In re Investigation to Review the Avoided Costs that Serve as Prices for the Standard-Offer Program in 2020 (Allco Renewable Energy Limited & PLH LLC, Appellants)
No. 2020-134
Supreme Court of Vermont
2021 VT 28
September Term, 2020
Anthony Z. Roisman, Chair
NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.
Alexander W. Wing, Special Counsel, Department of Public Service, Montpelier, for Appellee.
PRESENT: Reiber, C.J., Robinson, Eaton, Carroll and Cohen, JJ.
¶ 1. ROBINSON, J. Allco Renewable Energy Limited and PLH, LLC (collectively, Allco), challenge the Vermont Public Utility Commission‘s (PUC) decision establishing the avoided-cost price caps and parameters of the 2020 standard-offer program. Specifically, Allco argues that the PUC failed to make a required annual determination that its pricing mechanism complies with federal law, and that its 2020 standard-offer request for proposal (RFP) was invalid because the market-based pricing mechanism used in the standard-offer program violates federal law. We affirm.
I. Background
¶ 2. A general understanding of applicable federal and state law is critical to understanding the facts and issues in this case.
¶ 3. The Federal Power Act (FPA) grants the Federal Energy Regulatory Commission (FERC) the exclusive power to regulate the sale of electric energy at wholesale in interstate commerce.
¶ 4. In 1978, Congress amended the FPA with the Public Utility Regulatory Policies Act of 1978 (“PURPA“), Pub. L. No. 95-617, 92 Stat. 3117, with the goal of reducing dependence on fossil fuels, in part by encouraging the development of cogeneration and small power production facilities,1 Winding Creek Solar LLC v. Peterman (Winding Creek Solar II), 932 F.3d 861, 863 (9th Cir. 2019). One particular barrier to developing alternative energy facilities that Congress sought to eliminate was traditional electricity utilities’ reluctance to purchase power from and sell power to nontraditional facilities. FERC v. Mississippi, 456 U.S. 742, 750-51 (1982). To address this barrier, PURPA directs FERC, in consultation with state regulatory agencies, to promulgate “such rules as it determines necessary to encourage cogeneration and small power production,” including rules requiring electric utilities to offer to sell electric energy to and purchase it from certain power production facilities that meet FERC‘s requirements, called “qualifying facilities” (QFs).
¶ 5. In 1980, FERC promulgated regulations pursuant to PURPA. See
¶ 6. PURPA requires that each state regulatory authority implement FERC‘s PURPA regulations, including establishing the avoided cost. See
B. Vermont‘s PUC, Rule 4.100, and the Standard-Offer Program
¶ 7. The PUC is the Vermont regulatory authority charged with implementing PURPA and regulating the sale to electric companies of electricity generated by QFs in Vermont.
¶ 8. In 2009, the Legislature established a standard-offer requirement as part of the Sustainably Priced Energy Enterprise Development (SPEED) Program to promote the rapid development of renewable energy in Vermont. 2009, No. 45, § 4. In 2012, the Legislature made significant changes to the standard-offer program, now codified at
¶ 9. The standard-offer program provides for standard-offer contracts accounting for a cumulative capacity of 127.5 MW of electricity, allocated in annual statutorily designated increments ranging from five MW in 2013-2015 to ten MW in 2019-2022.
[T]he incremental cost to retail electricity providers of electric energy or capacity, or both, which, but for the purchase through the standard offer, such providers would obtain from distributed renewable generation that uses the same generation technology as the category of renewable energy for which the Commission is setting the price.
Thus, in contrast to the must-take requirements of Rule 4.100, which define avoided costs without regard to the specific generation technology involved, the standard-offer program sets technology-specific avoided-cost caps.
¶ 11. In addition, the PUC is authorized to use a market-based mechanism, “such as a reverse auction or other procurement tool” to fill the capacity for each category of renewable energy if it finds that such mechanism is consistent with federal law and “the goal of timely development at the lowest feasible cost.”
