Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-14-02186/USCOURTS-ca8-14-02186-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

For the Eighth Circuit

___________________________

No. 14-2186

___________________________

Gregory R. Swecker; Beverly F. Swecker

lllllllllllllllllllll Plaintiffs - Appellants

v.

Midland Power Cooperative; Central Iowa Power Cooperative

lllllllllllllllllllll Defendants - Appellees

____________

Appeal from United States District Court 

for the Southern District of Iowa - Des Moines

____________

 Submitted: June 11, 2015

 Filed: October 6, 2015

____________

Before LOKEN, BYE, and KELLY, Circuit Judges.

____________

LOKEN, Circuit Judge.

Beverly and Gregory Swecker own a farm in Iowa that has a wind generator

and is a qualifying power production facility (“QF”) certified by the Federal Energy

Regulatory Commission (“FERC”). The Sweckers sell surplus electric energy to

Midland Power Cooperative at a rate established by the Iowa Utilities Board (“IUB”),

implementing FERC rules and regulations. See 16 U.S.C. § 824a-3(f). For more than

a decade, the Sweckers and Midland have litigated rate disputesin state court, federal

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court, and before FERC and the IUB. In this round of their ongoing battle, the

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Sweckers appeal the district court’s dismissal of their suit against Midland and its

2

primary supplier, Central Iowa Power Cooperative (“CIPCO”), seeking declaratory

and injunctive relief requiring Midland “to purchase available energy from plaintiffs

. . . at Midland’s full avoided cost, rather than CIPCO’s avoided cost.” Reviewing

the grant of a Rule 12(b)(6) motion to dismiss de novo, we affirm. See Briehl v. Gen.

Motors Corp., 172 F.3d 623, 627 (8th Cir. 1999) (standard of review). 

I. Factual and Regulatory Background

A. One purpose of the Public Utility Regulatory Policies Act of 1978, Pub. L.

No. 95-617, 92 Stat. 3117 (“PURPA”), was to “provid[e] for increased conservation

of electric energy, increased efficiency in the use of facilities and resources by

electric utilities, and equitable retail rates for electric consumers.” 16 U.S.C.

§ 2601(1). “Section 210 of PURPA’s Title II, 92 Stat. 3144, 16 U.S.C. § 824a-3,

seeks to encourage the development of cogeneration and small power production

facilities.” FERC v. Mississippi, 456 U.S. 742, 750 (1982). To overcome the

reluctance of traditional electric utilities to purchase power from nontraditional QFs,

§ 210 directs FERC to promulgate rules that require electric utilities to offer to

purchase electric energy from small power production facilities. 16 U.S.C. § 824a3(a)(2). FERC may initiate action in federal court to enforce these rules, and QFs

See Swecker v. Midland Power Coop., 142 FERC ¶ 61,207, 2013 WL

1

1182419 (Mar. 21, 2013) (Swecker); Swecker v. Midland Power Coop., 137 FERC

¶ 61,200, 2011 WL 6523727 (Dec. 15, 2011); Windway Techs., Inc. v. Midland

Power Coop., 696 N.W.2d 303 (Iowa 2005); Office of Consumer Advocate v. Iowa

Utils. Bd., 656 N.W.2d 101 (Iowa 2003); Windway Techs., Inc. v. Midland Power

Coop., No. C00-3089MWB, 2001 WL 1248741 (N.D. Iowa Mar. 5, 2001). 

The Honorable James E. Gritzner, United States District Judge for the

2

Southern District of Iowa. 

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such as the Sweckers may sue if FERC declines a request to act. 16 U.S.C. § 824a3(h); Mississippi, 456 U.S. at 751. 

