United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 6, 2005 Decided March 24, 2006

No. 04-1396

SOUTHERN CALIFORNIA EDISON COMPANY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

ORMESA LLC,

INTERVENOR

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Catherine E. Stetson argued the cause for petitioner. With

her on the briefs were Kevin J. Lipson, Douglas L. Beresford,

Jessica L. Ellsworth, and J. Eric Isken.

Robert H. Solomon, Deputy Solicitor, Federal Energy

Regulatory Commission argued the cause for respondent. With

him on the brief were Cynthia A. Marlette, General Counsel, and

Dennis Lane, Former Solicitor.

Before: GARLAND, BROWN and GRIFFITH, Circuit Judges.
2

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge: The Federal Energy Regulatory

Commission certified intervenor Ormesa LLC (Ormesa) as a

qualifying geothermal small power production facility, entitling

it to certain privileges pursuant to Section 210 of the Public

Utility Regulatory Policies Act of 1978 (PURPA), 16 U.S.C.

§ 824a-3. In particular, the certification permitted Ormesa to

compel traditional utilities to purchase Ormesa’s net power

output. Southern California Edison Co. (Edison), a utility that

has a power purchase agreement with Ormesa, petitions for

review, arguing the Commission acted arbitrarily and capriciously by permitting Ormesa to sell capacity in excess of its net

output and by distinguishing between brine extraction and brine

reinjection in calculating the net output in the first place.

Finding no basis for upsetting the Commission’s order, we deny

the petition for review.

I

Congress enacted Section 210 of PURPA, 16 U.S.C.

§ 824a-3, to encourage the development of cogeneration and

small power production facilities. FERC v. Mississippi, 456

U.S. 742, 750 (1982); Conn. Valley Elec. Co. v. FERC, 208 F.3d

1037, 1039 (D.C. Cir. 2000). A “cogeneration facility” produces both electric energy and either steam or some other form

of usable energy, 16 U.S.C. § 796(18)(A); a “small power

production facility” produces no more than 80 megawatts of

electricity using only biomass, waste, renewable resources, or

geothermal resources as the primary energy source, id.

§ 796(17)(A).

To counter traditional electric utilities’ reluctance to deal

with these nontraditional facilities, the PURPA charges the

Commission with implementing mandatory purchase and sell

obligations, requiring electric utilities to purchase electric power

from, and sell power to, qualifying cogeneration and small
1

 Congress also sought to relieve some of the regulatory burdens

that discouraged development of such facilities by exempting QFs

from certain state and federal laws. See 16 U.S.C. § 824a-3(e); FERC

v. Mississippi, 456 U.S. at 750-51.

3

power production facilities (collectively, “qualifying facilities”

or “QFs”). See id. § 824a-3(a)(1)-(2); FERC v. Mississippi, 456

U.S. at 750-51.1

 A qualifying small power production facility

must “meet[] such requirements (including requirements

respecting fuel use, fuel efficiency, and reliability) as the

Commission may, by rule, prescribe.” 16 U.S.C. § 796(17)(C);

cf. id. § 796(18)(B) (covering qualifying cogeneration facilities).

Hewing to the PURPA’s mandate, the Commission enacted

regulations requiring a utility to purchase “any energy and

capacity which is made available from a [QF],” 18 C.F.R.

§ 292.303(a), and to sell “any energy and capacity requested by

the [QF],” id. § 292.303(b). While the utility must sell electricity to a QF at regulated tariff rates, the utility must buy electricity from the QF at a rate equal to the utility’s full “avoided cost.”

See Conn. Valley Elec., 208 F.3d at 1040 (citing 18 C.F.R.

§§ 292.303-.305); 18 C.F.R. § 292.304(b)(2). The utility’s

avoided cost (also called the “incremental cost of alternative

electric energy”) is “the cost to the electric utility of the electric

energy which, but for the purchase from such [QF], such utility

would generate or purchase from another source.” 16 U.S.C.

