Opinion ID: 6219165
Heading Depth: 3
Heading Rank: 1

Heading: Relevant Statutory and Regulatory Frameworks

Text: {5} This case arises under the Public Utility Regulatory Policies Act of 1978 (PURPA), Pub. L. No. 95-617, 92 Stat. 3117 (codified as amended at 16 U.S.C. §§ 2601-2645). PURPA was designed “to encourage the development of cogeneration and small power production facilities” in order to diversify the nation’s energy sources and thereby “reduce the demand for traditional fossil fuels.” Fed. Energy Regul. Comm’n v. Mississippi, 456 U.S. 742, 750-51 (1982). “Cogeneration facilities capture otherwise-wasted heat and turn it into thermal energy; small power- 2 production facilities produce energy (fewer than 80 megawatts) primarily by using ‘biomass, waste, renewable resources, geothermal resources, or any combination thereof.’” Portland Gen. Elec. Co. v. Fed. Energy Regul. Comm’n, 854 F.3d 692, 695 (D.C. Cir. 2017) (quoting 16 U.S.C. § 796(17)). PURPA designates both cogeneration and small power facilities as “‘qualifying facilities,’” and “[S]ection 210(a) of PURPA direct[s] the Federal Energy Regulatory Commission (‘FERC’) to promulgate rules mandating that electric utilities purchase energy from [qualifying facilities].” Allco Renewable Energy, Ltd. v. Mass. Elec. Co., 875 F.3d 64, 67 (1st Cir. 2017). Those FERC regulations are codified at 18 C.F.R. §§ 292.101-292.602 (2018)1. Under 18 C.F.R. § 292.303(a), an electric utility is required to purchase “any energy and capacity which is made available from a qualifying facility.” We refer to this as the mandatory purchase obligation. {6} The mandatory purchase obligation is not absolute. Two exceptions are applicable in this case. First, an electric utility may transfer its mandatory purchase obligation to another electric utility which serves as the transferring utility’s full- or all-requirements supplier. See 18 C.F.R. § 292.303(d). However, for such a transfer to be effective, the qualifying facility must consent. See id. (requiring that the 1 Although the Code of Federal Regulations is updated annually, this opinion cites the version of the regulations in effect at the time of the order at issue. 3 “qualifying facility agrees”); Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of [PURPA], 45 Fed. Reg. 12,214, 12,235 (Feb. 25, 1980) (stating that such “an all-requirements” transfer is permissible “if the qualifying facility consents”). Second, an electric utility may apply to FERC for a waiver of the mandatory purchase requirement. See 18 C.F.R. § 292.402(a). However, the utility must provide public notice that it is seeking the waiver. Id. {7} On the state level, the Commission has promulgated and adopted a counterpart transfer regulation giving a “distribution cooperative having a full power requirements contract with its supplier . . . the option of transferring the purchase obligation . . . to its power supplier.” 17.9.570.13(F)(1) NMAC (Rule 570). Unlike the FERC transfer provision set out in 18 C.F.R. § 292.303(d), the Commission’s rule does not by its terms require a qualifying facility’s consent to transfer the purchase obligation. See Rule 570. {8} PURPA requires the rate at which the utility purchases a qualifying facility’s power to “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). PURPA defines the term 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, 4 such utility would generate or purchase from another source.” Section 824a-3(d). In adopting its rules to implement PURPA, FERC substituted the term “avoided costs” for the term “incremental cost” that Congress chose. See Sierra Club v. Pub. Serv. Comm’n of W. Va., 827 S.E.2d 224, 228 (W. Va. 2019) (internal quotation marks omitted) (recognizing that costs “incremental” and “avoided” are synonymous (internal quotation marks omitted)). Stated simply, a utility’s avoided cost “is the cost [the] utility would otherwise incur in obtaining the same quantity of electricity from a different source.” In re Investigation to Review the Avoided Costs That Serve as Prices for the Standard-Offer Program in 2020, 2021 VT 28, ¶ 5, 254 A.3d 178. B. Factual Background and Commission Proceedings {9} Intervenor-Appellee Western Farmers Electric Cooperative, Inc. (Western Farmers Electric) “is a cooperative association engaged in the wholesale generation[,] . . . transmission[,] and distribution of electric power to its member rural electric cooperatives[,] which then provide retail electric service to the public.” Intervenor-Appellee Lea County Electric Cooperative, Inc. (Lea County Electric) “is a rural electric cooperative organized