Published: September 27, 2023
By: Concentric Staff Writer
Federal energy regulators’ reform of a 1978 federal law intended to spur renewable energy was correct, according to a recent U.S. Court of Appeals ruling, but more environmental review will be required.
The legal battle that led to the Sept. 5 ruling by a U.S. Appeals Court regarding PURPA reform is intertwined with another ongoing proceeding. That is because the Sept. 5 ruling involves the longstanding “Chevron doctrine,” which is subject to a separate challenge at the U.S. Supreme Court.
Regarding the Sept. 5 ruling by the U.S. Court of Appeals for the Ninth Circuit, the three-judge panel found that the Federal Energy Regulatory Commission (FERC) in its 2020 interpreted the Public Utility Regulatory Policies Act (PURPA) correctly in its reform of that law. But the court also found that FERC violated the National Environmental Policy Act (NEPA) when approving Order 872, sending that aspect of the ruling back to the federal agency.
Plaintiffs, including the Solar Energy Industries Association (SEIA) and environmental organizations, had challenged FERC’s Order 872 (RM19-15, AD16-16) on the basis that FERC did not issue an environmental assessment (EA) as required by NEPA. The court found that the “more substantive” elements of Order 872 fall outside a legal exception to NEPA regarding rules that do not substantially change those being amended. But the court, in its decision, also rejected arguments by FERC that there are no reasonably seen foreseeable impacts on the environment from Order 872.
The judges said the appropriate remedy was to remand FERC’s NEPA violation back to the agency without vacating the rule, an action known in legal terms as “vacatur.”
“Although FERC’s failure to prepare an EA is a serious violation, Order 872 does not suffer from fundamental flaws making it unlikely that FERC could adopt the same rule on remand, and the disruptive consequences of vacatur would be significant,” the court said.
PURPA, enacted in response to the energy crisis of the 1970s, was intended to encourage the development of power plants built by non-utility-owned energy producers, which were known as “qualifying facilities” (QFs). Generally, electric utilities not in organized wholesale markets in independent system operators and regional transmission organizations must buy power from qualifying facilities under 80-MW capacity, at rates established by FERC.
The judges in the U.S Court of Appeals decision rejected arguments by the petitioners that FERC’s Order 872 is inconsistent with directives in PURPA that FERC encourage the development of QFs. PURPA, on its face, gives FERC broad discretion to evaluate which rules are necessary to encourage QFs and which are not, the opinion by Judge Eric D. Miller states, one of three judges on the panel. FERC’s ruling was therefore not unjust and unreasonable, the order says.
The judges in the ruling rejected four challenges by the petitioners of Order 872, holding that the “modified site rule,” which determines whether neighboring facilities are counted as one or two facilities in terms of QF interpretation, survives something known as the Chevron doctrine.
The judges also ruled that a provision known as the Fixed-Rate Rule, which modified the rates paid to QFs, also survives Chevron and is not arbitrary or capricious under the Administrative Procedures Act (APA). Finally, the panel found that the provision allowing states to adopt a rebuttable presumption that, for utilities in certain organized energy markets, the locational market price represents the purchasing utility’s avoided costs,1 is not arbitrary or capricious under the APA.
Judge Patrick J. Bumatay concurred and dissented in part with the order denying FERC’s enactment of the revised rules. However, Bumatay based his opinion on the text of PURPA instead of the Chevron deference. He also said that the environmental groups lacked standing to bring the case because they didn’t allege that they will suffer environmental harm in a way that is sufficient to confer NEPA standing.
The 2020 rule approved by FERC put in place the rule for facilities within one mile of each other but adopted a new approach for facilities more than one mile apart. The new rule creates an irrebuttable presumption that facilities more than 10 miles apart are at separate sites.
Petitioners argue that Order 872’s definition of “at the same site” defied the plain meaning of the statutory text, saying the term “site” is clear and unambiguous. The petitioners had argued that developers skirted the 80-MW requirement for QF standing by splitting projects up.
Separately, the Edison Electric Institute (EEI) and NorthWestern Energy recently petitioned the U.S. Supreme Court to reverse a U.S. Court of Appeals for the District of Columbia decision regarding the Chevron doctrine. The Chevron doctrine says that courts should generally defer to interpretations by agencies of judicial statutes that are viewed as began within a grey area.
The petition asks the Supreme Court to reverse a ruling by FERC that interpreted PURPA in a way that required a utility to purchase power from a Montana solar project. The project was a 160-megawatt (MW) capacity but can only deliver 80 MW to the grid, so FERC designated it as a QF. An appeals court upheld FERC’s interpretation, citing the Chevron doctrine.
The legal question in that case is whether “power production capacity” in PURPA refers to a facility’s maximum net output to the grid at one time, or the maximum amount of energy the facility can create. A second legal question outlined in the document is whether the Supreme Court should reconsider how and when Chevron should apply, or “or at least clarify that courts must exhaust normal statutory-interpretation tools before concluding that a statute is ‘ambiguous’ at Chevron step one.”
The developer of the Montana solar project, Broadview Solar, intends to artificially limit the plant’s output to no more than 80 MW, apparently to meet requirements for QF status and have a guaranteed buyer for the output.
FERC “flip-flopped” on the issue, finally ruling that the term “power production capacity” in PURPA refers to the maximum amount of power that the project can deliver to the grid, the document says.
“The D.C. Circuit upheld the agency’s orders on the ground that FERC’s reading of PURPA is entitled to Chevron deference. But the D.C. Circuit’s application of Chevron was wrong from beginning to end,” the petition by EEI, a trade association representing investor-owned utilities, and Northwestern says.
If Chevron is understood to condone the result in the case, it is further evidence that the Chevron doctrine should be reconsidered, or its limits clarified, the petition says.
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All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
1 Avoided costs is a figure referring to the cost the utility avoids by not generating the power itself.