California

Commerce Clause Challenge to RPS Deliverability Requirement
California Public Utilities Commission: Decision 13-10-074 — Proceeding Instituting Rulemaking to Continue Implementation and Administration of California Renewables Portfolio Standard Program

Commerce Clause and Supremacy Clause Challenge to Low-Carbon Fuel Standard
Rocky Mountain Farmers Union, et al., v. Richard W. Corey, et al. 730 F.3d 1070 (9th Cir. 2013)

Supremacy Clause Challenge to Feed-In Tariff
Winding Creek Solar, LLC v. California Public Utilities Commission


California Public Utilities Commission: Decision 13-10-074
Recent Developments: CPUC issued order denying rehearing and upholding the interconnection requirements in the State’s RPS; Cowlitz did not file an appeal in State court within the 30-day window.
Case Documents

Case Summary
In 2011, the California Legislature amended the state’s Renewable Portfolio Standard. Under the amended RPS, retail sellers must supply at least 50 percent of the mandated renewable energy from generators that connect to a California balancing authority or have an agreement to do so.

Cowlitz Public Utility District, located in Washington, sought rehearing of the Public Utility Commission’s order implementing the RPS amendments. Cowlitz PUD argued that the connection requirement discriminates against out-of-state generators. The CPUC rejected Cowlitz PUD’s claim, noting that boundaries of California balancing authorities extend beyond the political boundaries of California. Some out-of-state entities will be able to connect, and the fact that others will not be able to connect does not demonstrate discrimination under the Commerce Clause.

The CPUC also asserted that the statute is not facially discriminatory because it does not draw any distinction between in-state and out-of-state generators or create any preference or benefit to in-state generators. The CPUC also found that the new categories in the RPS do not have a discriminatory purpose. Instead, the purpose is to ensure that California end users actually receive electricity generated by renewable resources.

 

CPUC Decisions
Decision Implementing Portfolio Content Categories for the Renewable Portfolio Standard (December 21, 2011)
Order Denying Applications for Rehearing (October 31, 2013)

Filed Briefs
Application of Cowlitz PUD for Rehearing of Decision (Jan. 20, 2012)
Joint Response of the Alliance for Retail Energy Markets and Retail Energy Supply Association in Support of Cowlitz PUD’s Application for Rehearing (Feb. 6, 2012)
Response of the Utility Reform Network (Feb. 6, 2012)

__________

Rocky Mountain Farmers Union, et al., v. Richard W. Corey, et al. 730 F.3d 1070 (9th Cir. 2013)
Recent Developments: The Ninth Circuit rejected arguments that California’s Low Carbon Fuel Standard is facially discriminatory and regulates extraterritorially and remanded the case to the District Court for further proceedings. In August 2015, the district court dismissed most of industry’s arguments.
Case Documents

Case Summary
California’s Low Carbon Fuel Standard (LCFS) requires a 10 percent reduction in the carbon intensity of transportation fuels supplied or offered for sale in California by 2020. Fuel producers and importers must meet average carbon intensity requirements each calendar year, based on a life cycle greenhouse gas analysis of their fuel.

Plaintiff farmers, ethanol producers, and oil companies challenge the law as unconstitutional under the Supremacy Clause and dormant Commerce Clause. With regard to the Supremacy Clause, Plaintiffs argue that the LCFS is preempted by Clean Air Act provisions establishing the national Renewable Fuel Standard, which requires that gasoline include a certain percentage of ethanol and other fuels. States defendants respond that the LCFS is not preempted because California is the only State permitted under the Clean Air Act to seek a waiver of federal fuel standards and enact its own more stringent standards.

Plaintiffs also argue that the LCFS violates the dormant Commerce Clause in at least two ways. First, they allege that the LCFS regulates fuels produced outside of California and is therefore an “extraterritorial” regulation that interferes with interstate commerce. Second, they claim that the life cycle greenhouse gas analysis discriminates against out-of-state ethanol producers because fuels transported long distances and produced in regions powered by coal-fired electricity could receive a higher carbon score.

