Ninth Circuit Rules in Favor of Renewable QFs

On April 24, 2019, the Ninth Circuit Court of Appeals (Ninth Circuit) issued an opinion regarding the California Public Utilities Commission’s (“California Commission”) failure to properly implement the Public Utility Regulatory Policies Act (PURPA). Specifically, the Ninth Circuit held that the avoided cost price paid to a qualifying facility (QF) cannot be based on energy sources that do not meet California’s Renewable Portfolio Standard (RPS), if the state has an RPS and the utility is using the QF’s energy to meet the RPS. 

California has an exceedingly complex energy regulation and market, including its implementation of PURPA, which requires utilities to purchase power at their “avoided costs” from certain generators called QFs. The case reviewed the California Commission’s established avoided cost rates paid to net metering customers for generation in excess of their retail use in each year. These sales are subject to PURPA’s avoided cost requirements, and Californians for Renewable Energy (CARE) challenged the California Commission’s calculation of avoided costs and interconnection requirements. A federal district court affirmed the California Commission’s policies, and the Ninth Circuit largely affirmed the district court, except on a core issue, concluding that the district court had failed to properly consider the impact of California’s RPS on the calculation of the avoided costs for the net metering customers.

CARE argued that the California Commission 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 Ninth Circuit interpreted and relied upon FERC’s 2010 decision that declared that states can calculate avoided cost rates based on avoided RPS resources as opposed to all sources of supply. The Ninth Circuit concluded that when a state, such as California, has an RPS 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 California Commission programs.

Community Renewable Energy Association (CREA) and the Northwest and Intermountain Power Producers Coalition (NIPPC), who collectively advocate for PURPA rights in the Northwest states, including Oregon, Washington, and Idaho, filed an amicus brief. While the appeal arose in California, CREA and NIPPC participated because the court’s interpretation of PURPA and FERC’s regulations affects how the state commissions in the Northwest states will implement PURPA.

The panel rejected CARE’s other challenges.

One of the three judges dissented, in part, because the judge did not believe that the case was the correct one to decide issues in a published decision that would have significant consequences on energy policy throughout the Western United States.

Sanger Thompson and Richardson Adams represented CREA and NIPPC.

These materials are intended to as informational and are not to be considered legal advice or legal opinion, nor do they create a lawyer-client relationship. Information included about previous case results does not assure a similar future result.