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Winding Creek Solar LLC v. California Public Utilities Commission

United States District Court, N.D. California, San Francisco Division

February 10, 2014

Winding Creek Solar LLC, Plaintiff,
v.
California Public Utilities Commission, Defendants

Page 966

[Copyrighted Material Omitted]

Page 967

For Winding Creek Solar LLC, Plaintiff: Thomas Melone, LEAD ATTORNEY, c/o Allco Renewable Energy Limited, New York, NY; Jamie L. Dupree, Jaime G. Touchstone, Futterman Dupree Dodd Croley Maier LLP, San Francisco, CA; Michael J Melone, Allco Renewable Energy, New York, NY.

For California Public Utilities Commission, Defendant: Elizabeth Marie McQuillan, LEAD ATTORNEY, CA Public Utilities Commission, San Francisco, CA; Gregory Heiden, California Public Utilities Commission, San Francisco, CA; Harvey Yale Morris, Public Utilities Commission of CA, San Francisco, CA; Luisa Fernanda Elkins, CA Public Utilities Commission, Legal, San Francisco, CA.

OPINION

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ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND

RICHARD SEEBORG, United States District Judge.

I. INTRODUCTION

Winding Creek Solar LLC (" Winding Creek" ) is the owner and developer of a planned solar project in Lodi, California. In anticipation of construction,[1] Winding Creek sought declaratory and injunctive relief against the California Public Utilities Commission (" CPUC" ), claiming that the agency's policies governing the wholesale price of energy purchased from small facilities like that planned by Winding Creek violates the federal Public Utilities Regulatory Policies Act of 1978 and are therefore preempted by the Federal Power Act.

The CPUC now moves to dismiss the complaint for lack of standing, subject matter jurisdiction, and failure to state a plausible claim for relief. The CPUC also raises an Eleventh Amendment defense. According to the CPUC, no amendment consistent with the allegations of the complaint can cure these fundamental substantive defects. Pursuant to Civil Local Rule 7-1(b), the CPUC's motion to dismiss was found suitable for disposition without oral argument.

Although the CPUC is correct that the complaint as alleged fails to satisfy either constitutional or statutory standing, and violates the CPUC's immunity from private suit under the Eleventh Amendment, it does not follow that amendment is not possible. Defendant's motion to dismiss is therefore granted with leave to amend.

II. BACKGROUND

A. Statutory and Regulatory Framework

The Federal Power Act (FPA) declares that the sale of energy in interstate commerce for ultimate distribution to the public is a matter of federal regulation to the extent such matters " are not subject to regulation by the States." 16 U.S.C. § 824(a). Although the FPA vests the Federal Energy Commission (FERC) with jurisdiction to set the wholesale rate for interstate sales of electricity, 16 U.S.C. § 824(d), the Public Utility Regulatory Policy Act of 1978 (PURPA) created an exception to this general rule by confirming the primary role of state authorities to set wholesale rates with respect to small power production facilities. The Ninth

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Circuit explains the purpose of PURPA as follows:

Title II of PURPA was enacted 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. 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.

Indep. Energy Producers Ass'n, Inc. v. California Pub. Utilities Comm'n, 36 F.3d 848, 850 (9th Cir. 1994) (hereinafter IEP ) (citing Federal Energy Regulatory Comm'n v. Mississippi, 456 U.S. 742, 750-51, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982)).

PURPA directed FERC to issue regulations, in consultation with the states, to implement these goals. See 16 U.S.C. § 824a-3(a); 18 C.F.R. pt. 292. Such regulations include rules requiring utilities to purchase electricity from qualifying facilities, including cogeneration and small power production facilities that meet prescribed efficiency, operational and other requirements. See 16 U.S.C. § § 796(17)(A), (C), 796(18)(B), (C), 824a-3( l ); 18 C.F.R. pt. 292. PURPA further requires a " state regulatory authority," in this case, the CPUC, to implement FERC regulations for its regulated utilities and to set the rates for utility purchases from qualified facilities according to those federal regulations. See 16 U.S.C. § 824a-3(a)-(b), (f). " PURPA delegates to the states broad authority to implement section 210 of the statute. . . . Thus, the states play the primary role in calculating avoided costs and in overseeing the contractual relationship between [qualified facilities] and utilities operating under the regulations promulgated by the Commission." IEP, 36 F.3d at 856.

With respect to the rates for purchases by electric utilities from a qualifying small power production facility, PURPA requires FERC to promulgate rules establishing that such rates " shall be just and reasonable to the electric consumers of the electric utility and in the public interest" and " shall not discriminate against qualifying cogenerators or qualifying small power producers," and that no such rule " shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy." 16 U.S.C. § 824a-3(b). The resulting regulation allows qualified facilities to provide energy either (1) as available, at a rate based on the purchasing utility's avoided costs calculated at the time of delivery; or (2) pursuant to a legally enforceable obligation for delivery of energy or capacity over a specified term. 18 C.F.R. § 292.304(d). If a qualified facility elects to provide energy or capacity pursuant to a legally enforceable obligation, it may do so at a rate based on either " (i) The avoided costs calculated at the time of delivery; or (ii) The avoided costs calculated at the time the obligation is incurred." 18 C.F.R. § 292.304(d)(2).

PURPA does not require that a state commission adopt a specific rate or rate scheme. The CPUC may implement PURPA " by issuing regulations, resolving disputes on a case-by-case basis, or by adopting any other means that reasonably give effect to FERC's regulations." FERC v. Mississippi, 456 U.S. at 749-51; see also IEP, 36 F.3d at 856 (CPUC has " broad ratemaking authority under PURPA" ). FERC's regulations similarly afford state commissions a " wide degree of latitude" in determining how to

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implement PURPA. Cal. Pub. Util. Comm'n, 133 FERC ¶ 61,059, at ¶ 24 (2010). As long as an implementation plan is consistent with federal law, FERC does not " second-guess" the state commission. Id.

In this case, Winding Creek challenges the CPUC's exercise of its discretionary authority as embodied in a series of decisions addressing amendments in 2008 and 2011 to section 399.20 of the California Public Utilities Code. See CPUC D.10-12-035, D.13-01-041, and D.13-05034 (collectively, the " Re-MAT Decisions" ). The Re-MAT decisions establish a two-step process to determine the rate at which a utility may offer to purchase power from a qualified small producer. First, the CPUC determined an initial fixed price by reference to pricing results from the CPUC's November 2011 Renewable Auction Mechanism auction. The CPUC used this calculation to set an identical fixed price for three separate categories of renewable qualified facilities: baseload, peaking as available, and non-peaking as available. The starting price was further adjusted for time of delivery factors. Second, the Re-MAT Decisions create a mechanism to adjust pricing either up or down every two months based on the market response to the previously ...


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