUC 37
utility’s state-mandated renewable energy requirements.
While “the diversity of [solar QFs] may collectively
comprise the equivalent of [solar] capacity,” id. at 12,227
(emphasis added), nothing in the regulations compels such a
finding.
The programs at issue here were forged in a hard-fought
settlement to end a long-running dispute between QFs and
the CPUC. See Maj. Op. at 11. In a stroke, the majority
upends this settlement by calling all of these programs into
question. There is no reason to create such regulatory
uncertainty.
We should affirm the district court’s judgment in its
entirety. I respectfully dissent.