¶ 12. Pursuant to its 2017 order, in managing the standard-offer program the PUC designated a portion of the developer block capacity as the “price-competitive developer block,” available to projects of any technology category, with contracts awarded to the lowest bidders at bid price. 2017 Order, at *5. The remainder was designated the “technology diversity developer block” and allocated on an equal basis to non-solar technology, including small wind and food waste methane projects, with contracts awarded at bid price to the lowest bidders within each technology category. Id. In 2018, the PUC recognized that other technology categories were not able to compete with solar projects based on the fact that the 2017 price-competitive developer block drew bids only for solar projects; it thus expanded the technology diversity developer block to include biomass, large wind, small wind, hydroelectric, and food waste methane projects. 2018 Order, at *21, 23. The PUC readopted this mechanism of allocating new standard-offer contract capacity among various technologies for the 2020 RFP. See Investigation to Review the Avoided Costs that Serve as Prices for the Standard-Offer Program in 2020, No. 19-4466-INV, 2020 WL 1557388, at *2 (Vt. Pub. Util. Comm‘n Mar. 4, 2020) [hereinafter March 2020 Order].
¶ 13. In November 2019, the PUC opened an investigation pursuant to
¶ 14. The hearing officer‘s proposal for decision following the workshop recommended no changes to the 2019 standard-offer price caps in the developer and provider blocks. In particular, it noted that the results from the 2019 RFP indicated that the solar price cap was at a level that encouraged participation and resulted in competitively priced bids.
¶ 15. In the March 2020 Order, the PUC adopted the hearing officer‘s conclusions and recommendations. In its order, the PUC also addressed comments Allco filed after the hearing officer issued the proposal for decision. Allco argued, among other things, that the proposal for decision failed to review the validity of the PUC‘s reverse-auction pricing mechanism as required by statute, and that the market-based pricing scheme violates federal law. In its decision adopting the hearing officer‘s recommendations, the PUC concluded that Allco‘s concerns were “outside the scope of [the] proceeding,” which was limited to reviewing possible adjustments to the avoided
¶ 16. Allco filed a notice of appeal in April 2020, and in May 2020 moved to stay the 2020 RFP pending this appeal. In requesting a stay, Allco again argued that the PUC failed to make the finding required by
¶ 17. Allco renews its arguments in this appeal. Specifically, it argues that pursuant to
¶ 18. In reviewing decisions of the PUC, we “defer[] to the [PUC‘s] expertise and informed judgment,” and “apply a strong presumption of validity to [its] orders.” In re Verizon New Eng., Inc., 173 Vt. 327, 334, 795 A.2d 1196, 1202 (2002). We thus defer to the PUC‘s “interpretation of statutes it implements and its rules,” In re SolarCity Corp., 2019 VT 23, ¶ 9, 210 Vt. 51, 210 A.3d 1255 (quotation omitted), and will affirm its findings and conclusions “unless they are clearly erroneous,” In re Constr. & Operation of a Meteorological Tower, 2019 VT 20, ¶ 9, 210 Vt. 27, 210 A.3d 1230 (quotation omitted). However, our “paramount goal” in construing a statute is to give effect to the Legislature‘s intent, and thus “we do not abdicate our responsibility to examine a disputed statute independently and ultimately determine its meaning.” In re Programmatic Changes to Standard-Offer Program, 2014 VT 29, ¶ 9, 196 Vt. 175, 95 A.3d 999 (quotations omitted).
A. Compliance with § 8005a(f) Annual Review Requirement
¶ 19. The PUC is authorized to use a market-based mechanism to fill the capacity allocated to each category of renewable-energy technology only if it finds that such “mechanism is consistent with: (A) applicable federal law[,] and (B) the goal of timely development at the lowest feasible cost.”
¶ 20. With respect to the establishment and modification of a specific pricing mechanism,
The Commission shall take all actions necessary to determine the pricing mechanism and implement the pricing requirements of this subsection (f) no later than March 1, 2013 for effect on April 1, 2013. Annually thereafter, the Commission shall review the determinations previously made under this subsection to decide whether they should be modified in any respect in order to achieve the goal and requirements of this subsection.
¶ 21. Allco argues that in its annual review pursuant to
¶ 23. Allco‘s argument rests on the inaccurate assumption that the remedy for the PUC‘s claimed failure to specifically address the federal compliance issue before proceeding with the 2020 RFP would be to compel the PUC to set standard-offer contract prices on the basis of administratively determined avoided costs pursuant to
¶ 24. Given this statutory structure, if the statute does require the PUC to determine that its pricing mechanism complies with federal law before it issues each annual RFP—a question we need not decide—then the remedy for its failure to do so would be to remand with instructions to make the required determination. Although the PUC stated in the March 2020 Order that the question whether its pricing mechanism complied with federal law was beyond the scope of this proceeding, in its subsequent denial of Allco‘s motion to stay the RFP, the PUC set forth the legal analysis supporting its conclusion that its market-based pricing mechanism is consistent with federal law. In the face of the PUC‘s discussion of the merits of the federal compliance question
B. Compliance with Federal Law
¶ 25. The more challenging question is whether the PUC‘s determination that its pricing mechanism comports with federal law was correct. Allco argues that in light of the broad preemptive effect of the Federal Power Act, a state may only regulate wholesale electricity sales if the regulation is authorized by PURPA. Because, Allco contends, PURPA does not authorize market-based pricing mechanisms, the PUC‘s determination that its pricing mechanism complies with federal law is wrong. DPS disputes Allco‘s arguments on the merits, but also argues that this Court has no jurisdiction to determine whether the market-based pricing mechanism in Vermont‘s standard-offer program complies with federal law.