PURPA providesthat the rate at which electric utilities purchase a QF’s power

“shall be just and reasonable to the [customers] of the electric utility” and bars FERC

from prescribing a rate that “exceeds the incremental cost to the electric utility of

alternative electric energy.” 16 U.S.C. § 824a-3(b). As the House committee report

explained, “The provisions of [§ 210] are not intended to require the rate payers of

a utility to subsidize cogenerators or small power producers.” H.R. Rep. No. 95-

1750, at 98 (1978), reprinted in 1978 U.S.C.C.A.N. 7797, 7832. The statute defines

“incremental cost of alternative electric energy” as “the cost to the electric utility of

the electric energy which, but for the purchase from [the] small power producer, such

utility would generate or purchase from another source.” § 824a-3(d). The FERC

regulations adopted this definition in defining the termhere at issue, “avoided costs.”3

FERC enacted Rules 303 and 304 to implement § 210 of PURPA. See Am.

Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 406-07 (1983). Rule

303 provides that “[e]ach electric utility shall purchase, in accordance with [Rule

304], any energy and capacity which is made available from a qualifying facility: (1)

Directly to the electric utility; or (2) Indirectly to the electric utility in accordance

with paragraph (d) of this section.” 18 C.F.R. § 292.303(a). Rule 304 reiterates the

statutory mandates regarding rates and provides that a rate equaling avoided costs

satisfies PURPA. §§ 292.304(a), (b)(2). Other regulations permit parties to agree

upon a rate different than avoided costs. See 18 C.F.R. § 292.301(b)(1). It is

undisputed that Midland is an “electric utility” under PURPA and thus subject to

these obligations. See 16 U.S.C. § 2602(4). 

“Avoided costs means the incremental costs to an electric utility of electric

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energy or capacity or both which, but for the purchase from the qualifying facility or

qualifying facilities, such utility would generate itself or purchase from another

source.” 18 C.F.R. § 292.101(b)(6). 

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B. Midland is a retail electric distribution cooperative owned by its member

customers. Midland is a member of and buys its power from CIPCO, a generation

and transmission cooperative that supplies the wholesale power requirements of its

thirteen rural electric and municipal electric cooperative members in the distribution

territories they serve. Thus, CIPCO is considered to be Midland’s “all-requirements

supplier.” Swecker v. Midland, 2011 WL 6523727, at *3. As a non-profit

cooperative, Midland is a “nonregulated public utility” under Iowa and federal law,

a misnomer, but one of jurisdictional significance. See 16 U.S.C. § 2602(9) & (18);

Iowa Code § 476.1A. 

One issue FERC needed to address in implementing § 210 of PURPA was the

challenge posed by all-requirements contracts, namely, “that the obligation to

purchase from qualifying facilities under this section might conflict with contractual

commitments . . . requiring [utilities] to purchase all of their requirements from a

wholesale supplier.” Small Power Production and Cogeneration Facilities;

Regulations Implementing Section 210 of the Public Utility Regulatory Policies Act

of 1978, 45 Fed. Reg. 12,214, 12,219 (Feb. 25, 1980) (“Order No. 69”). More

specifically, when setting the rate at which an all-requirements utility such as

Midland must purchase froma QF such asthe Sweckers, should the FERC-prescribed

maximum rate be the avoided costs of Midland -- the rate at which it purchases from

its all-requirements supplier, CITCO -- or CITCO’s avoided costs, a lower rate?

In City of Longmont, 39 FERC ¶ 61,301, 1987 WL 117113, at *3 (June 16,

1987), FERC rejected the QF’s argument that the avoided cost rate is the cost allrequirements customers pay their supplier because “the generation avoided by the

[customers when they] purchase from QFs would be the energy and capacity cost

avoided” by their all-requirements supplier. In Carolina Power & Light Co., 48

FERC ¶ 61,101, 1989 WL 262068, at *5-6 (July 25, 1989), applying City of

Longmont, FERC explained why the supplying utility’s avoided costs rate, not the

rate charged by the supplying utility to an all-requirements customer, should apply:

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[I]n Order No. 69, we discussed the ramifications of a QF selling to a

full requirements customer instead of selling to that customer’s

supplying utility. We recognized that only the fullrequirementssupplier

. . . would be in a position to avoid constructing or running generation

facilities. We were concerned that in cases where a full requirements

supplier’s wholesale rate exceeds its avoided costs, QFs may attempt to

sell to the full requirements customer instead of the full requirements

supplier, claiming the supplier’s full requirements rate as the avoided

cost. In such circumstances, it was determined that the fullrequirements

rate should be adjusted so that the full requirements supplier will be in

the same position as if it had purchased power directly from the QF.