§ 824a-3(d); see 18 C.F.R. § 292.101(b)(6); Am. Paper Inst.,

Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 405-06

(1983); Conn. Valley Elec., 208 F.3d at 1040 n.*. As a practical

matter, “the rate that a QF can require a utility to pay [i.e. the

avoided-cost rate] is almost always higher than the regulated

tariff rate at which the QF can purchase from the utility electricity for its internal operating needs.” Conn. Valley Elec., 208

F.3d at 1040 n.*.
4

The Commission certifies the amount of power (“qualifying

output” or “qualifying power”) that a QF can require a utility to

purchase. The Commission determines a QF’s qualifying output

by looking to the QF’s net output rather than its gross output.

Penntech Papers, Inc., 48 F.E.R.C. ¶ 61,120, at 61,423 (1989);

Power Developers, Inc., 32 F.E.R.C. ¶ 61,101, at 61,276 (1985);

Occidental Geothermal, Inc., 17 F.E.R.C. ¶ 61,231, at 61,445

(1981). A QF’s gross output is the total amount of electric

energy that it can produce. The net output is the gross output

minus the “auxiliary load,” which is electricity the QF itself

consumes during the production process. See Penntech Papers,

48 F.E.R.C. at 61,423 (“[T]he facility must consume some

electric power for auxiliary equipment such as pumps, blowers,

fans, etc.”). The Commission defined the auxiliary load as

power that is a “‘necessary and integral’ part of the power

production process.” GEO East Mesa Ltd. P’ship, 55 F.E.R.C.

¶ 61,255, at 61,813 (1991).

By only certifying a QF’s net output (rather than gross

output) as qualifying output, the Commission prevents a QF

from purchasing power for its auxiliary load from one utility at

retail rates and then attempting to sell its entire gross output to

another utility at avoided cost rates. Penntech Papers, 48

F.E.R.C. at 61,423. This accords with the purposes behind the

PURPA, as the Commission thus certifies the amount of output

that the QF actually contributes to the system—the amount that

will displace electricity produced by traditional means. Id. The

Commission has cautioned that “[a]llowing [a QF] to sell the

gross output at one utility’s avoided cost rates while the [QF]

purchases the auxiliary power at another utility’s retail rates may

very well result in an economic distortion.” Id.

Until recently, a QF had to be “owned by a person not

primarily engaged in the generation or sale of electric power

(other than electric power solely from cogeneration facilities or

small power production facilities).” 16 U.S.C. § 796(17)(C)(ii)
2

This regulation read:

(a) General Rule. A cogeneration facility or small power

production facility may not be owned by a person primarily

engaged in the generation or sale of electric power (other than

electric power solely from cogeneration facilities or small

power production facilities).

(b) Ownership test. For purposes of this section, a

cogeneration or small power production facility shall be

considered to be owned by a person primarily engaged in the

generation or sale of electric power, if more than 50 percent

of the equity interest in the facility is held by an electric utility

or utilities . . . .

18 C.F.R. § 292.206 (2005).

3

We offer no comment on the Act’s amendments to 16 U.S.C.

§ 824a-3, which added new subsection (m), allowing for the

mandatory purchase and sell requirements to be lifted in certain

5

(2000) (qualifying small power production facility); id.

§ 796(18)(B)(ii) (qualifying cogeneration facility); see also 18

C.F.R. § 292.206 (2005).2

 The Commission construed this

ownership restriction to mean that a QF could not itself be in the

business of selling electric power in excess of its net output,

unless the incremental power fell within the ambit of the

parenthetical exception. See Conn. Valley Elec. Co. v.

Wheelabrator Claremont Co., 82 F.E.R.C. ¶ 61,116, at 61,418

(1998) (Connecticut Valley); Turners Falls Ltd. P’ship, 55

F.E.R.C. ¶ 61,487, at 62,671-72 (1991). The penalty for selling

such nonqualifying power was loss of QF status. Turners Falls,

55 F.E.R.C. at 62,672.

This changed, however, with the Energy Policy Act of 2005

(the Act), Pub. L. No. 109-58, § 1253(b), 119 Stat. 594, 970

(amending 16 U.S.C. § 796(17)(C) & (18)(B)), which eliminated

the statutory ownership limitation.3

 Consequently, the
circumstances, and new subsection (n), directing the Commission to

revise the criteria in 18 C.F.R. § 292.205 for new qualifying

cogeneration facilities seeking to make sales pursuant to Section 210

of PURPA. See Pub. L. No. 109-58, § 1253(a), 119 Stat. at 967-70;

see also New PURPA Section 210(m) Regulations Applicable to Small

Power Production and Cogeneration Facilities, 71 Fed. Reg. 4532

(Jan. 27, 2006) (proposing amendments to 18 C.F.R. pt. 292 in

accordance with 16 U.S.C. § 824a-3(m)); 71 Fed. Reg. at 7852-60,

7865 (implementing 16 U.S.C. § 824a-3(n)).