State defendants, supported by environmental group intervenors, respond that the LCFS does not regulate extraterritorially but instead regulates in-state ethanol producers and brokers that sell fuels in California. Defendants argue that out-of-state producers are affected only to the extent that they voluntarily choose to sell into California. The LCFS does not prohibit ethanol with higher than average carbon intensity but instead permits such ethanol to be offset with credits generated by ethanol with lower than average carbon intensity. In addition, State defendants say the driving force behind the LCFS is not economic protectionism, but concern about climate change and its effects on the health and welfare of California citizens.

In late 2011, a Federal District Court judge in the Eastern District of California ruled that the LCFS violated the Commerce Clause because it constituted extraterritorial regulation and discriminated on its face against out-of-state ethanol producers. The Judge noted that while California has special status under the Clean Air Act, its status does not immunize its laws from the dormant Commerce Clause. The District Court declined to decide whether California’s program is preempted by Federal statutory provisions relating to the Renewable Fuel Standard. State defendants appealed.

In September 2013, a Ninth Circuit panel reversed the lower court on most grounds, overturned the District Court’s rulings of unconstitutionality, and remanded the case for further proceedings. The panel majority overturned the District Court’s ruling of facial discrimination, agreeing with the State that what determines a fuel’s regulatory treatment is its carbon intensity, rather than its geographic origin. The Court pointed out that some out-of-state ethanol producers received lower carbon-intensity scores than some in-state ethanol producers. The Ninth Circuit also observed that California had adopted a lifecycle carbon analysis model designed by scientists at a national lab. The Court concluded that the LCFS does not operate extraterritorially because its requirements are limited to fuels sold in California.

While the Court concluded that the LCFS was not per se unconstitutional, it directed the District Court to evaluate the factual evidence to address the claims that had not been addressed on appeal, including whether the LCFS is discriminatory in its effects, and whether the LCFS places a burden on interstate commerce that is “clearly excessive” in relation to its local benefits.

Plaintiffs’ rehearing request was denied by the Ninth Circuit in January 2014. Seven of the Court’s 28 active judges dissented, however, explaining why they would have granted en banc review of some or all of the issues. The U.S. Supreme Court denied Plaintiffs’ petition for certiorari.


Judicial Decisions
District Court Order on Defendants’ Summary Judgment Motion (Dec. 29, 2011)
District Court Order on Plaintiff RMFU’s Summary Adjudication Motion (ethanol producers) (Dec. 29, 2011)
District Court Order on Plaintiff NPRA’s Summary Adjudication Motion (petrochemical producers) (Dec. 29, 2011)
Ninth Circuit Opinion and Dissent (Sep. 18, 2013)
Ninth Circuit Denial of Hearing en banc and Dissent (Jan. 22, 2014)
District Court Order Following Remand from 9th Circuit (Aug. 13, 2015, amended August 28, 2015)

Supreme Court Petition
Petition for a Writ of Certiorari (Mar. 20, 2014)
State of California’s Brief in Opposition (May 27, 2014)
Environmental Organizations’ Brief in Opposition (May 27, 2014)

Filed Briefs at the Ninth Circuit
Brief of Appellants California State Defendants and Environmental Organizations (Jun. 8, 2012)
Amicus Briefs for Appellants (Jun. 15, 2012):
Professors of Environmental Law
California Scientists
Scientists with expertise in lifecycle analysis
Northeaster and Northwestern States
Truman National Security Project

Brief of Appellees American Fuels & Petrochemical Manufacturers Association (Aug. 6, 2012)
Brief of Appellees Rocky Mountain Farmers Union (Aug. 6, 2012)
Amicus Briefs for Appellees (Aug. 13, 2012):
Law Professors
Scientists with expertise in biofuels
Midwestern States
New Hampshire Legislators
Western States Petroleum Association and Oregon Petroleum Association
Chamber of Commerce and American Petroleum Institute
California Manufacturers & Technology Association
Reply Brief of Appellants (Sep. 6, 2012)

__________

Winding Creek Solar, LLC v. California Public Utilities Commission
Recent Developments: Defendants filed a motion to dismiss in July 2014.
Case Documents

Case Summary
In 2006, the California Legislature required each investor-owned electric utility to offer a “standard tariff” (also known as a feed-in tariff) for renewable energy facilities owned and operated by a public water or wastewater agency. The Legislature subsequently expanded the program, requiring the utilities to offer standard tariffs to any renewable energy facility smaller than 3 megawatts, setting a statewide cap of 750 megawatts, and ordering the California Public Utilities Commission (CPUC) to establish a methodology for setting the tariff rate.

