On September 8, 2014, the federal Fifth Circuit Court of Appeals issued an opinion that may make it more difficult for certain qualifying facilities (QFs) to sell power to electric utilities. The two-judge majority concluded that wind generation facilities owned by Exelon could not sell power pursuant to a “legally enforceable obligation” to Southwestern Public Service Corp. A legally enforceable obligation essentially means that the utility has a legal obligation to purchase power from the QF. The third judge issued a strongly worded dissent disagreeing with the majority’s holding and reasoning.
The case represents a key federal court interpretation of the Public Utility Regulatory Policies Act (PURPA). PURPA was passed in 1978 to reduce America’s reliance upon fossil fuels and to require electric utilities to purchase power from cogenerators and small power production facilities, including renewable energy generators. These PURPA generation facilities are called QFs, which have the legal right to sell electricity to utilities and be paid prices based on the utilities’ avoided costs. PURPA envisioned a form of cooperative federalism in which the Federal Energy Regulatory Commission (FERC) adopts broad rules and policies, and the states implement them in a manner that accommodates local circumstances.
The case has a long procedural history with litigation before the Texas Public Utility Commission (Texas Commission), FERC, and the federal district court. The Texas Commission adopted a rule that permits only QFs that sell “firm” power to be able to enter into a legally enforceable obligation. The Texas rule effectively prevents most, if not all, wind generation subject to the rule from entering a legally enforceable obligation. QFs that cannot enter into a legally enforceable obligation may be required to sell power on an “as available” basis, which typically results in lower prices. In contrast, QFs that can enter into a legally enforceable obligation can sell power to an electric utility at pre-determined prices.
FERC disagreed with the Texas Commission and issued a declaratory order in 2009 that concluded that all QFs have the right to enter into a legally enforceable obligation. The district court also agreed with Exelon that non-firm QFs can sell power pursuant to a legally enforceable obligation.
The Fifth Circuit, however, agreed with the Texas Commission, explaining that a state agency can limit the right of QFs to enter into a legally enforceable obligation when they cannot sell firm energy. The case may provide states and utilities with additional opportunities to restrict the development of non-firm renewable energy suppliers, especially wind and solar generators.
In addition to its practical impacts, the case is notable in that the court deferred to the Texas Commission instead of FERC. When there are disputes between QFs and state agencies or utilities, the dispute is often brought before FERC for resolution. FERC typically declines to take enforcement action, but instead issues declaratory rulings interpreting PURPA and its own regulations. The Fifth Circuit gave no weight or deference to FERC’s conclusion that its own rules allow all QFs to sell power pursuant to a legally enforceable obligation. This conclusion upsets the previously held view that courts would rely upon FERC declaratory orders, especially when they interpreted federal law and regulations. The dissent disagreed with the majority’s holding and analysis, especially the view that FERC is owed little deference.
Fifth Circuit PURPA Opinion can be found HERE
Disclaimer
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.