6

Commission removed the corresponding regulation, noting that

“[r]emoval of the ownership prohibition removes the bar to a QF

selling non-QF electric energy while retaining QF status.”

Revised Regulations Governing Small Power Production and

Cogeneration Facilities, 71 Fed. Reg. 7852, 7864 (Feb. 15,

2006) (deleting 18 C.F.R. § 292.206).

II

Ormesa is a geothermal small power production facility

located in Imperial County, California, with a gross capacity of

19.95 megawatts (MW). Ormesa was originally certified as a

QF by the Commission in 1986. Ormesa Geothermal II, 36

F.E.R.C. ¶ 62,030 (1986). The facility utilizes several wells

extending into underground reservoirs that are close enough to

the surface and hot enough to be useful in generating electricity.

As relevant to the present case, the electricity production process

consists of (i) using pumps to extract brine from the geothermal

production wells and transport it to the facility; (ii) various infacility activities, such as moving the hot brine through a

vaporizer to vaporize the “working fluid”—isopentane—which,

in gaseous form, then flows into the turbines, generating electric

power; and (iii) reinjecting the used brine back into the geothermal reservoir. Ormesa obtains the power necessary to perform

steps (i) and (iii)—requiring 3.24 MW and 1.35 MW, respectively—from another geothermal QF. The 3.38 MW needed to
4

19.95 (Gross) – 3.38 (ii) = 16.57 (Net).

5

19.95 (Gross) – 3.24 (i) – 3.38 (ii) – 1.35 (iii) = 11.98 (Net).

7

perform the in-facility functions, such as the activities described

in step (ii) above, comes from Ormesa itself.

Edison is an investor-owned electric utility that generates

and purchases electric energy and resells it to consumers in

Southern California. Edison purchases power from Ormesa

under a power purchase agreement consistent with Commission

regulations, see 18 C.F.R. § 292.101 et seq. The agreement

requires Ormesa to maintain its QF status at all times.

On February 3, 2004, Ormesa filed an application for recertification as a QF. Ormesa argued the auxiliary load consisted solely of the in-facility activities, such as moving the

brine directly into the generating equipment. Ormesa thus

sought certification at a capacity of 16.57 MW.4

 The Commission permitted Edison to intervene and protest Ormesa’s

application. Edison argued the power for brine

extraction/transportation and brine reinjection (that is, steps (i)

and (iii) as described above) should also be considered part of

the auxiliary load and, accordingly, excluded from the certified

net output. Edison thus would calculate the net output at 11.98

MW.5

The Commission agreed in part with each party. See

Ormesa LLC, 107 F.E.R.C. ¶ 61,043 (2004) (Certification

Order). Relying on GEO East Mesa, 55 F.E.R.C. ¶ 61,255, the

Commission concluded brine extraction and transportation were

not “necessary and integral” to the power production process.

The corresponding power consumption was excluded from the

auxiliary load and, in turn, included in Ormesa’s net output.

Conversely, the Commission concluded power for brine

reinjection was “necessary and integral.” It was thus included
6

19.95 (Gross) – 3.38 (ii) – 1.35 (iii) = 15.22 (Net).

7

The Commission nowhere stated whether Edison was

necessarily compelled to buy this additional amount, only that Ormesa

was permitted to sell it without losing QF status. Cf. Connecticut

Valley, 82 F.E.R.C. at 61,418 (“[T]he requirement of [18 C.F.R.

§] 292.303(a), that an electric utility purchase any energy and capacity

made available from a QF, is limited to the energy and capacity a QF

actually has available, which is its net energy and capacity.”).

8

in the auxiliary load and excluded from net output. Accordingly, the Commission calculated the net output to be 15.22

MW6

 and certified that amount as qualifying output.