Another aspect of the all-requirements contract issue was addressed in Rule

303(d), which provides an alternate means by which an electric utility can meet its

all-requirements obligation without hindering small power production: 

Under paragraph (d), if the qualifying facility consents, an allrequirements utility which would otherwise be obligated to purchase

energy or capacity from the qualifying facility would be permitted to

transmit the energy or capacity to its supplying utility. In most

instances, this transaction would actually take the form of the

displacement of energy or capacity that would have been provided under

the all-requirements obligation. In this case, the supplying utility is

deemed to have made the purchase and, as a result the all-requirements

obligation is not affected.

Order No. 69, 45 Fed. Reg. at 12,219. 

B. Relevant Procedural History

In this complex regulatory universe, federal district courts have exclusive

jurisdiction over “implementation” claims, where the issue is whether a non-regulated

utility such as Midland has improperly implemented the PURPA regulations. State

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courts exercise jurisdiction over “as-applied” claims, for example, claims challenging

the calculation of a specific avoided costs rate. See 16 U.S.C. §§ 824a-3(f), (g),

2633(a), (c).

After an Iowa state court set Midland’s avoided costs at 2.5394 cents per

kilowatt hour in 2002, the Sweckers and Midland entered into an Agreement for

Electric Service to a Qualifying Facility that set the avoided cost rate at 2.5394 cents

per kWh. Litigation continued. The Sweckers argued before FERC that the

4

Agreement inappropriately adopted a rate that was “based on false information

provided by Midland.” FERC determined that the “Agreement constitutes a

reasonable resolution of this proceeding.” Swecker v. Midland Power Coop., 108

FERC ¶ 61,268, 2004 WL 2106368, at *4-5 (Sept. 21, 2004). In Windway Techs.,

Inc. v. Midland Power Coop., 732 N.W.2d 887 (table), 2007 WL 752278, at *4-5

(Iowa App. Mar. 14, 2007), state courts rejected the Sweckers’ attempt to relitigate

Midland’s avoided costs in pursuing a claim for damages. In 2011, the IUB declined

the Sweckers’ request to relitigate the rate issue and Midland’s avoided costs. 

Swecker v. Midland Power Coop., No. FCU-2011-0008, 2011 WL 1589086, at *5

(I.U.B. Apr. 22, 2011).

Unsuccessful in these “as-applied” claims, the Sweckers sought federal relief,

petitioning FERC to commence an enforcement action in federal court. FERC instead

issued a Notice of Intent Not To Act, explaining that the Sweckers “ask that the

Commission . . . declare that Midland’s avoided-cost rate should be based on what

Midland pays its full-requirements wholesale supplier,” and rejecting this contention:

In Order No. 69, the Commission determined that the avoided cost of a

full requirements customer is the avoided cost of the full requirements

According to pleadings and attached exhibits, Midland pays CIPCO more for

4

energy than it pays the Sweckers under this Agreement, with the rate it paid CIPCO

between years 2001 and 2011 ranging from 4.98 cents to 6.37 cents per kWh. 

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customer’s supplier because it is the supplier that avoids generation

when the full requirements customer purchases from a QF. The

Commission has consistently followed this approach. Given that the

rate the Sweckers seek is inconsistent with our precedent, we see no

reason why we should initiate an enforcement proceeding on behalf of

the Sweckersto establish an avoided-costrate methodology inconsistent

with our precedent. Moreover, the rate that Midland currently pays the

Sweckers is the rate that the Sweckers agreed to in the 2004 Settlement

Agreement -- a settlement approved by the Commission. 

Swecker, 2013 WL 1182419, at *8 (citations omitted). This opinion reaffirmed the

City of Longmont rule that FERC would “measure the avoided cost of a full

requirements customer as the avoided cost of the full requirements supplier since it

is the supplier that avoids generation when the full requirements customer purchases

from a QF.” Carolina Power, 1989 WL 262068, at *6. 