¶ 26. We consider DPS‘s jurisdictional argument first and conclude that we do have authority to address the federal-compliance issue because the Legislature has incorporated the federal-compliance question into state law. On the merits, we acknowledge that Allco presents a close question, but conclude that the market-based standard-offer pricing mechanism does not run afoul of federal law because QFs like Allco retain the option to compel utilities to enter into power-purchase contracts at a generic avoided-cost price pursuant to Rule 4.100, and the market-based pricing mechanism, combined with the technology-specific avoided-cost caps, are permissible under PURPA.
i. Jurisdictional Question
¶ 27. DPS argues that pursuant to
¶ 28. DPS‘s argument fails to account for the fact that the Vermont Legislature has expressly baked the federal compliance question into the state standard-offer price-setting process, making the question one of state law. In particular, under
¶ 29. Here, Allco is not challenging compliance with federal law as a matter of federal imperative under PURPA, but rather is challenging compliance with state law, which itself requires a determination of compliance with federal law, pursuant to
¶ 30. We are, however, mindful that because the Legislature has incorporated a question of federal law into Vermont‘s statute, in considering the federal law question, we owe deference to the federal agency charged with enforcing the federal statute and regulations at issue. See infra, ¶ 44 & n.8. This deference may shape the way we conduct our review, but does not defeat our jurisdiction to address the question of state law presented by Allco‘s appeal.
ii. Compliance with Federal Law
¶ 31. As noted above, Allco argues that the state cannot regulate wholesale power purchase contracts in interstate commerce unless its regulation complies with PURPA. Relying largely on a Ninth Circuit decision, Allco argues that the market-based mechanism, which results in standard-offer contract prices below the PUC-determined avoided cost on a per-technology basis, violates PURPA. See Winding Creek Solar II, 932 F.3d at 862 (holding that pricing scheme in California program regulating terms under which electric utilities purchase power from QFs violated PURPA because it set a market-based rate rather than one based on the utilities’ avoided cost).
¶ 32. In denying Allco‘s motion for stay, the PUC explained that the standard-offer program complies with PURPA, given the availability of Rule 4.100 contracts for qualifying
¶ 33. In addition to challenging DPS‘s premise, Allco responds that the program established by Rule 4.100 itself fails to comply with the requirements of PURPA. Thus, even if DPS is correct that the standard-offer program need not adhere to PURPA‘s pricing requirements if Vermont offers some other program to satisfy PURPA, Vermont does not, in fact, offer any other program that implements the requirements of PURPA.
¶ 34. We consider in turn the two questions raised by the parties’ positions: whether, if Rule 4.100 complies with the pricing and other minimum requirements in PURPA, Vermont may apply a market-based pricing mechanism in its standard-offer program; and whether Rule 4.100 complies with the pricing and other minimum requirements of PURPA.
a. Can the Standard-Offer Program Use Market-Based Pricing if Rule 4.100 Satisfies PURPA?