In its order setting the tariff rate, the CPUC acknowledged that the Federal Power Act grants exclusive jurisdiction to the federal government to set wholesale electric rates, unless a state is following the requirements of PURPA (i.e., setting a rate only for “qualifying facilities” as certified by FERC, and making that rate consistent with the utility’s “avoided costs”). The CPUC made the tariff available only to qualifying facilities and set the initial tariff rate equal to the price generated by a renewable energy solicitation program that it administers under separate authority from the Legislature. According to the CPUC, using this price “is the most reasonable alternative to determining the cost of the resources being avoided” by the eligible facilities. The initial price can be adjusted every two months depending on the number of projects that have accepted the tariff.

In 2013, Winding Creek, a proposed one megawatt solar facility in California, filed a petition with FERC requesting that it initiate an enforcement action against the CPUC. According to the petition, the tariff should be preempted because it is inconsistent with Federal Law. Winding Creek argued that under PURPA the tariff rate must be based on factual determinations about a utility’s avoided costs. Petitioners also claimed that other aspects of the tariff, including the 750 megawatt cap and bimonthly adjustments to the rate, are inconsistent with PURPA.

The CPUC’s position is that PURPA does not require utilities to offer a rate based on long-term avoided costs. California utilities offer an avoided cost rate based on short-term costs, which the CPUC deems sufficient under PURPA. The CPUC cites a recent FERC order addressing a similar petition for enforcement about a feed-in tariff in Vermont (see also Order Denying Rehearing). There, FERC declined to initiate an enforcement action because Vermont’s feed-in tariff was an “optional program.” Small qualifying facilities in Vermont could choose either the feed-in tariff or an avoided cost rate that was calculated pursuant to PURPA. Similarly, in California, utilities offer a short-run avoided cost rate. Qualifying facilities can accept the PURPA-compliant short-run avoided cost rate or enter a queue of projects for the tariff rate.

After FERC declined to initiate an enforcement action, Winding Creek filed a complaint in federal district court. The court dismissed the complaint twice, holding that Winding Creek lacked standing, but allowed Winding Creek to amend. Winding Creek filed its second amended complaint in June 2014. In February 2015, the court largely rejected the CPUC’s motion to dismiss, holding that Winding Creek has standing under PURPA and that Winding Creek had articulated a plausible claim.

Note: In September 2014, a divided 5th Circuit panel upheld a Texas PUC rule that requires utilities to offer the long-term rate only to generators that can provide “firm” power. According to the court, the Texas PUC “made a reasonable decision that only those [PURPA] Qualifying Facilities capable of providing reliable and predictable power may enter into” long-term avoided cost contracts. If the District Court in this case adopts the 5th Circuit’s reading of PURPA, it would uphold California’s tariff.

On December 28, 2016, a California federal district court held that complainant QFs did not “demonstrate[] that the [CPUC’s] implementation of PURPA [through other programs such as Re-MAT or the NEM program] is inconsistent with PURPA and [FERC’s] regulations.” If the District Court in this case agrees, it would uphold California’s tariff.


District Court Orders
Order Granting Motion to Dismiss with Leave to Amend (Feb. 10, 2014)
Order Granting Motion to Dismiss for Lack of Jurisdiction (June 11, 2014)
Order Denying Motion to Dismiss (Feb. 17, 2015)

FERC Order
FERC Notice of Intent Not to Act and Declaratory Order (May 8, 2015)

Filed Briefs
Second Amended Complaint (June 25, 2014)
Motion to Dismiss (July 9, 2014)
Opposition to Motion to Dismiss (July 23, 2014)
Reply to Opposition to Motion to Dismiss (July 30, 2014)
Winding Creek’s Motion for Summary Judgment (Aug. 10, 2015)
Opposition to Motion for Summary Judgment (Aug. 31, 2015)
Winding Creek’s Reply in Support of Motion for Summary Judgment (Sep 14, 2015)
California Investor-Owned Utilities Amicus Brief in Support of State Defendants (Jan. 14, 2016)
CPUC’s Response to Utilities’ Amicus (Jan. 29, 2016)
Winding Creek’s Reply to Utilities’ Amicus Brief (Jan. 29, 2016)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s