In a fascinating decision last week, a divided panel of the 5th Circuit Court of Appeals held that the Texas Public Utilities Commission had authority to limit the universe of “Qualifying Facilities” under the Public Utilities Regulatory Policies Act which can choose to enter into a “legally enforceable obligation” requiring a utilities to purchase power from a renewable energy producer. The decision could be a big problem for wind power facilities in jurisdictions less than fully hospitable to renewable energy.

FERC’s rules implementing PURPA provide in part that:

Each qualifying facility shall have the option either:

(1) To provide energy as the qualifying facility determines such energy to be available for such purchases, in which case the rates for such purchases shall be based on the purchasing utility’s avoided costs calculated at the time of delivery; or
(2) To provide energy or capacity pursuant to a legally enforceable obligation for the delivery of energy or capacity over a specified term.

The Texas PUC, however, issued a rule stating that only Qualifying Facilities which could provide “firm power” were entitled to enter into a “legally enforceable obligation.” The majority concluded that nothing in the FERC rules precluded Texas from promulgating its limiting regulation. The dissent, not surprisingly, noted that the regulation provides that “each qualifying facility” is eligible to enter into such obligations. As the dissent also noted, the use of the word “each” in a context such as this, generally means “every.”

It is important to note that the Texas PUC did not take the position that wind facilities per se cannot supply “firm power.” However, the reality is that an obligation to do so makes it much more difficult for wind facilities to utilize the “legally enforceable obligation” option that PURPA appears to provide qualifying facilities.

I don’t foresee en banc review here and Supreme Court review would be a reach, since the case turns so much on the specifics of the Texas PUC approach, but I think that the dissent’s plain language interpretation of the FERC rule might appeal to the Supremes if they were ever to have an opportunity to review it.