The Public Utility Regulatory Policies Act of 1978, 16 U.S.C. §§ 824a (PURPA), requires utilities to purchase electricity from renewable and other alternative energy facilities (referred to in PURPA as “qualifying facilities” – or “QFs”) at the utilities’ avoided cost. A recent decision by the U.S. Court of Appeals for the Fifth Circuit, Exelon Wind 1, LLC v. Nelson, No.12-51228 (September 8, 2014), involves a Texas Public Utility Commission regulation (Texas PUC Rule 25.242) adopted in connection with PURPA’s mandatory purchase provision. A sharply divided three-judge panel ruled that the Texas PUC regulation trumped a conflicting PURPA regulation adopted by the Federal Energy Regulatory Commission, the agency charged by Congress with administration of PURPA. A petition for rehearing by the full Fifth Circuit has been filed, and Exelon Wind raises important principles of administrative law with potential implications for a broad array of federal regulatory laws in addition to PURPA.
The objective of PURPA’s mandatory purchase provision is to encourage the development of alternative energy sources such as QFs. The applicable FERC regulation, 18 C.F.R. § 292.304(d), establishes two alternative means to implement the purchase requirement, both of which are at the option of the QF, that is, the seller. One alternative is for the QF to rely on the spot market and sell its electricity for immediate delivery at the then-current market price (i.e., the buyer’s avoided cost at the time of delivery). The other alternative is for the QF to enter a contract (the regulation uses the term “legally enforceable obligation”) to deliver electricity over a specified period based on the buyer’s avoided costs at the time of delivery or when the contract is entered. Texas PUC Rule 25.242, on the other hand, restricts the options that FERC’s regulation provides for the QF. More specifically, the Texas rule confines the second alternative, supra, only to QFs that sell “firm power,” i.e., power that is available 24/7, which generally excludes wind and solar power QFs. Since nothing in 18 C.F.R. § 292.304(d) authorizes such a restriction, FERC issued a declaratory order finding that Texas PUC Rule 25.242 contradicts the federal regulation.
The immediate issue in Exelon Wind is whether the Texas PUC’s regulation impermissibly conflicts with the underlying federal regulation, as FERC determined. Although the Fifth Circuit majority found no conflict, a vigorous dissenting opinion says the majority disregarded the regulation’s plain meaning. See slip op. at 37-40. In addition, the dissent concludes (id. at 50) that the majority improperly “minimizes the effect of” FERC’s declaratory order, which the majority characterized as only “an informal guidance document” that is not entitled to judicial deference. See id. at 18. As the dissent emphasizes, “the majority does not provide a good reason to refuse to give controlling weight to FERC’s interpretation of its own regulation,” id. 57, and, as a consequence, “contravenes established principles of interpretation and administrative law and disrupts the scheme that Congress intended.” Id. at 34.
The majority opinion in Exelon Wind appears to be in tension with Supreme Court precedent that requires agency deference under circumstances similar to those in this recent Fifth Circuit case. See, e.g., Auer v. Robbins, 519 U.S. 452, 462 (1997); NationsBank of North Carolina, N.A. v. Variable Annuity Life Insurance Co., 513 U.S. 251, 256-57 (1995). Given the increasing national focus on development of alternative energy, as well as the fundamental principles of federal administrative law that Exelon Wind implicates, future developments in the case will be important to monitor.
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