pursuant to the New Mexico Rural Electric Cooperative Act,” NMSA 1978, §§ 62-15-1 to -37 (1939, as amended through 2021), which provides energy to retail customers in Southeastern New Mexico and West Texas. Lea County Electric does not have electrical generation sources of its own 5 and must obtain its electrical power and energy from another source, such as Western Farmers Electric. {10} The case commenced with Resolute Wind filing a petition for declaratory order and a supporting brief with the Commission. The petition was supported by an affidavit attesting to the facts alleged. Resolute Wind contended it is a “qualifying facility” under PURPA and asked the Commission to enter its order, “after notice and hearing,” (1) declaring that Lea County Electric is obligated under PURPA to purchase the energy and capacity that Resolute Wind produces and (2) determining the proper avoided costs Lea County Electric is required to pay Resolute Wind for its energy and capacity. {11} Resolute Wind alleged that it purchased “a two megawatt (2MW) wind turbine located in Gaines County, Texas, within 400 feet of the border with Lea County,” New Mexico, which has been certified as a “qualifying facility” by FERC. Resolute Wind contended that Lea County Electric is obligated under PURPA to purchase the energy and capacity that Resolute Wind produces, asserting that the wind turbine is within Lea County Electric’s service territory and is interconnected to Lea County Electric’s service system. {12} The dispute arose, according to the petition, when Resolute Wind asked Lea County Electric to fulfill the mandatory PURPA purchase obligation and Lea County 6 Electric asserted it had transferred its mandatory PURPA purchase obligation to Western Farmers Electric, one of Lea County Electric’s wholesale suppliers. Resolute Wind contended as follows: (1) Federal regulations allowed Lea County Electric to transfer its purchase obligation, but only with Resolute Wind’s consent, and Resolute Wind had not consented to any transfer. (2) FERC had not granted Lea County Electric a waiver of its purchase obligation. (3) While Rule 570 purports to allow a transfer of Lea County Electric’s purchase obligation if Lea County Electric had a “full-requirements contract” with a supplier, Lea County Electric did not have a “full-requirements contract” with Western Farmers Electric or any other supplier. (4) Even if Lea County Electric had a “‘full power requirements contract’” with a supplier, it could not transfer the purchase obligation pursuant to Rule 570 because Rule 570 conflicts with the federal requirements of 18 C.F.R. § 292.303, which gives the qualifying facility (Resolute Wind) the right to approve a transfer, while Rule 570 gives the option to the utility (Lea County Electric), and because federal law preempts Rule 570. (5) The parties disputed whether the avoided cost of either Lea County Electric or Western Farmers Electric applied and the method for calculating the avoided cost. {13} The Commission determined that it would process the Resolute Wind filing “as a complaint, subject to the formal complaint process set forth in [its] Rules of 7 Procedure 1.2.2.13 and 1.2.2.15 [NMAC]” and not as a petition for a declaratory order. {14} Lea County Electric and Western Farmers Electric (collectively, the Utilities) filed a joint answer. They contended the Commission should dismiss the complaint because “the [c]omplaint failed to provide probable cause for the Commission to pursue the [c]omplaint.” In support of this contention, the Utilities denied that Lea County Electric is obligated by PURPA to purchase the energy and capacity that Resolute Wind produces because, they asserted, the obligation was transferred to Lea County Electric’s “all-requirements provider” Western Farmers Electric. In response to Resolute Wind’s specific contentions, the Utilities (1) denied that Lea County Electric could not transfer its PURPA obligation without Resolute Wind’s consent, (2) agreed that FERC had not granted Lea County Electric a waiver of the purchase obligation, (3) affirmatively alleged that Lea County Electric has a fullrequirements contract with Western Farmers Electric, (4) denied that PURPA preempts Rule 570, and (5) agreed that the parties dispute whether the avoided cost 8 of either Lea County Electric or Western Farmers Electric applies and the method for calculating the avoided cost.2 {15} On its own initiative and without any input from the parties, the Commission ordered the Utilities to file “a sworn affidavit with supporting documents that testify to and prove” the answer’s assertions