In a footnote, however, the Commission granted Ormesa

permission to sell an additional 1.35 MW of power in excess of

its net output without imperiling its QF status, notwithstanding

the ownership limitation.7 Certification Order, 107 F.E.R.C. at

61,151 n.10. The Commission made this allowance insofar as

“the 1.35 MW will be purchased from another QF,” and pointed

to Connecticut Valley, 82 F.E.R.C. at 61,418 & n.17, for the

proposition that “a sale in excess of net output would deprive a

facility of its QF status unless the incremental sale consisted of

power solely from cogeneration or small power production

facilities.” Certification Order, 107 F.E.R.C. at 61,151 n.10.

Ormesa and Edison each unsuccessfully requested rehearing. See Ormesa LLC, 108 F.E.R.C. ¶ 61,299 (2004) (Rehearing

Order). Edison now brings a timely petition for review.

III

We address Edison’s challenge to the Commission’s

decision under the deferential arbitrary and capricious standard

set forth in the Administrative Procedure Act. 5 U.S.C.

§ 706(2)(A); Exxon Mobil Corp. v. FERC, 430 F.3d 1166, 1172

(D.C. Cir. 2005); Mo. Pub. Serv. Comm’n v. FERC, 215 F.3d 1,
9

3 (D.C. Cir. 2000). Our role is “limited to assuring that the

Commission’s decisionmaking is reasoned, principled, and

based upon the record.” Williston Basin Interstate Pipeline Co.

v. FERC, 165 F.3d 54, 60 (D.C. Cir. 1999) (internal quotation

marks and citation omitted). “The Commission must consider

the relevant factors and draw a rational connection between the

facts found and the choice made.” Mo. Pub. Serv. Comm’n, 215

F.3d at 3 (internal quotation marks and citation omitted).

A

 Edison first challenges the Commission’s application of the

ownership limitation—specifically, the decision to grant Ormesa

permission to sell more than its net output while maintaining QF

status. As a preliminary matter, we must determine whether the

Act and the subsequent Commission rule changes, which delete

the statutory and regulatory ownership constraints, moot the

petition for review with respect to this issue. See Honig v. Doe,

484 U.S. 305, 317 (1988); Beethoven.com LLC v. Librarian of

Congress, 394 F.3d 939, 950 (D.C. Cir. 2005). We have little

difficulty concluding they do not. Although the Act eliminated

the statutory ownership limitation in 2005 and the Commission

amended its regulations accordingly in early 2006, the question

of whether the Commission acted arbitrarily and capriciously

back in 2004 remains very much live. Given that whatever harm

accrued as a result of the Commission’s order did not suddenly

vanish when the ownership limitation was excised, this is not a

case where the events have “outrun the controversy such that the

court can grant no meaningful relief.” McBryde v. Comm. to

Review, 264 F.3d 52, 55 (D.C. Cir. 2001).

We turn now to the merits, examining the Commission’s

order in light of the ownership limitation as it existed at that

time. Edison argues the Commission acted arbitrarily and

capriciously in permitting Ormesa to sell, over and above its net

output, an additional 1.35 MW—corresponding to an amount

purchased from another QF to cover Ormesa’s brine-reinjection
10

auxiliary load—without Ormesa’s jeopardizing its QF status.

We disagree.

Per the now-defunct statutory ownership restriction, a QF

had to be “owned by a person not primarily engaged in the

generation or sale of electric power (other than electric power

solely from cogeneration facilities or small power production

facilities).” 16 U.S.C. § 796(17)(C)(ii) (2000); id.