¶ 35. As set forth more fully below, FERC has issued two decisions declining to initiate enforcement actions that provide some support for DPS‘s position that if Vermont offers another PURPA-compliant avenue for QFs to secure contracts to sell power to utilities at avoided-cost prices, the standard-offer program would also comply with PURPA. We agree with Allco that states that have implemented the requirements of PURPA are not free to establish other must-take programs that are not authorized by PURPA. But, we conclude for several reasons that in this case the PUC did not exceed its discretion where it relied on FERC‘s interpretation of PURPA in
¶ 36. DPS relies on two FERC notices of intent not to act to support its argument that the standard-offer program is “an allowable auxiliary program to PURPA.” First, in Otter Creek Solar LLC (Otter Creek I), 143 FERC ¶ 61282, at P 2 (June 27, 2013), FERC declined to initiate an action against the PUC under
¶ 37. In requesting reconsideration, Otter Creek argued that the SPEED Program was voluntary for QFs, but that it forced utilities to pay more than the avoided-cost rate, in violation of PURPA, and that it sanctioned the establishment of two different avoided-cost rates under the respective programs. FERC denied the request, explaining that it declined to exercise its discretionary enforcement authority where there was no harm to Otter Creek. Otter Creek Solar LLC (Otter Creek II), 146 FERC ¶ 61192, at P 6 (Mar. 20, 2014). It reiterated that Otter Creek could avail itself of the Rule 4.100 program, and that “the SPEED program is simply an option offered by Vermont to QFs like Otter Creek in addition to, but not as a replacement for, the Rule 4.100 program.” Id. at P 7-8. Further, FERC rejected Otter Creek‘s argument that there could not be two rates, noting that it had “long allowed QFs to agree to rates that they find acceptable—even rates that ‘differ from the rate . . . which would otherwise be required.‘” Id. at P 8 (alteration in
¶ 38. In a formal declaratory order in a subsequent case, Winding Creek Solar LLC (Winding Creek Solar I), 151 FERC ¶ 61103, at P 6 (May 8, 2015), FERC repeated its conclusion that as long as a state has one PURPA-compliant program, other programs established to create opportunities for QFs to sell the power they generate are not constrained by the PURPA pricing requirements.7 In that case, California had two programs. The first, Re-MAT, was a feed-in tariff program with a competitive pricing mechanism, which petitioners argued violated PURPA because it placed caps on the amount utilities had to purchase from QFs. The second program was a standard contract program with no cap, through which a QF could obtain a long-term avoided-cost contract from a utility. FERC recognized that “as long as a state provides QFs the opportunity to enter into long-term legally enforceable obligations at avoided-cost rates, a state may also have alternative programs that QFs and electric utilities may agree to participate in.” Id. (citing Otter Creek I, 143 FERC ¶ 61282, at P 4). Because the state had an existing PURPA-compliant
¶ 39. Following FERC‘s Notice of Intent Not to Act, Winding Creek Solar filed suit in federal court. The Ninth Circuit disagreed with FERC‘s analysis and held that both California programs violated PURPA and were thus preempted by federal law. Winding Creek Solar II, 932 F.3d at 865-66. The court said, “The Standard Contract violates PURPA because it fails to give QFs the option to calculate avoided cost at the time of contracting. This infirmity is plain from the face of the regulations, so we do not defer to FERC‘s unreasoned conclusion to the contrary.” Id. at 865 (emphasis added). Although Allco makes much of the court calling FERC‘s conclusion “unreasoned,” we understand that characterization to refer specifically to FERC‘s conclusion that California‘s standard contract program did not violate PURPA—which it overrode—not FERC‘s conclusion that an alternative program is permissible as long as a state otherwise satisfies its minimum obligations under PURPA. The court in fact recognized FERC‘s position “that an alternative program may exist if a state otherwise satisfies its obligations to QFs under PURPA,” but expressly said that it need not decide whether this interpretation was due deference “because, either way, the result is the same” where both programs violate PURPA. Id.
¶ 40. We agree with Allco that Vermont has no authority to compel wholesale sales of electricity other than as authorized by PURPA. The FPA grants exclusive power to FERC to regulate the wholesale sale of electric energy in interstate commerce, while PURPA creates a limited exception through which states may regulate such sales. If a state program regulating the wholesale sale of electric energy is not authorized by PURPA, the program would run head on into the preemptive effect of the FPA. See Klee, 805 F.3d at 91 (“States may not act in [the regulation of wholesale sales of electricity in interstate commerce] unless Congress creates an exception.“). Although states may offer voluntary programs, they generally cannot compel wholesale
¶ 41. But we conclude that, assuming Rule 4.100 fully satisfies Vermont‘s obligations under PURPA to give QFs an opportunity to sell power on a must-take basis at avoided-cost rates, the standard-offer program here is itself authorized by PURPA. We base this conclusion on several considerations. First, in rolling out its regulations implementing PURPA, FERC suggested that PURPA contemplates that states may establish auxiliary programs to promote the goals of PURPA in addition to their core programs implementing PURPA, and that those programs may depart from some of the parameters PURPA requires of the state‘s core program implementing PURPA. Second, we do not understand the PUC to take the position that because Rule 4.100 satisfies Vermont‘s obligations under PURPA, its management of the standard-offer program is unconstrained by PURPA. Rather, we understand the PUC to take the position that for a number of reasons, PURPA itself authorizes the standard-offer program. Finally, in the face of differing reasonable interpretations of PURPA and its implementing regulations, our deference to FERC impels us to embrace FERC‘s interpretation of PURPA.
