[co-author: Ananya Sreekanth]*

In a win for independent power producers, the U.S. Court of Appeals for the District of Columbia Circuit ("D.C. Circuit" or the "Court") recently affirmed the Federal Energy Regulatory Commission's ("FERC's") "send-out" capacity approach for determining the size of small power production qualifying facilities ("QFs")[1] under the Public Utility Regulatory Policies Act of 1978 ("PURPA"). The "send-out" approach essentially measures the QF's power production in terms of actual output rather than name-plate capacity.[2]

PURPA

PURPA was enacted with the goal of promoting the creation and use of alternative energy sources. To achieve this goal, PURPA directs FERC to prescribe rules affording QFs certain benefits, including a mandatory purchase obligation that would require electric utilities to buy the power produced by a small power production QF. To be eligible as a small power production QF, the generation facility's power production capacity cannot exceed 80 MW.

Broadview Solar LLC

In September 2019, Broadview Solar, LLC ("Broadview") applied for QF certification from FERC for its 160 MW solar array and 50 MW battery storage system, both of which produce or store direct current ("DC") power. As the electric grid runs on AC power, solar facilities must have inverters to convert DC power into grid-usable AC power. Broadview's solar facility has inverters with a total net capacity of 80 MW. In a September 2020 Order, FERC denied Broadview's application for QF certification on the basis that the solar facility exceeded the PURPA's maximum "power production capacity" of 80 MW.[3] FERC determined that the relevant "capacity" was that of the solar array, which was 160 MW of DC power, and not the inverters' conversion limit of 80 MW of AC power.[4] That decision departed from FERC's previous position[5] which had focused on a facility's net or "send-out" capacity, with FERC now stating that the "send-out" approach was inconsistent with PURPA's text.

Upon rehearing, FERC issued a new order granting Broadview QF status and set aside its September 2020 Order.[6] FERC opined that the "send-out" approach was the best interpretation of PURPA's size limitation because it takes into account all of the facility's components working together, not just the maximum capacity of one subcomponent, and focuses on grid-usable AC power.[7] Because Broadview's "send-out" capacity at any single point in time is capped by the inverters' net output capacity of 80 MW, FERC determined that the facility met PURPA's small power production facility size requirements and granted it QF status.[8]

The Edison Electric Institute and NorthWestern Corp. (the "Utilities") submitted timely requests for rehearing, and SEIA moved to intervene nearly a year after the comment deadline. FERC issued a June 2021 Order, denying SEIA's untimely motion to intervene and reaffirming that Broadview was a QF.[9] The Utilities petitioned the D.C. Circuit for review of FERC's June 2021 Order. SEIA petitioned for a review of FERC's denial of its motion to intervene.

D.C. Circuit Ruling and Reasoning

In a 2-1 decision, the D.C. Circuit affirmed FERC's "send-out" approach to implementing PURPA's 80 MW capacity limit as consistent with the plain language of the statute, the statutory structure, and the purpose of PURPA.[10] In reviewing FERC's June 2021 Order, the D.C. Circuit applied the Chevron two-step analysis in interpreting PURPA.[11] Under the first prong of the Chevron analysis, if "Congress has directly spoken to the precise question at issue," then FERC and the court "must give effect to the unambiguously expressed intent of Congress."[12] Under the second prong of the Chevron analysis, "if the statute is silent or ambiguous with respect to the specific issue," then the court must uphold any agency interpretation that is reasonable.[13]

In its decision, the D.C. Circuit focused on the meanings of "facility" and "power production capacity" under PURPA. The Court noted that PURPA does not define these terms, and it is unclear whether the relevant capacity is that of the individual subcomponent generating DC power, i.e., the solar array, or the capacity of all the facility's components working together to produce grid-usable AC power, which would include the inverters.

Because the Court ruled that Congress had not spoken to the issue in PURPA, it moved to step two of the Chevron analysis, namely, an assessment of whether FERC's interpretation was reasonable. In finding that FERC's interpretation was "eminently reasonable" and consistent with the statute, the Court noted that the only grid-usable "power" that Broadview produces is AC power, which is capped at 80 MW at the point of delivery. The Court also noted that Broadview's inverters work with the solar array and battery as an integral component in producing power.[14]

Next, the Court concluded that FERC's "send-out" approach was consistent with the statutory structure of PURPA,[15] which was to encourage the development of small power production QFs. The Court found that excluding facilities from QF status because their component parts have individual capacities over 80 MW, even though the overall facility cannot send more than 80 MW to the grid, was inconsistent with that goal.[16]

Lastly, the Court explained that FERC's interpretation is consistent with applicable legislative history.[17] While a House Committee Report cited by the Utilities stated that the power production capacity of a facility means the "rated capacity," the Court observed that neither the legislative history nor PURPA defined "rated capacity." Rather, the Court noted that "rated capacity" is most frequently used to refer to the performance anticipated under "standard operating conditions" and not to the nominal rating of a key component of the system.[18]

Dissent

Judge Walker issued a dissent stating that the judiciary is the final authority on statutory construction and that the majority opinion engaged in "Chevron maximalism."[19] In his dissent, Judge Walker contended that the reference to power in PURPA is not limited to AC power because, although Congress specifically references AC power in other statutes, it never specifies that the power relevant to PURPA production capacity is AC power. Judge Walker opined that the facility has the capacity to produce 130 MW of power because it produces 80 MW of inverted AC power that is delivered to the grid while producing 50 MW of not-yet-inverted DC power to charge its battery.[20]

Implications for the Renewable Energy Market

It is unclear what the true implications of this decision may be. In the short-term as the "send-out" approach adopted in the Order has been FERC's long-standing existing practice, the D.C. Circuit's affirmation of the "send-out" approach likely confirms the continued use of the same protocol to assess compliance with other size limitations in PURPA and its regulations.[21] While many in the renewable energy sector hail this affirmation as a step forward in promoting renewable energy project development through the creation of a wider, more diverse market-place for QF energy, it remains to be seen whether the D.C. Circuit's decision will be reviewed by the U.S. Supreme Court and whether that court will accord FERC the same level of Chevron deference in interpreting PURPA.

* Thank you to Ananya Sreekanth for her contribution to this post. Ananya is a Law Clerk with DWT's Energy practice. Ananya graduated from UC Berkeley in 2019 with a B.A. in Political Economy and is currently a law student at UC Law San Francisco.

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