United States: FERC's "Broad View" Of QFs Is Accepted By The Majority Of D.C. Circuit Panel, As Chevron Deference Takes Center Stage In A Debate That Belongs Before Congress

Recently, the D.C. Circuit upheld FERC's decision granting Broadview Solar's application to become a QF in SEIA v. FERC. In doing so, the appeals court solidified FERC's "send-out" capacity approach for determining QF status. The underlying case, Broadview, has been the subject of several prior blog posts, as the underlying FERC decisions reflect just how deeply political PURPA, and its application, have become. The decision in this case was quite likely to turn, in the first instance, on three jurists' views on agency deference under Chevron, a judicial doctrine that has become highly politicized because of varying views of the role of the administrative state. The panel consisted of Circuit Judges Sentelle (a Reagan appointee, extraordinarily well versed in FERC, who has drafted or signed onto many important orders upholding FERC opinions based on Chevron deference, but who will rein in FERC when the agency exceeds its statutory bounds), Pillard (an Obama appointee), and Walker (a Trump appointee whose disdain for Chevron deference was on full display here). Walker's claim that "[o]n the D.C. Circuit, Chevron maximalism is alive and well," historically has been accurate, and only a rehearing en banc would indicate whether that tide has turned. There is no question the tide has turned at the United States Supreme Court. As discussed herein, it actually is shameful that this proceeding could result in a significant decision on Chevron deference, as it is Congress' responsibility to address the many issues presented by PURPA, such as what is meant by "power production capacity," before the law turns forty-five later this year.

The primary issue on appeal was whether the measure of relevant capacity under the statutory definition of small power production facility (limiting such QFs to 80 MW of power production capacity) should be based on how much power could be sent to the transmission system. In finding that Broadview merited QF status, FERC took into account all of its components working together, not just the maximum capacity of one subcomponent, focusing on grid-usable AC power. Using the Chevron framework, the D.C. Circuit (1) agreed with FERC that the measure of "power production capacity" is ambiguous under PURPA Section 210; and (2) determined that FERC's focus on grid-usable AC power was reasonable because it aligned with PURPA's structure and purpose. The opinion explained that focusing on net output (rather than denying facilities QF status because a subcomponent exceeds 80 MW) advanced PURPA's goal of promoting small power production facilities and the use of alternative energy sources. Finally, the court concluded that FERC's interpretation aligned with legislative history regarding the meaning of power production capacity.

This opinion would have been wholly unremarkable, but for the first Broadview FERC order, which rejected forty years of FERC precedent and reflected a more textualist view of the statute. In his dissent, Circuit Judge Walker reached the same substantive outcome as was adopted in the first FERC order, that Broadview was too large to be a QF. He explained that PURPA Section 210's mandatory purchase requirement is an extraordinary measure, which can force utilities to purchase above-market or unnecessary power and pass on costs to consumers. He noted that the broader the definition, "the greater the number of power plants that get special regulatory treatment." Next, Judge Walker focused on how narrowly Chevron deference should be applied, explaining that courts must try every tool of statutory construction before declaring the text ambiguous and proceeding to agency deference. He agreed with Justice Kavanaugh that the court will almost always reach a conclusion about the best interpretation of the statute, resolving any ambiguity. Walker then focused on the fact that Broadview's facility can produce 80 MW for its inverters (to sell), while it simultaneously produces 50 MW for its battery to store, such that it is too large to be a small power production facility.

This case can be appealed, or a rehearing en banc may be requested, and thus its ultimate conclusion is unknown. Moreover, theD.C. Circuit is unlikely to be the last word on power production capacity because the D.C. Circuit likely will not be the first choice of another utility aggrieved by identical facts. Putting aside the threshold question of whether PURPA is ambiguous and Chevron has relevance to any judicial analysis of the issue, Congress can and should dictate the future of PURPA policy. The mere existence of this the case reflects a failure by Congress to reconsider innumerable aspects of PURPA, but for one significant change in the Energy Policy Act of 2005. Indeed, the majority's focus on Congressional intent and encouraging renewables up to 80 MW in size is rather ironic given that in 2005 Congress passed a law such that for a huge swath of the country, small power production QFs now must be under 20 MW or 5 MW to obtain a PURPA contract from a utility. And, the relevant industry changes that have occurred between 2005 and 2023 arguably dwarf the industry changes that occurred between 1978 and 2005. In the nearly two decades since the Energy Policy Act of 2005 somewhat limited PURPA's reach, profound changes have occurred in the electric industry with regard to renewables. Such changes include reductions in the cost of renewable power, technological advances in storage, and the widespread adoption of mandatory and voluntary renewable mandates.

It is actually astounding that a law driven by an industry largely fueled by oil and coal, drafted in an era when renewable energy was in a larval stage and the storage industry, i.e., renting large lockers to store furniture, cars, etc., was just starting to hit its stride, oops!, i.e., storing energy for later use as a substitute for generating plants did not even exist, is now causing judicial posturing over an issue that Congress could readily address with very minor legislative tweaks. Resolution of this issue is best performed by Congress.

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