that Lea County Electric “has a ‘full requirements’ contract with Western Farmers Electric” and that “Resolute [Wind] is required to negotiate a [purchase power agreement] with [Western Farmers Electric].” Resolute Wind moved for rehearing, strongly objecting to the agency’s adoption of a procedure that allowed its opposing parties the opportunity, in effect, to augment their answer by submitting additional or stronger factual support “as dispositive” of the proceeding and asserting that “under the circumstances” and “at 2 As stated at the outset of this opinion, and as Resolute Wind candidly concedes, the federal compliance issue created by the absence of an express consent requirement from Rule 570 need not be resolved in this appeal. The issue takes on relevance if, and only if, it is ultimately determined on remand that a fullrequirements contractual supply relationship exists between the Utilities. It necessarily follows that the nuanced question as to whether this Court has jurisdiction to decide the federal compliance issue need not now be addressed either. Cf. In re Investigation to Review the Avoided Costs That Serve as Prices for the Standard-Offer Program in 2020, 2021 VT 28, ¶¶ 25-30, 254 A.3d 178 (discussing the distinct jurisdictional paths pertinent to “‘as-applied’ challenges to a state regulatory agency’s application of PURPA-compliant regulations to an individual petitioner”—a state court path—and pertinent to “a broad facial challenge to [state] regulations themselves” as PURPA noncompliant—a federal court path. 9 a minimum” it was “entitled to pursue discovery” on any new facts presented by the Utilities so as to avoid “hav[ing] the matter prejudged by the Commission.” {16} Consistent with the Commission’s order inviting the Utilities to “testify to and prove” their defense of the case on paper, the Utilities filed two affidavits—one submitted by an officer of Lea County Electric and the other submitted by an officer of Western Farmers Electric. The affidavits, each confined to two pages and in virtually identical form, attested to the status of Lea County Electric as a fullrequirements member of Western Farmers Electric. To support that contention, the affidavits relied heavily on various contractual agreements entered into by the Utilities—among the earliest documents being a Transition Agreement dated March 24, 2010 that called for the phased transition of Lea County Electric to fullrequirements status by May 31, 2026. With little elaboration, the affiants averred in lockstep that the Utilities by their actions accelerated the transition period well ahead of the stated May 2026 contractual deadline and that the status of Lea County Electric as a full-requirements member of Western Farmers Electric actually came to fruition no later than May 2014. {17} Following receipt of the affidavits of the Utilities and without soliciting a response from Resolute Wind, the Commission issued its final order, which dismissed the complaint with prejudice. The Commission’s summary disposition 10 was based on a finding that the affidavits and supporting documentation submitted at the Commission’s own request constituted substantial evidence that Lea County Electric is a full-requirements member of Western Farmers Electric and that the power purchase contract entered into by the Utilities on March 24, 2010, carried with it an existing and enforceable full-requirements obligation on the part of Lea County Electric to purchase all of its electric power from Western Farmers Electric. {18} In addition, in its final order, the Commission relied on a FERC ruling dating back to June 2006 that granted Western Farmers Electric and its then eighteenmember full-requirements electric distribution cooperatives a waiver of their respective obligations to sell electric power to and purchase electric power from qualifying facilities. Lea County Electric was, conspicuously, not included in this group of cooperatives. See Western Farmers Elec. Coop., 115 FERC ¶ 61,323, at 62,149 & n.1, 62,150 (2006) (order). {19} Thus, and despite the undeveloped nature of the factual record, the Commission determined that Western Farmers Electric owes the mandatory PURPA purchase obligation to Resolute Wind at the avoided cost of Western Farmers Electric and not at the avoided cost of Lea County Electric. The Commission concluded that the Resolute Wind complaint “lacks probable cause” and dismissed the complaint with prejudice. Resolute Wind appeals, and as explained next, we 11 annul and vacate the Commission’s final order and remand the case to the Commission for further proceedings.