Yesterday, the Ninth Circuit affirmed a district court decision that invalidated California’s “Renewable Market Adjusting Tariff (ReMAT) program. In a short opinion, the panel agreed with the district court that two aspects of the state’s feed-in tariff program conflict with FERC’s PURPA regulation: 1) the program caps the amount of energy utilities must purchase, potentially resulting in the utility purchasing less energy than Qualifying Facilities make available; and 2) the tariff rate is not based on a utility’s “avoided cost.” The panel declined to defer to FERC’s “unreasoned conclusion” that the program is permissible because California also offers other options for PURPA Qualifying Facilities.

The Re-MAT program implements California Public Utilities Code section 399.20, initially passed by the Legislature in 2002 and subsequently amended. The program provides feed-in tariffs for renewable generators sized up to 3 megawatts in three categories: baseload (e.g. geothermal), peaking as-available (e.g. solar), and non-peaking as-available (e.g. wind). Rates vary by category and purchasing utility and may be adjusted based on bimonthly auctions and California Public Utilities Commission (CPUC) rules.

Under FERC’s PURPA regulations, Qualifying Facilities such as ReMAT-eligible generators are guaranteed their choice of an “avoided cost” rate as calculated either at the time of contracting or the time of delivery. The regulations also require utilities to purchase all energy offered by Qualifying Facilities. The panel concluded that “the conclusion to be drawn from this web of regulations is not complicated: California’s Re-MAT program violates, and is therefore preempted by, PURPA.”
The program’s 750 megawatt cap, as well as bimonthly limits on utility purchasing obligations, could result in a utility purchasing less energy than a Qualifying Facility makes available. The caps therefore violate PURPA’s must-purchase obligation. While the panel acknowledged that states may take a variety of factors into account in setting avoided costs rates, it concluded that the ReMAT formula, “which is arbitrarily adjusted every two months according to the QFs’ willingness to supply energy at the pre-defined price, strays too far afield from a utility’s but-for costs to satisfy PURPA.”

In 2015, FERC declined to initiate an enforcement action against the California PUC over ReMAT, concluding that ReMAT was an “alternative program that QFs and electric utilities may agree to participate in” so long as the state also provides Qualifying Facilities with a PURPA-compliant option. In defending ReMAT in federal court, the California PUC pointed to FERC’s determination and argued that its Standard Contract meets PURPA’s requirements and enables the state to offer non-compliant options.

The panel declined to decide whether a state may offer a non-compliant tariff as long as it also offers a tariff that is consistent with PURPA. The district court and Ninth Circuit concluded that the Standard Contract violates PURPA because it fails to give QFs the option to calculate avoided cost at the time of contracting. Without a PURPA-compliant option, California’s defense was moot.

The decision is available on the California page.