§ 796(18)(B)(ii). In Turners Falls, the Commission construed

this language to bar a QF from selling nonqualifying power over

and above its certified net output, and held that such a sale

would result in the loss of QF status altogether. 55 F.E.R.C. at

62,671-72. In that case, the Commission had certified the QF’s

net output (gross less auxiliary load) as qualifying power. Id. at

61,665. However, the QF, which received its auxiliary load

from a local utility, sought to sell the nonqualifying incremental

amount (gross less net) as a nonqualifying facility seller. Id. at

62,666. According to the Commission, such sales of

nonqualifying power by QFs are prohibited because the QF

would be selling electric power that does not fall within the

parenthetical “other than” exception, despite the colorable

argument that even the incremental power—which after all was

generated by the QF itself—was “electric power solely from

cogeneration facilities or small power production facilities.” Id.

at 62,667-68 (citation omitted). The Commission emphasized

that, in analyzing whether the incremental sale transgresses the

statutory ownership restriction, “the most important fact is that

the incremental output of the Turners Falls facility . . . is not . . .

qualifying output eligible for the regulatory exemptions.” Id. at

62,671 (emphasis added). Later, in Connecticut Valley, the

Commission, reiterating the statutory ownership restriction

(including the exception thereto) and citing Turners Falls, stated

that “a sale in excess of net output would deprive a facility of its

QF status, unless the incremental sale was of power solely from

cogeneration or small power production facilities [i.e., QFs].”

82 F.E.R.C. at 61,418 & n.17.
8

Although Ormesa never explicitly claimed in its recertification

application that it would purchase the capacity from another QF, see,

e.g., Joint Appendix 15-16 (Ormesa “uses power from another

geothermal QF” for reinjection (emphasis added)); id. at 20 (power for

reinjection “is provided by another geothermal QF” (emphasis

added)); id. at 22 (power for reinjection is “supplied by another QF”

(emphasis added)), the Commission’s permission, by its own terms,

only extends “if that additional 1.35 MW were purchased from another

11

In the present case, citing Connecticut Valley, the Commission determined that, although the 1.35 MW was not part of

Ormesa’s net output, Ormesa could nonetheless sell it, provided

it would be purchased from another QF. Certification Order,

107 F.E.R.C. at 61,151 n.10. The explanation given, as set forth

in a footnote, is as follows:

Ormesa indicates that here the 1.35 MW will be purchased

from another QF. In [Connecticut Valley, 82 F.E.R.C. at

61,418 & n.17], the Commission found that a sale in excess

of net output would deprive a facility of its QF status unless

the incremental sale consisted of power solely from

cogeneration or small power production facilities. Therefore, notwithstanding the discussion above, given that 1.35

MW will be purchased from another QF, Ormesa is permitted to sell an additional 1.35 MW from its facility without

jeopardizing its QF status. 

Certification Order, 107 F.E.R.C. at 61,151 n.10.

We are not persuaded this footnote represents an improper

expansion of the exception to the statutory ownership requirement, as applied in Commission precedent. In citing to Connecticut Valley (which in turn cites Turners Falls), we understand the Commission to have extended permission to sell an

additional 1.35 MW only insofar as Ormesa purchases a

corresponding amount of power from the other QF’s supply of

qualifying output.8 Turners Falls highlighted that the
QF,” Rehearing Order, 108 F.E.R.C. at 62,514 (emphasis added). 

12

touchstone is whether the incremental power is “qualifying

output,” and in that case, unlike the present one, the sale of

incremental power was prohibited precisely because it was not

qualifying power. 55 F.E.R.C. at 62,671. Similar to Ormesa’s

ability to sell its own qualifying power, the Commission

reasonably permitted Ormesa to, in essence, sell another QF’s

qualifying power without putting Ormesa’s QF status at risk.

That is, consistent with Commission precedent, the Commission

reasonably found that such a sale would not run afoul of the

statutory ownership restriction but would instead fall within the

exception thereto. Whether Ormesa subsequently exceeded the

bounds of the Commission’s permission—by selling

nonqualifying power—is not a matter before us.

B

Edison next argues the Commission acted arbitrarily and

capriciously in making a distinction between power for brine

extraction (which it determined is not part of the auxiliary load)

and brine reinjection (which it determined is part of auxiliary

load). Edison would adopt the Commission’s conclusion as to

reinjection, while rejecting the conclusion as to extraction.

Accordingly, Edison contends the Commission must reassess its

GEO East Mesa precedent, which directly controlled the

categorization of brine extraction. We again disagree.

In GEO East Mesa, the Commission held the auxiliary load

includes power for those functions that are a “‘necessary and

integral’ part of the power production process.” 55 F.E.R.C. at

61,813. The Commission found this criterion met in the case of

“essential fuel handling activity”—i.e., “mov[ing] the geothermal fuels directly into the generating equipment”—but not in the

case of “extraction and transportation functions.” Id. The

Commission employed an analogy to coal mining, originally
13

suggested by the geothermal plant in that case. Id. at 61,813-14.