The Sweckers then commenced this action, seeking an order “enforcing the

implementation of PURPA and FERC’s PURPA regulations and declaring Midland’s

full avoided cost rate for purchasing surplus energy from plaintiffs and all other nonconsenting Qualifying Facilities is the same rate which Midland pays CIPCO.” The

district court granted Defendants’ motion to dismiss, concluding that Plaintiffs failed

to state a claim upon which relief can be granted because, in light of FERC precedent

and FERC’s consideration of the Sweckers’ claim in deciding not to act, the

“Complaint contains no factual basis for a determination Plaintiffs have a plausible

claim for a departure from the established definition of ‘avoided cost rate.’” The

court denied the Sweckers’ motion for a new trial or, in the alternative, an altered or

amended order, noting that it had considered and rejected the Sweckers’ contention

that Midland cannot pay the Sweckers at CIPCO’s avoided cost rate because the

Sweckers never consented to that rate, as 18 C.F.R. § 292.303(d) requires. Rather,

the court determined, § 292.303(d) is inapplicable because “Plaintiffs sold energy

directly to Midland -- not indirectly to CIPCO through Midland.”

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III. Discussion

The Sweckers purport to raise three distinct issues on appeal, but their entire

argument can be succinctly stated and analyzed: they contend that the plain language

of 18 C.F.R. § 292.303(d) required Midland to obtain the Sweckers’ consent as QF

before CIPCO’s avoided cost rate could apply to Midland’s purchases, the district

court erred in deferring to FERC’s longstanding contrary interpretation of this

regulation, and therefore their complaint stated a claim on which declaratory and

injunctive relief from use of an unlawful avoided cost rate can be granted. 

As we have explained, FERC adopted § 292.303(d) to provide an alternate

means by which an all-requirements electric utility can meet its PURPA purchase

obligations by “transmit[ting] the [QF’s] energy or capacity to its supplying utility,”

in which case “the supplying utility is deemed to have made the purchase and, as a

result the all-requirements obligation is not affected.” Order No. 69, 45 Fed. Reg. at

12,219. The regulation provides:

(d) Transmission to other electric utilities. If a qualifying facility

agrees, an electric utility which would otherwise be obligated to

purchase energy or capacity from such qualifying facility may transmit

the energy or capacity to any other electric utility. Any electric utility

to which such energy or capacity is transmitted shall purchase such

energy or capacity under this subpart as if the qualifying facility were

supplying energy or capacity directly to such electric utility. The rate

for purchase by the electric utility to which such energy is transmitted

shall be adjusted up or down to reflect line losses pursuant to

§ 292.304(e)(3) and shall not include any charges for transmission.

The language describing a utility “which would otherwise be obligated to

purchase energy” (emphasis added) plainly states that § 292.303(d) only enables an

electric utility such as Midland to shed its purchase obligation with a QF’s consent,

in which case the all-requirementssupplier (here, CIPCO) purchasesthe QF’s energy

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or capacity as if it was directly supplied. However, that transfer of the purchase

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obligation never occurred in this case. The Sweckers never consented to supply

CIPCO, directly or indirectly, and they alleged in their complaint and conceded on

appeal that “Midland purchases surplus demand and energy from plaintiff.” Thus, it

is undisputed that Midland has upheld its PURPA obligation to purchase surplus

energy the Sweckers made available. See 18 C.F.R. § 292.303(a); Order No. 69, 45

Fed. Reg. at 12,220 (“[i]f the qualifying facility does not consent to transmission to

another utility, the first utility retains the purchase obligation”). 

The Sweckers argue that Order No. 69 prohibits using the supplying utility’s

avoided cost rate when the all-requirements customer purchases from the QF absent

the QF’s consent. FERC has consistently rejected thisinterpretation of § 292.303(d). 