¶ 42. The PUC‘s, and more importantly, FERC‘s interpretation of PURPA have some support in the regulatory history. In adopting regulations implementing
¶ 43. Consistent with this, we understand the PUC to take the position that PURPA authorizes states to supplement their implementation of the basic requirements of PURPA with programs like the standard-offer program. In particular, states may offer QFs voluntary opportunities to secure contracts for limited increments of generating capacity when those programs offer QFs more favorable terms than the generic avoided-cost pricing required by PURPA and are otherwise “just and reasonable to the electric consumers of the electric utility and in the public interest” and do not “discriminate against qualifying cogenerators or qualifying small power producers.”
¶ 44. Finally, we owe due deference to FERC‘s interpretation of PURPA.8 See Levine v. Wyeth, 2006 VT 107, ¶ 30, 183 Vt. 76, 944 A.2d 179 (considering FDA‘s interpretation of
¶ 45. In the face of reasonable support for FERC‘s interpretation of PURPA, our deference to FERC is determinative in this case. Consistent with FERC‘s own interpretation of PURPA, we accept the PUC‘s conclusion that if Rule 4.100 satisfies the requirements of PURPA, its use of a market-based mechanism in the standard-offer program is authorized by PURPA, provided that its standard-offer pricing is otherwise “just and reasonable to the electric consumers of the electric utility and in the public interest, and . . . [does] not discriminate against [QFs].”
with PURPA-compliant pricing is a question of federal law; for that reason, any deference on this question runs to FERC, not the PUC.
We may defer to an administrative agency‘s permissible construction of a statute “when [the] statute is ‘silent or ambiguous with respect to the specific issue’ the agency has considered; otherwise, ‘the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’ ” Levine v. Wyeth, 2006 VT 107, ¶ 31, 183 Vt. 76, 944 A.2d 179 (quoting Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, 467 U.S. 837, 842-43 (1984)). The relevant statute here authorizes FERC to prescribe “rules as it determines necessary to encourage cogeneration and small power production . . . which rules require electric utilities to offer to . . . purchase electric energy from such facilities.”
¶ 46. Finally, Allco contends that Rule 4.100 does not satisfy PURPA‘s requirements in two ways. First, the program improperly “caps” the amount of energy that an electric utility must purchase by limiting the term of a mandatory contract for a utility to purchase electricity from a QF to a period of seven years. Second, the mandated purchase price is discriminatory because it is not consistent with the avoided-cost calculation used for the standard-offer program.
¶ 47. As noted above, in its order denying Allco‘s motion for stay, the PUC held that Rule 4.100 complies with PURPA, and satisfies Vermont‘s obligation to establish a program to implement PURPA and its associated regulations. We conclude on this record that the PUC did not abuse its discretion in concluding that the seven-year must-take contract term was consistent with PURPA, and we reject Allco‘s argument that there cannot be multiple avoided-cost rates within different programs.
¶ 48. PURPA and its enabling regulations do not require contracts for a particular number of years, and the record in this case is insufficient to support a conclusion that the seven-year contract term is inadequate under FERC precedent. FERC‘s regulations under PURPA require that a utility purchase all the energy a QF produces.
¶ 49. We also reject Allco‘s argument that the pricing framework in Rule 4.100 is discriminatory because it is inconsistent with the technology-specific avoided-cost calculations used in the standard-offer program. FERC has squarely rejected the argument that there cannot be multiple avoided-cost rates available for QFs. See CPUC II, 133 FERC ¶ 61059, P 29 (affirming that multi-tiered avoided-cost rate structure, involving multiple avoided-cost calculations regulations may be valid under PURPA). The technology-specific avoided-cost price calculations in the standard-offer program provide enhanced incentives to some QFs for a limited increment of new generation capacity. The source-agnostic avoided-cost price calculation pursuant to Rule 4.100 is calculated consistent with the requirements of PURPA and its implementing regulations. As set forth above, we defer to FERC‘s conclusion that the state is empowered to establish a program like the standard-offer program to give QFs like Allco a limited opportunity to secure higher rates for a limited amount of new generation capacity.
Affirmed.
FOR THE COURT:
Associate Justice