Brine extraction (like coal mining) and brine transportation to

the geothermal facility (like transporting coal to a power plant)

are not “necessary and integral” to the power production process

and thus are not part of the auxiliary load. Id. On the other

hand, essential fuel handling activity at the geothermal facility,

such as moving the geothermal fuels directly into the generating

equipment (like preparing and moving coal for entry into the

boiler), is part of the auxiliary load. Id.

Applying GEO East Mesa in the present case, the Commission concluded that Ormesa’s extraction and transportation

activities were not part of the auxiliary load. Edison urges here,

as it did before the Commission, that the Commission erred in

not overturning GEO East Mesa. However, the Commission has

adequately explained why it declined to do so, rejecting Edison’s contention that the brine should more properly be seen as

“working fluid” (which presumably would have brought all

extraction and transportation within the ambit of the auxiliary

load), rather than as the “fuel” (for which only “essential fuel

handling” functions are part of the auxiliary load). See Certification Order, 107 F.E.R.C. at 61,151. The Commission

determined the “brine itself is not the working fluid of the

facility”; rather, the “working fluid is isopentane.” Id. “The

brine heats the isopentane and the isopentane functions as the

facility’s working fluid, turning the turbines and generators.” Id.

In short, the Commission offered a reasonable explanation for

adhering to GEO East Mesa. Cf. Southwest Gas Corp. v. FERC,

145 F.3d 365, 370 (D.C. Cir. 1998) (“The Commission need not

revisit the reasoning of a general order every time it applies it to

a specific circumstance.”).

Edison’s argument that it would be more appropriate to

analogize to nuclear and steam power production rather than to

coal is unavailing. It is within agency discretion to reasonably

analogize to one set of facts rather than another. See New

Charleston Power I, L.P. v. FERC, 56 F.3d 1430, 1431, 1433
9

 Although Ormesa argued in its motion for rehearing before the

Commission that the Commission’s distinction between extraction and

reinjection was unsound, Ormesa has not sought our review of the

Commission’s conclusion that power for reinjection is part of the

auxiliary load.

14

(D.C. Cir. 1995) (concluding it was “well within bounds” for the

agency to conclude that “rain-soaked cow manure” fueling a

particular QF should be treated more like a “golf ball that

knocks out a high-voltage transformer” than a “volcanic

eruption in the Philippines”).

Having thus determined, per GEO East Mesa, that brine

extraction was not part of Ormesa’s auxiliary load, the Commission then explained its rationale for treating brine reinjection

differently:

Following the removal of heat from the brine (to heat the

isopentane), the brine is no longer fuel, but is effectively

spent fuel. It is undisputed that spent fuel must be disposed

of, and here is disposed of by reinjection[. W]e find that

given the type of QF and its configuration such disposal is

“necessary and integral” to this QF’s power production

process.

Certification Order, 107 F.E.R.C. at 61,151.9 While the Commission’s reasoning is perhaps less than robust, we are not persuaded that its distinction between extraction and reinjection is

so deficient as to warrant our intervention. In categorizing the

used brine as “spent fuel,” the Commission has reasonably

included reinjection in the category of “necessary and integral”

“essential fuel handling” activities. Id. Just as the Commission

finds moving the fuel (brine) directly into the generating

equipment to be necessary and integral, it is not irrational to

similarly conclude disposing of the spent fuel (used

brine)—moving it out of the generating equipment—is also

necessary and integral. The spent fuel, after all, must go

somewhere in order to allow more fuel to be brought in; as the
15

Commission noted, the spent fuel “must be disposed of, and here

is disposed of by reinjection.” Id. Although it might also be

reasonable to conclude, as Edison urges, that reinjection is more

closely aligned with the activity of extraction, this is a matter

left to agency discretion. In sum, the Commission acted neither

arbitrarily nor capriciously in adhering to GEO East Mesa in

assessing brine extraction while treating brine reinjection

differently.

IV

For the foregoing reasons, Edison’s petition for review is

Denied.