Rather, in City of Longmont and Carolina Power, without reference to § 292.303(d),

FERC adopted the rule that CIPCO’s avoided costs are the maximum rate that may

apply to Midland’s mandatory purchases from the Sweckers to discourage QFs from

withholding consent for direct energy transfers to all-requirements suppliers. This

better serves the statutory purposes of “increased conservation of electric energy,

increased efficiency in the use of facilities and resources by electric utilities, and

equitable retail rates for electric consumers.” 16 U.S.C. § 2601(1). The Sweckers’

pleadings put thissituation squarelywithin the paradigmdescribed inCarolina Power

-- the Sweckers are “attempt[ing] to sell to the full requirements customer [Midland]

instead of the full requirements supplier [CIPCO], claiming the supplier’s full

requirements rate as the avoided cost.” Carolina Power, 1989 WL 262068, at *5.

An agency’s interpretation of its own regulationsis “controlling unless plainly

erroneous or inconsistent with the regulation.” Auer v. Robbins, 519 U.S. 452, 461

The procedural struggles between these parties illustrate why FERC chose to 5

specify that the all-requirements customer retains the purchase obligation and may

transfer the obligation only with the consent of the QF. See Central Iowa Power

Coop., 105 FERC ¶ 61,239, 2003 WL 22725391, at *4 (Nov. 19, 2003). 

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(1997) (quotation omitted). Auer deference is particularly appropriate when “there

is no indication that [the agency’s] current view is a change from prior practice.” 

Decker v. Nw. Envtl. Def. Ctr., 133 S. Ct. 1326, 1337 (2013). Here, FERC’s

interpretation of “avoided costs” when an all-requirements utility is required to

purchase from a QF is not plainly erroneous; is consistent with the provisions of 18

C.F.R. §§ 292.101(b)(6), .303, and .304, read as a whole and in context; reasonably

serves diverse statutory purposes when applying PURPA to a complex situation; and

has been the agency’s consistent practice since City of Longmont. FERC’s

interpretation is therefore controlling and forecloses the contrary interpretation of

§ 292.303(d) urged by the Sweckers on appeal. Applying this longstanding

interpretation, the district court correctly concluded that the Sweckers’ lack of

consent to Midland transferring energy to CIPCO was “irrelevant since Plaintiffs

never allege that Midland actually transferred Plaintiffs’ energy to CIPCO.” 

IV. Conclusion

For the foregoing reasons, we agree with the district court that the Sweckers’

complaint failed to state a claim for relief; we therefore affirm the Rule 12(b)(6)

dismissal. As there were no errors of law in need of correction, the district court did

not abuse its discretion in denying the Sweckers’ Rule 59(e) motion. See Ellis v. City

of Minneapolis, 518 F. App’x 502, 505 (8th Cir. 2013) (standard of review). 

Accordingly, the judgment of the district court is affirmed. 

BYE, Circuit Judge, dissenting.

As the Court notes, an agency's interpretation of its own regulation is not

controlling when it is "plainly erroneous or inconsistent with the regulation." Auer

v. Robbins, 519 U.S. 452, 461 (1997) (quotation omitted). In this case, the Federal

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Energy Regulatory Commission (FERC) adopted a rule in City of Longmont and

6

Carolina Power without considering the consent provisions in the relevant

7

regulation, 18 C.F.R. § 292.303(d), and without addressing the relevant and

controlling provisionsset forth in Order No. 69. Because the rule adopted by FERC 8

is inconsistent with both the controlling order and the controlling regulation, neither

the district court nor our Court should defer to it. I therefore respectfully dissent from

the decision to affirm the district court's dismissal of the Sweckers' complaint.

I

The Sweckers contend, and I agree, that § 292.303(d) gives a qualifying facility

(QF) the discretion to choose whether to accept the avoided cost rate of a nongenerating utility (Midland), or to bypass the non-generating utility and accept the

avoided cost rate of the non-generating utility's supplier (CIPCO). I believe this is

the only reasonable interpretation of the regulation when read in conjunction with

Order No. 69.

In Order No. 69, FERC specifically addressed the situation where the utility

obligated to purchase excess energy from a QF was not only a non-generating utility,

but was also an all-requirements utility bound by contract to purchase all of its energy

from the same supplying utility. In such a situation, there is necessarily tension

between the utility's contractual obligations to its supplier, and the obligations

imposed by federal law. This is exactly Midland's situation. Midland is both a nongenerating utility and an all-requirements utility bound by contract to purchase all of

39 FERC ¶ 61,301, 1987 WL 117113 (June 16, 1987). 6

48 FERC ¶ 61,101, 1989 WL 262068 (July 25, 1989).

7

Small Power Production and Cogeneration Facilities; Regulations 8

Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978,

Order No. 69, 45 Fed. Reg. 12,214 (Feb. 25, 1980).

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its energy from CIPCO. But the Public Utility Regulatory Policies Act of 1978, Pub.

L. No. 95-617, 92 Stat. 3117 (PURPA), obligates Midland to purchase the excess

energy generated by any QF in its coverage area, such as the Sweckers' windmill. 

Midland therefore cannot comply with both federal law and its contract. If it

purchases all of its energy from CIPCO and refuses to purchase energy from QFs, it

is violating federal law. On the other hand, if Midland complies with federal law by

purchasing excess energy from a QF in its coverage area, it is violating its contract

with CIPCO.

In Order No. 69, FERC adopted the consent requirement set forth in

§ 292.303(d) to address this issue. First, FERC indicated the obligations imposed by

PURPA must take precedence over the contractual obligations the non-generating

utility may have to its supplier. See 45 Fed. Reg. 12,214 at 12,219 (explaining that

ifthe contractual obligations of an "all-requirementsrural electric cooperative[]" were

permitted "to override the obligation to purchase from qualifying facilities, these

contractual devices might be used to hinder the development of cogeneration and

small power production"). As a consequence, the Commission stated the "mandate

of PURPA to encourage cogeneration and small power production requires that

obligations to purchase under this provision supersede contractual restrictions on a

utility's ability to obtain energy or capacity from a qualifying facility." Id.

FERC next noted that a non-generating utility always has the option ofseeking

a waiver "if compliance with the purchase obligation would impose a special hardship

on an all-requirements customer." Id. Midland sought a waiver in this case, which

if granted would have required CIPCO to purchase the excess energy generated by

QFs in Midland's area. FERC, however, denied Midland's request for a waiver, and

therefore Midland remains obligated to purchase energy fromthe Sweckers' windmill.

In the absence of a waiver, FERC offered another "out" to a non-generating allrequirements utility caught in this Catch 22 between its contractual obligations to its

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supplier and its federal obligation to a QF under PURPA. That is where § 292.303(d)

comes into play. As explained by FERC in Order No. 69, § 292.303(d) creates a

situation where a QF can essentially bypass a non-generating utilitymiddleman (such

as Midland), and transmit its energy straight through to the supplying utility (such as

CIPCO). This "out" permits the non-generating utility caught in the middle to satisfy

its contractual obligations to its supplier, but also satisfies the requirements of

PURPA by giving a QF an alternative purchaser of its excess energy.

The key, however, is that § 292.303(d) expressly requires the QF to consent to

this alternative arrangement thatrelieves the non-generating utility fromits federallyimposed purchase obligations. The regulation specifically states "[i]f a qualifying

facility agrees, an electric utility which would otherwise be obligated to purchase

energy or capacity from such qualifying facility [i.e., Midland] may transmit the

energy or capacity to any other electric utility [i.e., Midland's supplier, CIPCO]." 18

C.F.R. § 292.303(d) (emphasis added). If such a transfer takes place, the regulation

goes on to state that the "electric utility to which such energy or capacity is

transmitted [i.e., CIPCO] shall purchase such energy or capacity under this subpart

asif the qualifying facility were supplying energy or capacity directly to such electric

utility." Id.

There is no dispute that the Sweckers never consented to CIPCO purchasing

their windmill's excess energy, and thus Midland still retains the obligation to

purchase the Sweckers' excess energy pursuant to PURPA. Midland contends

however, that irrespective of whether it retains the purchase obligation, or the

purchase obligation has transferred to CIPCO, the avoided cost rate to use when

paying the Sweckers is always CIPCO's avoided cost rate. In other words, the

Sweckers must accept CIPCO's avoided cost rate if CIPCO becomes the purchaser,

but the Sweckers must also accept CIPCO's avoided cost rate if Midland remains the

purchaser.

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Midland's position is inconsistent with Order No. 69 and § 292.303(d), and

thus so is the Court's decision which adopts Midland's position. In Order No. 69,

when explaining that the purchase obligation remains with the non-generating utility

if a QF does not consent to the pass-through transmission to the supplying utility,

FERC expressly gives examples where the QF may choose between the supplier's

(i.e., CIPCO's) avoided cost rate or the non-generating utility's (i.e., Midland's)

avoided cost rate. If, as Midland contends, the supplier's avoided cost rate is always

applicable, there would have been no need for FERC to discuss situations where a QF

might choose one over the other.

Order No. 69 expressly states: "There are several circumstances in which a

qualifying facility might desire that the electric utility with which it isinterconnected

[i.e., Midland] not be the purchaser of the qualifying facility's energy and capacity,

but would prefer instead that an electric utility with which the purchasing utility is

interconnected [i.e., CIPCO] make such a purchase." 45 Fed Reg. 12,214 at 12,219. 

The Commission then sets forth an example where a non-generating utility's

(Midland's) avoided cost rate may actually be lower than the supplying utility's

(CIPCO's) avoided cost rate, such that it would be beneficial to the QF to consent to

transmission directly to the supplier:

If, for example, the purchasing utility is a non-generating utility, its

avoided costs will be the price of bulk purchased power ordinarily based

on the average embedded cost of capacity and average energy cost on its

supplying utility's system. As a result, the rate to the qualifying facility 9

would be based on those average costs. If, however, the qualifying

facility's output were purchased by the supplying utility, its output

ordinarily will replace the highest cost energy on the supplying utility's

system at that time, and its capacity might enable the supplying utility

to avoid the addition of new capacity. Thus, the avoided costs of the

The amount of this cost (Midland's "price of bulked purchased power") is not

9

clear in this record, but appears to be the correct amount to pay the Sweckers.

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supplying utility may be higher than the avoided cost of the nongenerating utility.

Id. (emphasis added).

The necessary and unavoidable implication of FERC's comparison between the

supplying utility's avoided cost rate (CIPCO's), and the non-generating utility's

avoided cost rate (Midland's), is that both avoided cost rates can apply. And it is

equally clear from the detailed discussion set forth in Order No. 69 that the issue of

which utilities' avoided cost rate applies is determined solely by the QF's consent. If

Midland's position is correct, and an all-requirements non-generating utility was

always entitled to use the supplying facility's avoided cost rate, there would have

been no reason for FERC to have compared the two utilities' avoided cost rates in

Order No. 69.

FERC goes on to state in Order No. 69 that "if the qualifying facility does not

consent to transmission to another utility [CIPCO], the first utility [Midland] retains

the purchase obligation." Id. at 12,220. When read in conjunction with the earlier

comparison of the avoided costs rates of the non-generating utility and the supplying

utility, the unavoidable conclusion is that the non-generating utility's (Midland's)

avoided cost rate applies when the QF does not consent to the pass-through

transmission to the supplier.

That is precisely the situation involved here. The Sweckers never consented

to the transmission of their windmill's excess energy directly to CIPCO. As a

consequence, Midland retains the purchase obligation. Therefore, it is Midland's

avoided cost rate, not CIPCO's, which should be used when determining the amount

to pay the Sweckers. The district court thus erred in dismissing the Sweckers'

complaint.

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Appellate Case: 14-2186 Page: 15 Date Filed: 10/06/2015 Entry ID: 4323227 
As the Court itself notes, the rule FERC adopted in City of Longmont and

Carolina Power was without reference to the consent provisions of § 292.303(d), or

without addressing the relevant provisionsset forth in Order No. 69 discussed herein. 

Thus, to the extent FERC has created a contrary rule whereby the supplying utility's

avoided cost rate is always used when a non-generating utility has the initial purchase

obligation, irrespective of whether or not a QF has consented to a pass-through

transmission to a supplying utility, such a rule is not entitled to deference because it

is plainly inconsistent with the controlling order and regulation.

II

I respectfully dissent.

______________________________

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Appellate Case: 14-2186 Page: 16 Date Filed: 10/06/2015 Entry ID: 4323227